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Author: 


Vance,  William  Reynolds 


Title: 

Handbook  of  the  law  of 
insurance 

St.  Paul,  Minn. 

Date: 

1904 


Q5  -^zAn-s 

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Handbook  of  the  law  of  insurance,  by  William  Eeynolds 
Vance  ...     St.  Paul,  Minn.,  West  publishing  co.,  1904. 

xiv,  683  p.    23^'^'".    iThe  hornbook  series.    28i 


1.  Insurance  law — ^U.  S. 

Library  of  Congress 
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Of  elementary  treatises  on  all  the  principal  subjects  of  the  law. 
The  special  features  of  these  books  are  as  follows: 

1.  A  succinct  statement  of  leading  principles  in  biaclc-letter  type. 

2.  A  more  extended  commentary,  elucidating  the  principles. 

3.  Notes  and  authorities. 

Published  in  regular  octavo  form,  and  sold  at  the  uniform  price  of 
93.75  per  Tolnme,  including  deliTery. 

lound  in  Standard  Law  Buckram. 


Barrows  on  Negligence. 

Black  on  Construction  and  Interpretation  of  Laws  (2d  Ed.). 
Black  on  Constitutional  lAw  (3d  Ed.). 
Black  on   Judicial  Precedents. 
Burdick  on  Real   Property. 
Chapin  on  Torts. 

Childs  on  Suretyship  and  Guaranty. 
Clark  on   Contracts  (3d   Ed.). 
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Clark  on  Criminal  Law  (3d  Ed.). 
Clark  on  Criminal  Procedure   (2d  Ed.). 
Cooley   on  Municipal  Corporations. 
Costigan  on  Amerlcaa  Mining  Law. 
Croswell  on  Executors  and  Administratonk 
Dobie  on  Bailments  and  Carriers. 
Eaton  on  Equity. 
Gardner  on  Wills    (2d   Ed.). 
Gllmore  on  Partnership. 
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Hopkins   on  Real  Property. 
Hughes  on   Admiralty. 

Hughes  on  Federal  Jurisdiction  and  Procedure  (2d  Ed.). 
Jaggard  on  Torts.     2  Vols. 
McKelvey  on  Evidence  (2d  Ed.). 
Norton  on  Bills  and  Notes   (4th  Ed.). 
Shipman  on  Common-Law  Pleading  (2d  Ed.). 
Shipman  on  Equity  Pleading. 
Smith's  Elementary  Law. 
^  Tiffany  on  Agency. 

Tiffany   on  Banks    and   Banking. 

Tiffany  on  Persons  and  Domestic  Relations  (2d  Ed.). 

Tiffany  on  Sales  (2d  Ed.). 

Vance  on  Insurance. 

Wilson  on  International  Law. 

In  preparation:    Handbooks  of  the  law  on  other  subjects  to  be  an- 
nounced later. 

Pnblisbed  and  for  sale  by 
WEST  PUBLISHING  CO.,  ST.  PAUL,  MINN. 

Note:    For  a  full  description  of  the  different  books  see  cata- 
logue at  the  end  of  this  volume. 


011617— b 


HANDBOOK 


OP  fSE 


'LAW  OF  INSURANCE 


By  WILLIAM  REYNOLDS  VANCE 

PROFESSOR   OF   LAW   IN   THE    GEORGE    WASHINGTON    UNIVERSITY 

WASHINGTON,  D.  C 


St.  Paul,  Minn. 

WEST  PUBLISHING  CO. 
1904 


I 


3 


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COFYBIGHT.  1904. 


WBOT  PUBUSHING  COMPAITT. 


To  A.  H.  y^ 

WHO  EBI^nBX 


I 


PREFACE. 


This  work,  elaborated  from  the  author's  lecture  notes  as  they  were 
experimentally  developed  through  several  years  spent  in  teaching  the 
law  of  insurance  in  Washington  and  Lee  University,  is  designed  pri- 
marily for  the  student,  although  it  is  hoped  that  it  may  be  found  useful 
to  the  practitioner  as  well,  and  possibly  contribute  something,  however 
little,  toward  the  needed  crystallization  of  this  branch  of  the  law  from 
its  present  amorphous  condition.  The  principal  object  of  the  treatise 
is  to  give  a  consistent  statement  of  logically  developed  principles  that 
underlie  all  contracts  of  insurance — erratic  doctrines  and  eccentric 
decisions  beiiig  relegated  to  the  foot-notes  so  far  as  fairness  would 
permit.  Subsidiary  chapters  are  added,  treating  of  the  rules  peculiar 
to  the  several  different  kinds  of  insurance,  special  attention  being  given 
to  the  construction  of  the  standard  fire  policy. 

Since  there  are  more  than  thirty  thousand  cases  involving  questions 
of  insurance  to  be  found  in  English-printed  reports,  the  citation  of 
cases,  upon  which  much  care  has  been  expended,  is  selective  rather 
than  exhaustive.  That  is,  the  cases  found  in  the  foot-notes  are  cited 
for  the  purpose  of  supporting,  illustrating,  or  supplementing  the  state- 
ments of  the  text,  and  not  with  any  ambition  to  supplant  the  digests. 
For  the  convenience  of  both  students  and  teachers,  those  leading  cases 
which  have  been  selected  by  the  compilers  of  the  various  case-books 
on  insurance  law  as  well  adapted  for  illustrative  purposes,  are  printed 
in  capitals.  Finally,  without  invidious  mention  of  names,  the  author 
desires  to  extend  in  this  manner  his  thanks  to  the  many  friends  to 
whose  counsel  and  aid  any  merit  that  may  be  possessed  by  this  book 
is  largely  due  y/  j^  y 

Wasbington,  D.  GL,  September  10,  1904. 

(vU)^ 


\ 


TABLE  OF  CONTENTS. 


GHAPTEB  L 

HISTORICAL  AND  INTRODUCTORY. 

■eetl«B  Page 

1-2.    The  Insurance  Contract  and  Its  Purpose •  1-2 

3-a    The  Historical  Origin  of  Insurance 2-9 

7-10.    The  Development  of  Insurance  in  England 9-13 

11-12.    The  Development  of  Insurance  in  the  United  States 13-23 

13.    The  Extension  of  the  Principles  of  Insurance  in  Modem 

Times 24-28 

14-15.    The  Forms  and  Kinds  of  Policies 28-33 

16-21.    Premiums  and  Reserve  Fund 83-41 


CHAPTER  IL 

THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 

22-28.    The  Nature  of  the  Insurance  Contract — In  General 42-46 

24.  An  Aleatory  but  Not  a  Wagering  Contract. 46-47 

25.  An  Executory  and  Conditional  Contract. 47-48 

26-27.  A  Personal  Contract  Uberrimae  Fidei 48-52 

28.  A  Contract  Essentially  of  Indemnity 52-55 

29.  The  Nature  of  the  Contract  of  Life  Insurance 56-58 

80.  The  Nature  of  Mutual  Benefit  Insurance 58-61 

81.  The  Contract  of  Reinsurance 61-68 

82.  When  the  Contract  is  Divisible 69-72 

83     Requisites  for  the  Validity  of  the  Contract 72-73 


CHAPTER  in 


PARTIES. 

84.  In  Cteneral 74-78 

85.  Who  May  be  Insurers 78-79 

36.    The  Several  Kinds  of  Corporate  Insurers 79-81 

87-38.    The  Rights  of  Foreign  Insurers 81-85 

89.    Contracts  Made  by  Insurers  not  Complying  with  Statutory 

Requirements 8&-88 

40.  Who  May  be  Insured 88-89 

41.  Infants  as  Parties  Insured ,  89-92 

42-4a    Aliens  as  Parties  Insured 92-96 

Insane  Persona  aa  Parties  Insured 86-97 

Tahgi  IHI.  (iz) 


46. 
47. 
48. 
49-52. 
53. 
54. 


sa 

57-59. 
60. 
61. 

62-63. 
64. 
6& 
6o> 
67. 


TABLE  OF  CONTENTS, 


CHAPTER  IV. 

INSURABLE  INTEREST.  ^ 

rage 

The  General  Theory  of  Insurable  Interest in^i^ 

Insurable  Interest  in  Property— What  Constitutes i9ili24 

Duration  of  Interest lO'v-l^ 

Inaurable  Interest  in  LiTes itTV^ 

Interest  of  Creditor  in  Life  of  Debtor iSli^ 

Interest  of  the  Assignee  of  a  Life  Policy ^arIa^ 

Consent  of  the  Life  Insured 14&-1«J 


CHAPTER  V. 

THE  MAKING  OF  THE  CONTRACT. 

In  General— Offer  and  Acceptance JHzJ^S 

The  Form  Required— Oral  Contracts ^tT^na 

When  an  Oral  Contract  Becomes  Complete irq 

Contracts  in  Writing. i«A_ifto 

Informal  Written  Contracts l^t^ 

Formal  Written  Contracts— The  Policy :^]TL 

When  the  Policy  Becomes  Binding i  «q"i^ 

Delivery 169-175 

Payment  of  First  Premium JI^'iS 

What  Papers  Form  the  Written  Contract I^qa 

Same— Mutual  Benefit  Insurance iw-i»4 


CHAPTER  VI. 

THE  CONSIDERATION— PREMIUMS  AND  ASSESSMENTS. 

70-71.    In  General— The  Nature  of  the  Obligation i  ^J^ 

72-73.    When  the  Premium  is  a  Debt 201I21I 

74^-75.    Payment  of  Premiums oh.oiq 

7a    Consequences  of  Nonpayment  of  Premiums 213-218 

77.     Forfeiture  218-222 

7&    Excuses  for  Nonpayment •••  to;^^^ 

79-«0.     Notice  of  Premiums  Due ooT.ooa 

81.  Paid-up  Policies  and  Extended  Insurance ooi.^ 

82.  Effect  of  Nonpayment  of  Premium  Notes  •.....• ^Zk 

8^-84.    Dues  and  Assessments  in  Mutual  Benefit  Societies olil^ 

85-8&    When  Premiums  may  be  Recoyered 441  ^« 


CHAPTER  VH. 

THE  CONSENT  OF  THE  PARTIES— CONCEALMENT. 


i 


Sectloa 
93-94. 
95. 
96. 

97. 


TABLB  OP  CONTENTS.  ^ 

Page 

When  Facts  Concealed  are  to  be  Deemed  Material 257-258 

When  Duty  to  Disclose  Terminates 259-261 

Disclosure    Rendered    Unnecessary    by    Special    Circum- 

stances 261-263 

Facts  Unknown  to  Insured,  but  Known  to  his  Agent 263-266 


CHAPTER  Vin. 

THE  CONSENT  OF  THE  PARTIES— REPRESENTATIONS  AND 

WARRANTIES. 

98-99.  The  Nature  and  Effect  of  Representations •  •  267-272 

100.  Representations  as  to  Opinion  and  Belief 272-274 

101.  Promissory  Representations o^^oH 

102-103.  Construction  of  Representations oIq 

104.  Warranties— In  General SS~oaX 

105.  Aflirmative  and  Promissory  Warranties 289-290 

106-107.    Warranties  Distinguished  from  Representations 291-297 


CHAPTER 


INSURANCE  AGENTS  AND  THEIR  POWERS. 

The  Doctrine  of  Agency  In  Insurance  Law 298-305 

Classes  of  Agents  and  Their  Powers 306-316 

Subagents — ^Their  Appointment  and  Powers 317-322 

Limitations  upon  the  Powers  of  Agents 322-342 


108. 
109-110. 
111-113. 
114-117. 


11&-120. 

121. 

122. 

123. 

124. 
125-126. 
127-128. 


CHAPTER  X. 

WAIVER  AND  ESTOPPEL. 

General  Principles 843-346 

Parol  Waivers 346-348 

Prior  Parol  Waivers 348-351 

Subsequent  Parol  Waivers 351-354 

Contemporaneous  Parol  Waivers 355-370 

What  Constitutes  a  Waiver 371-380 

What  may  be  Waived 881-385 


87-89.    General  Principles 

90-92.    What  must  be  Disclosed. 


250-251 
251-267 


CHAPTER  XL 

RIGHTS  UNDER  THE  POLICY. 

129.    In  General 886-S87 

130-131.    The  Beneficiary 387-389 

132-134.  Vested  Rights  of  the  Beneficiary • 890-398 


Zll 


136. 

laai 

137-138. 
139. 
140. 
141. 

142. 
143-145. 
146-147. 

148. 
149-15a 


TABLiB  OF  CONTENTS. 

Page 

C3witliig«it  Interest  Of  the  Beneflciarj ^^ 

Mere  Expectancy  of  Benefit. . . .....  •;••"••• 400-404 

Beneficiaries  in  Mutual  Benefit  Afo^i,^«^^« ' '  * '  * ^^ 

The  Rights  of  Creditors  of  the  Insured-Fire  Policies 404^ 

Life  Policy  Payable  to  Insured InCio 

Policy  Payable  to  a  Third  Person ^UT-^iu 

When  the  Creditor  Is  the  Assured 412I417 

The  Rights  of  the  Assignee 417-420 

Rights  of  the  Mortgagor  and  Mortgagee ^1 

Rights  of  Life  Tenant  and  Remainderman 422-428 

Subrogation  • • 


151-152. 

153. 

154. 
165-156. 

157. 
158-160. 

161. 

I6I:. 

163. 

164. 

165. 

16t. 


THE  STANDARD  FIRE  POLICY. 

429-432 
The  General  Rule  of  Construction aoo^^u 

The  Efllect  of  Temporary  Breach  of  Condition l^Jm 

The  Term  of  Insurance aoraoq 

The  Subject  of  Insurance-Description 439^ 

The  Subject  of  Insurance— Location 442-448 

The  Interest  of  the  Insured 44q_^».4 

Change  of  Interest,  Title,  or  Possession 454I456 

Fraud  and  False  Swearing •••  ^^^^^q 

Other  Insurance 460-461 

Operation  of  Factories 462-464 

Increase  of  Risk 4e4.-i65 

Making  Repairs »«r-xuu 


167. 

168. 

169. 

170. 

171. 

172. 
173-175. 
176-177. 

178. 

179. 

180. 

181. 

182. 

183. 
184r-189. 

19a 

1»L 


THE  STANDARD  FIRE  POLICY  (Continued). 

466-467 
Foreclosure  Proceedings [',,[[[         468 

Assignments  ||  ^qq 

Generation  of  Gas 4rq_471 

Explosive  and  Inflammable  Substances ^il474 

Vacant  or  Unoccupied  Buildings ,         ^^^ 

Collapse  of  Building 475-483 

Liability  of  the  Insurer 4R3-486 

Measure  of  Insurer's  Liability IsfillaT 

Appraisal  and  Arbitration •  l^_^ 

Option  to  Rebuild 4ftQ_4Q9 

As  Affected  by  Valued  Policy  Laws. IqolQo 

Documents  Made  Part  of  Contract  by  Reference 49j^»^ 

Authority  of  Agents— Waivers 494.495 

Cancellation  of  Policy 496-505 

Notice  and  Proofs  of  Loss 505-507 

Magistrate's  Certificate 507-510 

Limitation  upon  Actions 


|H| 


■MtiM 

192. 

193. 

194. 
195-196. 
197-199. 
200-201. 
202-204. 

20s. 


206. 

207-208. 
209. 
210. 
21L 

212-213. 

214-217. 
21a 
219. 
22a 
22L 
222. 

223-224. 

225-227. 
22a 
228. 


TABLB  OF  C0NTBNT8. 


TERMS  OF  THE  LIFE  POLICY. 

T«  n^«n«.i                                       811-512 

In  General _^„  --« 

Designation  of  Beneficiary 516 

Statement  of  Age kiokoa 

Suicide— When  not  Excepted  in  the  Policy ll^to 

Suicide— When  Excepted  in  the  Policy tZ^t^ 

Death  in  Violation  of  Law 527l5'>9 

Assignment Kon-SM 

Incontestable  Clause • '•  o**^'~*'*>*> 


CHAPTER  XV. 

MARINE  INSURANCE. 

K9A. 

Scope  Of  This  Chapter koa_^ 

Marine  Policies  and  Their  Construction ^oTto? 

Insurable  Interest— Lost  or  not  Lost IIT^ 

Property  Covered  by  the  Insurance Sr^tlo 

Commencement  and  Duration  of  Risk STlTtTl 

What  Risks  are  Assumed— Proximate  Causes  of  Loss ^^t! 

Implied  Exceptions ^to^^i 

Perils  of  the  Sea ooO-odi 

Barratry ^^~Sa 

Thefts  Kr;Q_^ 

Captures,  Arrests,  Restraints 553-555 

Jettison   •• 

Particular  and  General  Average  Losses ^'^'SI 

The  Insurer's  Liability— Total  Loss 557-560 

Abandonment  5^1 

Sue  and  Labor  Clause 5b J-ow 


CHAPTER  XVL 

ACCIDENT  INSURANCE. 

230.  In  General 564-565 

231.  Accident  Policies  and  Their  Construction 565-566 

232.  Accidental    Injuries— External,    Violent,    and    Accidental 

Causes 566-569 

283.    Disease  Induced  by  Accident— Proximate  Cause 570-571 

234.  External  and  Visible  Signs  of  Injury Vn^^t 

235.  Risks  of  Travel kIkIkta 

236.  Excepted  Risk&— In  General ?Ic^Iq 

237.  Poison,  or  Contact  with  Poisonous  Substances 576-578 

238.  Inhaling  Gas 578-580 

239.  Bodily  Infirmities  or  Disease 5f?lSi 

240.  Voluntary  and  Unnecessary  Exposure  to  Injury ^09"^ 

24L  Intentional  Injury  by  Another 582-683 


XIV 


TABLE  OF  CONTENTS. 


242.  Occupation  and  Employinent ^^f"^ 

243.  Injuries  Received  Wliile  Intoxicated ^^ 

244.  Liability  of  the  Insurer— Total  Disability roT^ 

24&    Rifilit  to  an  Autopsy 688-o»» 


GUARANTY.  CREDIT,  AND  LIABILITY  INSURANCE 

24«.  In  General ^90-594 

247-248.  Fidelity  and  Guaranty  Insurance ^^ 

249-250.  Liability  of  the  Guaranty  Insurer ^ilSu 

251.  Credit  Insurance 22l«n« 

252-253.  Employers'  Liability  Insurance -... SvTSaq 

2M.  BlghtB  of  the  Injured  Person  in  the  Insurance  Fund.  .••••••  OU»-ow 


(Page  6114 


I 


i 


^ 


HANDBOOK 


OF  THE 


LAW  OF  INSURANCE. 


1-2. 

3-6. 

7-10. 

11-12. 

13. 

14-15. 

16-21. 


CHAPTER  I. 

HISTORICAL  AND  INTRODUCTORY. 

The  Insurance  Contract  and  Its  Purpose. 

The  Historical  Origin  of  Insurance. 

The  Development  of  Insurance  In  England. 

The  Development  of  Insurance  in  the  United  States. 

The  Extension  of  the  Principles  of  Insurance  in  Modern  Timea 

The  Forms  and  Kinds  of  Policies. 

Premiums  and  Reserve  Fund. 


THE  INSURANCE  CONTRACT  AND  ITS  PURPOSE.        , 

1.  Insurance  is  a  conditional  contract,  whereby  on«  party  xmdertakes 

to  indemnify  another  against  loss,  damage,  or  liability  arising 
from  some  specified  bnt  contingent  event. 

2.  The  purpose  of  the  contract  of  insurance  is  to  distribute  among  aU 

exposed  to  a  common  peril  loss  that,  by  reason  of  misfortune, 
falls  upon  som.e  of  them*  * 

The  contract  of  insurance  *  is  to  be  governed  by  the  same  rules 
that  apply  to  ordinary  contracts.  While  there  are  many  peculiar 
features  that  characterize  the  contract  of  insurance,  it  is  yet  incor- 
rect to  regard  it  as  a  contract  sui  generis,  as  seems  to  be  the  tend- 
ency of  some  of  the  courts.*    The  law  of  insurance,  considered  as  a 

iThe  following  definition  of  "Insurance,"  as  given  in  Bouv.  Law  Diet 
(Rawle's  Revision),  is  adopted  in  State  v.  Pittsburg,  O.,  C.  &  St.  L.  R.  Co .  68 
Ohio  St.  9,  67  N.  E.  93,  96  Am.  St.  Rep.  635:  "A  contract  whereby,  for  an 
agreed  premium,  one  party  undertakes  to  compensate  the  other  for  loss  on 
a  specified  subject  by  specified  perils." 

«  A  distinguished  specialist  in  insurance  law  recently  said,  in  an  address 
before  the  American  Bar  Association:    *The  contract  of  insurance  is  the 
Yahob  Ins.— 1 


HISTORICAL   AND   INTRODUCTORY. 


(Ch.l 


separate  branch  of  jurispnidence,  is  largely  made  up  of  the  rules 
determining  the  proper  application  of  the  principles  of  general  con- 
tract law  to  the  peculiar  conditions  under  which  insurance  contracts 
are  usually  executed.  A  thorough  understanding  of  these  pecuhar 
conditions  is  therefore  indispensable  to  the  student  of  msurance  law, 
and  that  can  be  obtained  only  by  a  consideration  of  their  historical 

development. 

It  is  to  be  observed  in  the  outstart  that  the  primary  purpose  of 
everv  contract  of  insurance  is  indemnity  against  some  specified  loss 
that 'is  uncertain,  either  in  the  happening  or  in  the  time  when  it  may 
occur.  The  peril  insured  against  must  naturally  be  one  to  which  a 
considerable  number  are  equally  exposed,  and  yet  one  which  will  not 
be  of  such  frequent  occurrence  as  to  make  exposure  to  it  wholly 
fatal  to  the  business  to  which  it  is  incident.  The  contract  contem- 
plates distributing  the  loss  which,  falling  upon  one,  would  result  in 
his  entire  ruin,  among  all  those  who  are  exposed,  equally  with  the 
unfortunate  one,  to  the  same  perils.  Such  an  arrangement  for  the 
distribution  of  loss  enables  a  person  to  calculate  with  safety  the  de- 
gree of  the  risk  incurred,  and  make  adequate  provision  for  the  pos- 
sible loss,  and  thus  carry  on  successfully  and  safely  kinds  of  business, 
or  do  acts,  that  might  otherwise  bring  misfortune  upon  his  affairs 
and  distress  to  those  dependent  upon  him.* 

THE  HISTORICAI.  ORIGIN  OP  INSURANCE. 

3.  The  origin  of  tlie  practice  of  insurance  is  to  be  f  onnd  in  tlie  mntnal 

agreements  made  between  merchants,  engaged  in  common  ship- 
ping adventnres,  for  distributing  among  the  mntnal  contractors 
the  loss  falling  npon  any  one  by  reason  of  perils  of  navigation. 
It  is  thus  apparent  that  in  its  early  forms  insnrance  was  de- 
rived from  the  maritime  law,  and  as  snob  was  a  part  of  the 
'general  law  merchant,  and  international  in  its  character. 

4.  The  principle  of  insnrance  was  probably  nnknown  to  the  ancient 

commercial  nations,  and  no  reference  to  the  insnrance  contract 
is  to  be  f  onnd  in  the  books  of  the  civil  law. 

5.  The  invention  of  the  practice  of  insnrance  is  to  be  attribnted  to  the 

merchants  of  the  ItaUan  cities  in  the  early  Middle  Ages.  From 
Italy  the  practice  of  insuring  commercial  ventures  against  dis- 
aster rapidly  extended  to  the  other  maritime  states  of  Europe. 

6.  The  I«ombard  merchants  who  came  to  London  in   the  thirteenth 

century  brought  with  them  the  custom  of  insuring  against 
hasards  of  trade.     All  questions  of  insurance,  however,  were 

plaything  of  the  legislatures  and  the  football  of  the  courts.'*    See  Reports 
Am.  Bar  Ass'n,  vol.  20,  p.  496;  4  Va.  Law  Reg.  499.  «        * 

8  For  an  excellent  statement  of  the  benefits  flowing  from  the  practice  of 
Insurance,  and  its  influence  in  advancing  commerce,  see  1  Duer,  Ins.  p.  54. 


r 


'! 


I. 


§§  3-6) 


THE   HISTORICAL  ORIGIN  OF  INSURANCE. 


8 


determiac'J  !n  accordance  xrith  the  cnstoms  of  merelir.iits,  and 
by  merehaat  courts.  It  was  not  until  the  middle  of  the  eigh- 
teenth century  that  the  common-law  courts  began  to  take  ade- 
quate cognizance  of  insurance  causes. 

Insurance  among  the  Ancients. 

It  seems  remarkable  that  the  merchants  who  were  engaged  in  the 
extensive  commerce  that  in  ancient  times  was  carried  on  upon  the  Med- 
iterranean Sea  between  the  Phoenician  and  the  Levantine  cities,  and 
between  the  several  ports  of  the  Roman  Empire,  should  not  have 
invented  so  simple  a  method  of  providing  against  the  hazards  that 
must  have  attended  commercial  enterprise  at  that  time  as  the  con- 
tract of  insurance.  Indeed,  some  means  of  mutual  assistance  against 
the  misfortunes  to  which  every  merchant  engaged  in  commerce  by  sea 
is  exposed  would  seem  to  have  been  imperatively  necessary  for  the  con- 
duct of  such  extended  commerce  as  is  known  to  have  existed  dur- 
ing the  period  of  the  Roman  emperors.  But,  with  the  exception  of 
references  to  bottomry  and  respondentia  bonds,  there  are  to  be 
found  in  the  Roman  treatises  no  traces  *  of  the  contract  of  insurance. 
If  the  practice  of  insurance  was  known  to  the  ancient  Romans  and 
Phoenicians,  the  extensive  use  to  which  it  would  probably  have  been 
put  should  have  induced  some  treatment  of  the  rules  of  law  respect- 
ing it  in  the  civil-law  treatises,  but  none  are  found.  It  is  reasonable 
to  presume,  therefore,  that  insurance  was  unknown  either  to  the 
Romans  or  the  Phoenicians. 

The  Barliest  Traces  of  Insurance. 

The  earliest  indications  we  find  of  any  transactions  between  mer- 
chants similar  to  insurance  are  to  be  found  in  the  laws  of  the  ancient 
Rhodians.*  In  this  collection  of  maritime  regulations  there  are  pro- 
visions for  contribution  and  general  average  in  case  of  loss  by  a 
shipowner,  requiring  that  all  of  those  having  an  interest  in  a  common 
venture,  and  subject  to  a  common  peril,  shall  make  contribution  to 
that  one  whose  interest  had  been  sacrificed  to  protect  or  save  from 
loss  the  whole  venture.  Out  of  this  practice,  apparently  inaugurated 
by  these   Rhodian  merchants,  there  was   gradually  developed  the 

♦  Occasional  doubtful  referenceg  found  in  the  writings  of  Cicero    livy 
Suetonius,  and  other  Latin  authors  have  led  some  authorities  to  conclude 
that  Insurance  was  known  and  practiced  among  the  Romans.    See  Emerigon 
c.  1,  §  1;   1  Duer,  Ins.  pp.  7,  &    But  the  better  opinion  gives  other  meanings 
to  these  passages. 

»  These  laws  consisted  of  a  compilation  of  maritime  rules  and  orders  pro- 
mulgated by  Rhodes  when  that  island  was  the  foremost  commercial  state 
of  the  world.  They  were  said  to  be  wise  and  Just,  and  were  adopted  by 
Augustus  and  subsequent  Roman  emperors  as  a  part  of  the  Roman  law  bo 
far  as  not  repugnant  to  any  of  iti  positive  ruleg.  Cicero,  Pro  Lege  Manilla. 
See  1  Duer,  Ins.  24.  -•  »         "**«. 


^JM;- 


HISTORICAL  AND   INTRODUCTORY. 


(Ch.l 


w 


law  of  marine  insurance,  which  is  thus  seen  to  be  the  earlies^^^^^^^^ 

as  for  a  long  time  it  was  the  most  important,  branch  of  msurance 

business* 

Insurance  as  Practiced  by  the  Italian  Cities  during  the  Middle  Ages 

The  first  satisfactory  evidence  that  we  have  of  any  extensive  use 
of  the  contract  of  insurance  is  to  be  found  in  the  history  and  reoD  ds 
of  the  medieval  maritime  states  of  Italy.    From  the  twelfth  to  the 
sbcieenth  centuries  the  Italian  republics  of  Venice.  Flo^enc^.  and 
Genoa  flourished  greatly  by  reason  of  their  extensive  niantinie  com- 
merce, and  it  was  among  these  Italian  merchants  *!«**«;  f°«tj^^ 
of  insurance  first  received  that  attention  which  the  mamfest  benefi  s 
to  be  derived  from  its  use  would  justify.*    Insurances  were  certainly 
effected  as  early  as  the  begimiing  of  the  thirteenth  cenUiry,  and 
probably  in  the  tenth  century.    From  Italy  the  custoni  of  making 
mutual  contracts  of  insurance  spread  rapidly  over  the  whole  of  com- 
mercial Europe,  and  early  came  to  be  P-'^.'^'^^extensive^  by  the 
merchants  in  the  towns  forming  the  Hanseatic  ^^^S?*;.    ^".f '^^  ^^ 
1310  there  was  a  chamber  of  assurance  m  Bruges,  and  there  is  record 
of  a  statutory  form  of  policy  in  Florence  as  early  as  1520      In  fact, 
the  word  "policy"  is  a  monument  to  the  Italian  ongm  of  msurance. 
it  being  derived  from  the  ItaUan  word  "polizia.'  • 

Part  of  the  General  Law  Merchant.  »    •  , 

It  h  thus  seen  that  during  the  fourteenth  and  fifteenth  centuries 
the  practice  among  merchants  of  making  insurance  contracts  had 
become  general  throughout  all  the  maritime  states  of  Europe.    The 
contracts  seem  to  have  been  confined  to  those  merchants  engaged 
in  the  riore  extensive  international  commerce,  and  this  fact  rendered 
necessary  uniformity  in  the  regulations  of  insurance  as  Practiced  in 
"hese  different  countries.    Thus  there  was  impressed  upon    hese  n- 
surance  regulations,  just  as  well  as  upon  other  commercial  rules 
SowTng  ouf  of  the  custom  of  merchants,  a  certain  international  char- 
fZL  the  whole  body  of  rules  intended  to  govern Jhf  V°™; 
mere  al  transactions  became  known  as  the  "law  merchant       These 
rules  bore  a  peculiar  relation  to  the  respective  systems  of  law  ex- 
Uting  Tthe  several  countries  in  which  the  law  merchant,  by  vir- 

.so  stated  ^>r  Pardes-     See  apjnio.  of  Bra«e,   J    ^/Xln"S 

■^TseTL^baid:  "nTp.  t  wh^JeT.s'^.^^erestin,  document  i.  set  forth  .. 
t„U^^  w"l'.I^  conteilns  an  excellent  outline  of  the  early  history  and 

"'iTr^pletsThrvt  been  derived  from  the  Low  Latin  "P^oUtlcn-  ••  . 
coJi^pffom  ^"polyptlcum,"  derived  from  a  Greek  word  m.anin«  .  folded 
wrltlog.    Skeaf •  Etymological  Diet 


1' 


S-6) 


THE  mSTOEIOAL  OEIGIN  OF  INSUKANOB. 


tue  of  the  customs  of  merchants,  prevailed.     Durmg  the  Middle 
Ages  these  merchants  engaged  in  international  commerce    being 
much  more  enlightened  than  most  of  their  countrymen,  and  better 
capable  of  governing  their  own  trade,  were  naturally  unwilling  to 
leave  the  determining  of  their  rights  with  respect  to  such  trade  to 
the  crude  forms  of  law  and  the  rude  courts  that  administered  the 
local  laws  of  Continental  Europe.    From  this  fact  arose  the  custom 
among  these  merchants  of  leaving  all  questions  ansing  under  the 
law  merchant  to  be  settled  by  conventional  courts  established  by 
themselves,  and  having  only  such  powers  as  were  derived  fro™  *« 
consent  of  the  parties  appearing  before  them.     Nevertheless,  these 
infonnal  tribunals  of  merchants,  who  were,  in  effect,  but  committees 
of  arbitration,  and  who  had  no  means  of  enforcmg  any  order  that 
might  be  entered,  were  by  the  mere  force  of  custom  enabled  to  set- 
tle satisfactorily  all  causes  arising  out  of  the  law  merchant  durmg 
those  centuries.    And  it  was  not  until  the  increasing  refinement  and 
better  education  of  the  people  generally  had  brought  the  law  courts 
to  a  higher  state  of  efficiency  that  these  informal  mercantile  courts 

were  superseded.  .       .j  .    t 

The  law  merchant,  of  which  insurance  law  is  a  part,  is  said  to  be  a 
part  of  international  law,  but  it  is  international  only  in  the  sense  that 
the  principles  applicable  are  those  that  are  recognized  m  all  civilized 
nations.    The  positive  niles  of  law  themselves  are  but  part  of  the 
municipal  law  in  the  several  countries  in  which  they  are  enforced, 
and  do  not  in  any  wise  affect  international  relations;    tiiat  is,  the  law 
merchant  is  a  portion  of  the  jus  gentium,  but  not  of  the  jus  inter 
rentes.     On  account  of  its  international  character  as  thus  under- 
stood, the  sources  from  which  the  rules  and  customs  are  to  be  de- 
rived are  found  in  the  various  compilations  of  commercial  rules  and 
regulations  promulgated  by  the  several  maritime  nations  of  Europe, 
and  in  the  treatises  by  lawyers  and  merchants  in  the  nature  of 
commentaries  on  these  customs  and  regulations.     While  any  one  body 
of  commercial  laws  was,  of  course,  binding  only  upon  the  courts  sit- 
ting in  the  country  by  which  these  laws  were  enacted,  yet  the  sim- 
ilarity of  such  regulations  throughout  Europe  caused  all  of  these 
various  compilations  to  be  treated  as  persuasive  authority  m  deter 
mining  the  rule  of  decision  to  be  applied  to  any  cause  that  might 
arise,  in  whatever  jurisdiction.  .  .  »     » 

It  will  be  well  to  mention  a  few  of  the  most  famous  and  unportant 
of  these  compilations  of  commercial  laws  and  usages.  The  Con- 
solato  del  Mare  is  the  Italian  name  for  a  Spanish  compilation  first 
published  at  Barcelona  about  the  middle  of  the  thirteenth  century. 
This  body  of  rules  had  great  vogue  in  all  of  the  commercial  countries 
of  Europe,  and  has  powerfully  influenced  the  subsequent  develop- 
ment of  maritime  and  general  commercial  law  in  aU  of  the  Conti- 


I 


KSTOBICAL   AND   INTBODUCTOBT. 


(Ch.l 


§§3-6) 


THE  HISTOBICAL  ORIGIN  OF  INSUBANCB. 


(I 


II 


nental  countries.  It  contains,  however,  no  distinct  reference  to  in- 
surance law.  The  Laws  of  Oleron,  a  small  island  off  the  northwest- 
em  coast  of  France,  were  first  pubHshed  about  the  year  1266,  and 
although  rather  crude,  and  sometimes  harsh,  they  yet  achieved  great 
reputation  among  merchants,  and  were  regarded  as  of  great  weight 
throughout  Europe  on  all  questions  involving  the  law  merchant. 
The  Laws  of  Wisbuy,  a  flourishing  commercial  town  of  Southern 
Sweden,  were  published  at  the  end  of  the  thirteenth  century,  and, 
on  account  of  the  extensive  commerce  carried  on  by  merchants  of 
Wisbuy,  were  frequently  relied  upon  for  determining  maritime 
rights.  In  addition  to  these  older  sets  of  laws,  all  of  the  Hanse 
Towns  established  mercantile  codes,  governing  mercantile  transac- 
tions in  their  respective  jurisdictions,  which  were  often  cited  in 
courts  in  other  parts  of  Europe.  Probably  the  most  skillfully  com- 
piled and  adequate  collection  of  mercantile  regulations  was  the 
famous  Marine  Ordinances  of  Louis  XIV,  published  in  1681.  The 
excellence  of  these  laws  is  probably  due  not  only  to  the  sagacity  of 
the  great  French  monarch,  Louis  XIV,  but  also  to  a  clear  insight 
into  the  commercial  needs  of  the  day  possessed  by  his  illustrious 
minister,  Colbert  The  influence  of  these  Ordinances  of  Louis  XIV 
extended  throughout  Europe,  and  even  to  the  British  Islands,  and 
afforded  the  principal  source  from  which  Napoleon  compiled  the 
famous  "Code  de  Commerce"  of  a  later  date,  which  is  now  the  most 
important  and  extensive  repository  of  modern  commercial  law  on 
the  Continent  of  Europe.  In  addition  to  these  collections  of  laws, 
several  earlier  treatises  obtained  great  authority  in  commercial  coun- 
tries, and  greatly  aided  in  the  proper  development  of  the  law  mer- 
chant. Among  these,  probably  the  earliest  of  importance  is  the 
Guidon  de  la  Mer,  pubHshed  by  Cleirac,  a  distinguished  lawyer  of 
Rouen,  in  1671.  In  later  times,  a  distinguished  trio  of  French 
writers,  Emerigon,  Valin,  and  Pothier,  contributed  valuable  works 
upon  the  various  subjects  of  mercantile  law.  These  writers  are  re- 
garded as  of  great  authority  on  all  questions  treated  in  their  works, 
not  only  on  the  Continent,  but  in  England  and  the  United  States  as 
well.* 

The  Introduction  of  Insurance  into  England, 

Although  it  is  now  seen  that  the  law  of  insurance  is  but  a  part  of 
the  general  law  merchant,  it  has  yet  become  a  part  of  the  common 
law.    As  said  by  Bradley,  J.,  in  New  England  Marine  Ins.  Company 

•  For  an  appreciatiye  account  of  these  works  and  writers,  see  3  Kent, 
Comm.  348.  That  they  are  still  regarded  as  authorities  in  general  maritime 
law,  see  "The  Osceola,"  189  U.  S.  158,  23  Sup.  Ct  433,  47  L.  Ed.  760,  where 
the  Supreme  Court  cites  the  Marine  Ordinances  of  Louis  XIV,  the  Laws  of 
Oleron,  of  Wisbuy,  and  of  the  Hanse  Towns.  See  Appendix  to  30  Fed.  Gas., 
where  these  ancient  laws  are  reprinted  in  part. 


V.  Dunham,* •  "the  contract  of  insurance  is  an  exotic  in  the  common 
law."  It  will  therefore  be  of  interest  to  trace  briefly  the  early  de- 
velopment of  insurance  law  in  England,  and  to  note  the  causes  re- 
sulting in  its  adoption  into  the  common  law.  It  seems  well  estab- 
lished that  the  Italian  merchants  coming  from  the  flourishing  com- 
mercial centers  in  Northern  Italy,  and  generally  known  as  Lom- 
bards, founded  trading  houses  in  London  in  the  twelfth  century; 
and  it  is  manifest  that  they  introduced  into  their  English  trade  the 
custom  of  insuring  their  adventures,  which  had  proved  so  beneficial 
to  the  growth  of  commerce  in  their  native  Italian  citfes.  Lombard 
street  in  London  is  now  a  monument  to  these  earlier  Italian  mer- 
cantile adventurers,  and  marks  the  locality  in  which  their  trading 
houses  were  located.  These  Lombards  brought  with  them  to  Lon- 
don not  only  their  Italian  custom  of  insuring  against  hazards  of 
trade,  but  they  also  brought  with  them  their  merchant  courts,  or, 
rather,  the  custom  of  submitting  all  contests  involving  mercantile 
rights  to  courts  of  merchants,  established  by  themselves,  and  having 
no  relation  to  or  sanction  under  the  common  law  of  England.  These 
merchant  courts,  which  had  their  analogues  in  the  well-known  pie- 
powder courts  of  the  early  English  fair  towns,  seem  to  have  been  amply 
adequate  to  dispose  of  any  Htigation  that  arose  among  merchants 
during  several  centuries,  and  the  preamble  to  43  Eliz.  c  12,  the  first 
statute  passed  by  the  English  Parliament  that  recognizes  the  prac- 
tice of  insurance,  contains  a  striking  tribute  to  the  honesty  and  fair- 
ness which  had  characterized  the  dealings  of  merchants  with  refer- 
ence to  all  contracts  of  assurance.  This  fact  explains  the  absence 
of  insurance  cases  in  the  earHest  English  reports,  but  there  is  abun- 
dant evidence  that  the  business  of  insurance  among  English  mer- 
chants was  well  established  long  before  the  date  of  this  statute,  and  had 
attained  considerable  volume.**  Thus,  at  the  opening  of  Elizabeth's 
first  Parliament,  in  1558,  her  Chancellor,  Lord  Bacon,  said,  "Doth  not 
the  wise  merchant  in  every  adventure  of  danger  give  part  to  have  the 
rest  assured  ?" 

The  first  reported  appearance  of  any  question  involving  insurance  in 
the  common  law  of  England  occurred  in  the  thirty-eighth  year  of  the 
reign  of  Henry  VIII  (1546),  in  the  case  of  Crane  v.  Bell,*'  in  which 
a  common-law  court  issued  a  writ  of  prohibition,  forbidding  a  court 

10  11  Wall.  (U.  S.)  1,  20  L.  Ed.  90. 

"In  the  preamble  to  the  Statute  of  43  Ellz.  c.  12,  it  Is  said:  "And,  where- 
as, it  hathe  bene,  tyme  out  of  mynde,  an  usage  among  the  merchants,  both 
of  this  realme  and  of  forraine  nacyons,  when  they  make  any  great  adven- 
tiu*e  (especiallie  in  remote  parts)  to  give  some  Consideracion  of  money  to 
ocher  persons  (which  commonlie  are  in  no  small  number),  to  have  from  them 
assurance,"  etc. 

12  4  Coke's  Inst  138. 


8 


HISTORICAL   AND    INTRODUCTORY. 


{Ch.l 


of  admiralty  to  take  jurisdiction  of  an  insuiance  case.  The  juris- 
diction of  causes  involving  the  law  of  insurance  would  more  prop- 
erly have  fallen  to  the  courts  of  admiralty,  which  had  cognizance  of 
such  causes  throughout  Europe,"  and  which  have  always  been  more 
international  in  their  character  than  any  other  courts  of  England. 
The  jurisdiction  of  admiralty  courts  in  such  matters  is  recognized 
in  the  United  States,"  but  the  jealousy  which  characterized  the  com- 
mon-law courts  in  maintaining  and  extending  their  jurisdiction  re- 
sulted in  the  early  withdrawal  of  such  causes  from  the  English  courts 
of  admiralty,  and  their  transfer  to  the  common-law  courts,  as  was 
indicated  in  the  case  of  Crane  v.  Bell,  mentioned  above.  The  pro- 
cedure in  the  common-law  courts,  however,  and  the  rigid  principles 
of  common-law  jurisprudence,  were  alike  ill  suited  for  settling  the 
disputes  of  merchants  in  regard  to  insurance  in  either  an  expeditious 
or  a  satisfactory  way,  and  the  result  of  prohibition  of  jurisdiction  to 
the  admiralty  courts  was  to  continue  the  practice  of  submitting  such 
mercantile  questions  to  the  arbitration  of  merchant  courts.  With 
the  growth,  however,  of  the  volume  and  importance  of  insurance 
business,  it  began  to  be  recognized  that  some  more  formal  court, 
with  power  to  enforce  its  judgments,  was  necessary  for  the  proper 
administration  of  the  law  merchant.  With  this  in  view,  there  was 
created  by  the  statute  of  43  Eliz.  (1601)  a  special  court  for  the  trial 
of  marine  insurance  cases.  This  court  was  composed  of  the  judge 
of  the  admiralty,  the  recorder  of  London,  two  doctors  of  the  civil 
law,  two  lawyers,  and  eight  grave  and  discreet  merchants.  This 
special  court,  however,  must  not  have  proved  itself  very  efficient, 
for  it  seems  to  have  passed  out  of  existence  within  less  than  100 
years.  It  is  possible,  however,  that  the  passing  away  of  this  court 
was  due  as  much  to  the  increased  efficiency  of  the  common-law 
courts  as  to  the  insufficiency  of  this  special  mercantile  court. 

The  first  reported  insurance  case  heard  before  a  common-law 
court  is  Dowdale's  Case,"  which  was  decided  in  1589.  But  so  un- 
willing were  the  merchants  to  bring  their  causes  before  the  common- 
law  courts,  that  it  is  said  that  less  than  60  insurance  cases  are  to 
be  found  in  all  of  the  English  reports  prior  to  the  time  of  Lord 
Mansfield's  accession  to  the  bench,  in  1756."  With  the  appointment 
of  Lord  Mansfield  as  Chief  Justice  of  the  Court  of  King's  Bench 
there  came  a  new  era  in  the  common  law  with  reference  to  questions 
involving  the  law  merchant.  This  great  judge,  appreciating  the 
peculiar  circumstances  that  attended  the  making  of  mercantile  con- 

x»  See  New  England  Marine  Ins.  Co.  v.  Dunham,  11  Wall  CU.  S.)  1.  20 
L.  Ed.  90. 
1*  New  England  Marine  Ins.  Co.  v.  Dunham,  supra. 
!•  Coke's  Reports,  pt.  6,  p.  47b.    See  Parke,  Ins.  43  et  seq. 
i«  See  Parke,  Ins.  ubi  supra. 


§§  7-10)      THE  DEVELOPMENT  OF  INSURANCE  IN   ENGLAND.  9 

tracts,  and  the  importance  of  considering  the  usages  and  customs 
of  merchants  as  determining  their  rights  under  such  contracts,  began 
a  consistent  effort  to  import  into  the  common  law  such  of  the  prin- 
ciples of  the  law  merchant  as  would  render  the  common  law  suitable  for 
the  administration  of  justice  in  regard  to  commercial  rights.  In  order 
to  determine  what  rules  should  be  applied  in  deciding  these  causes,  he 
looked  to  the  various  authorities  that  were  in  vogue  on  the  Continent,*^ 
such  as  have  been  mentioned  above,  and  also  had  special  juries  impan- 
eled to  detennine  the  customs  of  English  merchants.  Thus,  in  the  skill- 
ful hands  of  Lord  Mansfield,  who  is  properly  called  the  "Father  of  Eng- 
lish Commercial  Law,"  the  essential  principles  of  the  law  merchant 
were  incorporated  into  the  common-law  system  of  England,  and  the 
common-law  courts  thereby  rendered  competent  to  take  adequate 
cognizance  of  all  questions  involving  insurance.  When  Mansfield 
retired  from  the  bench  in  1788,  not  only  had  the  jurisdiction  of  the 
common-law  courts  over  questions  regarding  the  law  merchant  be- 
come fixed,  but  also  the  volume  of  litigation  in  such  causes  had  in- 
creased to  such  an  extent  as  to  show  that  the  merchants  now  re- 
garded those  courts  as  adequate  for  the  administration  of  justice  in 
connection  with  their  commercial  dealings. 

THE  DEVEI.OPMENT  OF  INSUBANCE  IN  ENGLAND. 

7.  MARINE  INSURANCE— For  several  centnries  after  its  introduction 

into  England,  insurance  was  confined  to  marine  risks,  and  oonse* 
quently  the  law  of  marine  insurance  was  first  developed  in  the 
English  courts,  and  until  recent  times  remained  the  pre-emi- 
nently important  branch  of  insurance  law^. 

8.  FIRE  INSURANCE— Insurance  against  loss  by  fire  is  of  compara* 

tively  recent  orignbi,  the  first  reg^nlar  ofiice  being  opened  in 
1681,  and  assumed  little  importance  before  the  beginning  of 
the  nineteenth  century.  During  the  century  just  closed  the 
growth  of  the  business  of  fire  insurance  companies  was  very 
rapid,  and  the  law  of  insurance  against  fire  now  rivals  that  of 
marine  insurance  in  importance. 

9.  LIFE  INSURANCE— Insurance  against  loss  by  death  is  of  still  later 

origin,  and  is  of  a  soniewhat  different  nature  from  insurance 
against  marine  and  fire  risks.  The  volume  of  life  insurance 
business  has  grown  greatly  in  recent  years. 

10.  ACCIDENT    INSURANCE— Insurance    against    accidental    injury, 

including  death  by  accident,  is  derived  from,  and  im  principle 
is  but  a  form  of,  life  insurance* 

*'  As  evidence  of  the  international  character  of  maritime  law,  see  the  cita- 
tions in  The  Osceola,  189  U.  S.  158,  23  Sup.  a.  433,  47  L.  Ed.  760.  A  case 
involving  fire  insurance  has  recently  been  decided  in  a  trial  court  in  Louis- 
ville, Ky.,  on  the  authority  of  a  French  work  on  Insurance,  by  Alauzet  nub- 
lifihed  in  1843.  ^ 


m 


10 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


Marine  Insurance  as  Developed  from  the  Usages  at  Lloyd's. 

While  the  practice  among  merchants  of  insuring  their  marine  ad- 
ventures doubtless  had  its  origin  as  early  as  the  thirteenth  century, 
yet  we  have  no  evidence  of  any  definitely  settled  regulations  or  meth- 
ods of  carrying  on  insurance  business  in  London  before  the  latter 
part  of  the  seventeenth  century.     It  is  known  that  Lloyd's  Coffee 
House,  an  inn  kept  by  one  Edward  Lloyd  on  Tower  street  in  Lon- 
don, was,  as  early  as  1688,  a  popular  resort  for  seafaring  men  and 
merchants  engaged  in  foreign  trade.    It  became  the  custom  among 
those  who  gathered  at  Lloyd's  to  make  their  gathering  an  occasion 
for  arrang-ing  their  mutual  contracts  of  insurance  against  the  sea 
perils  to  which  their  ventures  were  exposed.    The  method  employed 
in  making  such  insurance  contracts  was  for  the  person  desiring  the 
insurance  to  pass  around  among  the  company  assembled  a  slip  upon 
which  was  written  a  description  of  the  vessel  and  its  cargo,  with  the 
name  of  the  master  and  the  character  of  his  crew,  and  the  voyage  con- 
templated.    Those  desiring  to  become  insurers  of  the  ventures  so 
described   would   write   beneath  the   description   on   this   slip  their 
names  or  initials,  and  opposite  thereto  the  amount  which  each  was 
willing  to  be  liable  for  as  insurer.    When  the  total  amount  of  insur- 
ance desired  by  the  owner  of  the  vessel  was  thus  underwritten,  the 
contract  was  complete.     From  this  practice,  among  those  congre- 
gating at  Lloyd's,  is  derived  the  term  "underwriters,"  as  now  applied 
to  insurers.     The  business  of  insurance  carried  on  in  this  informal 
way  at  Lloyd's  seems  to  have  increased  rapidly,  and  the  commercial 
importance  of  the  house  required  that  it  should  be  removed  to  a 
more  commodious  and  convenient  site,  which  was  found  on  Lom- 
bard street,  whither  Lloyd  removed  his  house  in  1692.     Both  the 
importance  of  this  coffee  house  in  commercial  circles,  and  the  enter- 
prise of  its  proprietor,  were  shown  by  the  estabHshment  in  1696  of 
a  newspaper,  giving  information  of  commercial  transactions  and  of  the 
movement  of  shipping  throughout  the  world.    While  this  newspaper 
was  shortly  afterwards  suppressed  by  reason  of  some  indiscretion  on 
the  part  of  its  publisher,  it  was  yet  the  progenitor  of  "Lloyd's  Lists," 
the  publication  of  which  was  begun  in  1726,  and  which  continues  up 
to  this  day  as  the  most  important  publication  in  the  shipping  and 
commercial  world.     After  various  removals,  Lloyd's  finally  found 
permanent  quarters  in  the  Royal  Exchange,  where  it  is  now  located, 
and  remains,  probably  the  greatest  and  most  important  single  com- 
mercial factor  in  the  mercantile  world. 

The  conduct  of  the  business  of  marine  insurance  continued  to  be 
largely  informal,  governed  by  no  fixed  rules  or  regulations,  either 
as  to  the  membership  in  the  company  of  attending  brokers,  or  as 
to  the  terms  and  incidents  of  the  contracts  made,  until  1769,  when 
the  underwriters  accustomed  to  writing  insurance  there  were  formed 


§§  7-10)      THE   DEVELOPMENT  OF  INSURANCE  IN   ENGLAND.  11 

into  a  society  governed  by  rules  established  in  accordance  with  the 
customs  that  had  been   developed.     It  soon  became   evident  that 
many  advantages  would  flow  from  the  establishing  of  a  fixed  form 
(»f  policy  v/hich  should  be  used  by  the  contractors  at  Lloyd's,  and, 
as  a  consequence,  in  1779  the  famous  "Lloyd's  Policy"  was  adopted 
as  the  standard  form  for  marine  insurance.    The  terms  of  this  policy 
liave  been  subjected  to  much  criticism,  and  even  vituperation,  at  the 
hands  of  writers  and  courts,  Mr.  Justice  Buller  declaring  that  it  was 
"absurd  and  incoherent."  "    Yet  the  uniformity  introduced  into  the 
business  of  insurance  by  its  use,  and  the  fact  that  many  of  its  terms 
have  been  construed  by  the  courts,  render  the  venerable  document 
valuable  for  practical  purposes,  and  justify  its  retention,  with  a  few 
needful  changes  that  have  since  been  made,  in  the  modern  business 
of  marine  insurance.    In  1871  the  Society  of  Lloyd's  was  incorpo- 
rated, one  of  the  purposes  of  incorporation  being  "the  collection, 
publication,  and  diffusion  of  intelligence  and  information  with  respect 
to  shipping."    In  carrying  out  this  purpose,  Lloyd's  and  its  agencies 
throughout  the  civilized  world  have  attained  a  high  degree  of  effi- 
ciency, so  that  no  movement  of  any  considerable  vessel,  in  any  part 
of  the  world,  is  made  without  being  promptly  reported  and  published 
at  Lloyd's.     In  addition  to  "Lloyd's  Lists,"  before  mentioned,  the 
society  publishes  "Lloyd's  Captains'  Register,"  containing  informa- 
tion with  reference  to  the  character  and  experience  of  all  the  certi- 
fied masters  engaged  in  British  commerce,  and  "Lloyd's  Register 
of  British  and  Foreign  Shipping,"  published  annually,  which  gives 
full   descriptions  of  British   and  foreign  vessels  engaged  in   com- 
merce.   The  symbol  used  in  rating  the  highest  class  of  wooden  ves- 
sels in  this  publication,  "A  1,"  has  passed  into  popular  usage  as  in- 
dicating the  highest  degree  of  excellence.    A  record  of  all  casualties 
occurring  during  any  year  is  kept  in  what  is  known  as  the  "Black 
Book,"  and  the  posting  of  any  vessel  at  Lloyd's  as  "missing"  is  re- 
garded as  sufficient  evidence  of  the  loss  of  such  vessel  to  entitle  the 
owner  thereof  to  demand  the  payment  of  the  insurance.** 

The  immense  volume  and  great  relative  importance  of  the  foreign 
commerce  of  England  make  marine  insurance  in  that  country  by  far 
the  most  important  branch  of  the  law  of  insurance,  as  it  was  for  cen- 
turies the  only  branch. 

The  Establishment  and  Development  of  Fire  Insurance. 

There  is  some  evidence  that  even  in  Saxon  times  agreements  were 
ir^ade  in  small  communities  for  mutual  aid  in  case  of  loss  by  fire, 

!•  Brough  V.  Whitmore,  4  T.  R.  206. 

19  See  Richards,  Ins.  p.  11.  The  brokers  at  Lloyd's  still  continue  their 
unique  methods  of  underwriting  individually  risks  proposed,  and  issuing 
binding  slips,  which  are  followed  by  formally  drawn  policies.  See  Garrett's 
Insurance  Reference  Book  (1901)  p.  283, 


'Il 


12 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


I!! 


but  such  practice  evidently  assumed  no  considerable  proportions  or 
importance,  and  it  was  not  until  after  the  great  London  Fire  of  1666 
that  fire  insurance  can  be  said  to  have  become  of  any  importance 
as  a  business.     Indeed,  no  regular  office  was  open  for  the  purpose 
of  insuring  against  loss  by  fire  until  1681,  when  certain  brokers  seem 
to  have  formed  a  loose  organization  for  this  purpose  in  the  rear  of 
the  Royal  Exchange.    The  year  1710  saw  the  establishment  of  the 
oldest  of  all  fire  insurance  companies,  the  Sun  Fire  Office,  which 
was  a  mutual  and  stock  company."    Various  other  companies  were 
established  at  later  periods,  but  the  business  of  fire  insurance  did  not 
attain  to  any  very  considerable  proportions  before  the  beginning  of  the 
nineteenth  century.    The  application  of  the  principles  of  insurance  to 
losses  by  fire  on  land,  however  much  their  beneficence  might  be  recog- 
nized in  the  case  of  marine  insurance,  did  not  meet  with  early  favor  in 
England,  it  being  supposed  that  the  tendency  of  such  insurance  was  to 
increase  the  number  of  cases  of  arson,  and  thus  make  the  practice  in- 
jurious to  the  best  interests  of  the  public.    That  this  belief  was  not  with- 
out foundation  can  be  seen  from  the  statistics,  which  show  that,  dunng 
the  years  of  1852-66,  which  period  exhibited  a  marked  increase  in  the 
volume  of  fire  insurance  business,  the  increase  of  fires  of  suspicious 
origin  in  England  was  from  34>^  per  cent,  to  52>4  per  cent.    The 
business  of  fire  insurance  companies,  being  thus  subjected  to  popu- 
lar disfavor  and  suspicion,  was  deemed  a  proper  subject  for  taxa- 
tion  and  accordingly  the  British  government  imposed  taxes,  vary- 
incr'in  amount   from  time  to  time,   upon  all   companies   msuring 
ag'Linst  fire  risks  down  to  as  late  a  time  as  1869,  when  it  began  to  be 
recognized  that  the  business  of  fire  insurance  was  not  only  proper, 
but  highly  beneficial  to  the  property  interests  of  the  country,  and 
the  burden  of  taxation  was  removed."     During  the  last  quarter  of 
the  nineteenth  century  the  business  of  fire  insurance  in  England 
increased  with  great  rapidity.     Probably  the  largest  fire  insurance 
companies  in  the  worid  are  two  great  English  companies,  which  have 
established  branches  in  all  civiUzed  countries. 

The  Origin  and  Rise  of  Life  Insurance. 

The  first  attempt  made  to  apply  the  principles  of  insurance  to  in- 
demnifying those  who  suffer  on  account  of  the  death  of  others  was 
in  1706,  when  the  "Amicable  Society  for  a  Perpetual  Assurance 
Office"  was  founded.  The  plan  of  operation  in  this  society  was 
merely  to  require  from  each  member,  irrespective  of  age  or  condi- 

20  This  venerable  company  still  carries  on  a  large  and  prosperous  bnsinesa^ 

21  See  article  "Insurance."  13  Ena  Brit.  It  is  estimated  that  in  the  United 
States  over  30  per  cent  of  the  fire  insurance  losses  are  to  be  attributed  to  fires 
of  intentional  origin.  See  Fire  Insurance  and  Causes  of  Fires,  by  F.  C  Moore, 
at  page  17. 


§§  11-12)      DEVELOPMENT  OP  INSITBANCE  IN  UNITED  STATES.  IB 

tion,  a  fixed  annual  contribution,  and,  from  the  sum  so  raised,  to 
pay  to  the  representatives  of  each  member  dying  a  proportionate 
part  of  such  sum.  In  1734  the  society  made  a  guaranty  that  the 
amount  paid  to  the  representative  of  each  member  deceased  should 
not  be  less  than  £100.  But,  even  with  this  latter  guaranty,  the  con- 
stitution of  this  society  was  not  such  as  to  make  its  operation  suc- 
cessful The  first  society  formed  for  insuring  against  loss  of  Ute, 
upon  the  principles  underlying  modern  life  insurance  was  the  Eq- 
uitable Assurance  Society  of  London,  which  was  established  in  17b^. 
This  company  first  recognized  the  necessity  for  varying  the  amount 
of  premiums  paid  in  accordance  with  the  age  and  condition  of  the 
insurer  Since  the  establishment  of  the  Equitable,  life  insurance  has 
been  steadily  developed  along  modern  lines,  and  numerous  other 
influential  companies  have  been  estabUshed  in  England  that  carry 
on  an  extensive  business  both  at  home  and  abroad. 

Accident  Insurance.  .       .  j        ^ 

The  first  company  formed  for  the  purpose  of  granting  indemnity 
against  accidental  injury  was  the  Railway  Passengers'  Assurance 
Company,  established  in  London  in  1849.    As  its  name  imphes,  its 
business  was  confined  to  insurance  against  railway  accidents.     But 
in  1856  it  extended  the  scope  of  its  business  so  as  to  include  insur- 
ance against  accidents  of  all  kinds.    The  contracts  of  the  company, 
insuring  against  accidental  injury,  provided  for  paymg  certain  sums 
during  disability  of  the  insured  on  account  of  accident,  or  to  indem- 
nify him  for  the  accidental  loss  of  any  limb  or  member,  or  to  pay  a 
certain  sum  to  a  beneficiary  named  in  case  of  death  by  accident 
This  species  of  insurance  is  directly  derived  from  life  insurance,  and 
the  principles  that  apply  to  contracts  of  the  latter  kind  of  msurance 
in  most  cases  govern  the  rights  of  parties  under  contracts  of  acci- 
dent insurance. 

THE  DEVEIiOPMENT  OP  INSURANCE  IN  THE  UNITED  STATES. 

11.  In  general,  tlie  development  of  the  »everal  kind,  of  inanrance  ka« 

followed  the  same  lines  In  tlie  United  States  as  In  England,  save 
tliat  marine  Insurance  does  not  occnpy  a  position  of  such  great 
importance  as  compared  with  fire  and  Uf  e  insurance. 

12.  The  pecnUar  circumstances  entering  into  the  making  of  contract. 

of  insurance,  and  the  early  tendency  on  the  part  of  insurers  to 
make  use  of  the  common-law  rules  governing  insurance  con- 
tracts, in  order  to  take  an  unfair  advantage  of  the  insured, 
have  caused  the  legislatures  of  the  several  states  of  the  Union 
to  enact  numerous  statutes  for  the  regulation  of  insurance. 
These  statutory  restrictions  have  greatly  complicated  the  legal 
principles  that  are  now  to  he  appUed  to  the  determinins  ©f  iMr 
■urance  oauses. 


i\ 


\ 


14 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


Marine  Insurance  in  the  United  States. 

On  account  of  the  fact  that  the  foreign  commerce  of  the  United 
States  has  always  been  of  less  importance  than  its  domestic  trade, 
and  its  shipping  relatively  insignificant  in  volume,  marine  insurance 
has  never  attained  the  great  importance  in  this  country  that  it  has 
always  occupied  in  England.  While  this  is  true,  yet  the  volume  of 
business  done  by  marine  insurance  companies  in  the  United  States 
is  by  no  means  inconsiderable.  One  company,  the  Atlantic  Mutual 
of  New  York,  carries,  perhaps,  as  great  an  amount  of  insurance  upon 
shipping  as  even  the  British  Lloyd's.**  There  is  every  reason  to 
believe  that  under  the  present  commercial  policy  of  the  United 
States  government,  and  the  rapid  growth  of  American  foreign  com- 
merce during  the  last  decade,  the  marine  insurance  business  may  in 
time  assume  the  position  of  relative  importance  that  it  occupies  in 
Great  Britain. 

Fire  Insurance  in  the  United  States. 

The  first  fire  insurance  company  to  be  established  in  the  United 
States  was  in  Philadelphia,  in  1752.  This  company,  known  as  the 
"Philadelphia  Contributionship  for  Insuring  Houses  from  Loss  by 
Fire,"  was  incorporated  on  the  mutual  plan,  Benjamin  Franklin  be- 
ing one  of  its  directors.  The  business  of  fire  insurance  has  always 
been  favored  in  the  United  States,  and  it  has  experienced  a  steady 
growth,  until  at  the^present  time  it  is  regarded  as  thoroughly  unwise 
for  any  property  owner  to  allow  his  property  to  be  uninsured.  The 
volume  of  fire  insurance  business  in  this  country  has  become  im- 
mense, the  total  amount  of  risks  written  by  the  several  joint-stock 
companies  doing  business  in  this  country  being,  during  the  year 
1901,  $20,629,226,087,  and  the  premiums  paid,  $157,599,206,  whilf, 
losses  were  paid  amounting  to  $93,139,517.*' 

The  methods  of  carrying  on  the  business  of  insurance  against 
fire  have  been  reduced  to  the  greatest  precision  and  nicety.  Boards 
of  underwriters  are  established  in  the  great  cities,  whose  functions 
are  to  obtain  and  classify  all  items  of  information,  with  reference  to 
risks  to  be  assumed,  that  may  be  of  value  to  the  various  constituent 

«2  This  great  company  during  1891  wrote  insurance  to  the  amount  of 
$718,746,817.  During  its  life  of  sixty  years  it  has  paid  losses  amounting  to 
$211,954,046. 

28  Statistics  of  the  business  of  mutual  fire  companies  are  not  very  re- 
liable. Reports  of  179  companies  give  the  premiums  received  as  aggregat- 
ing $20,742,603;    the  losses  paid,  $7,324,779. 

The  average  dividend  earned  by  the  American  joint-stock  companies  dur- 
ing the  period  1860-1901,  inclusive,  was  11.12  per  cent. 

The  total  amount  of  fire  and  marine  insurance  transactions  in  the  United 
States  for  the  year  1901  is  imposing.  The  total  capital  invested  was  $69,- 
930,423;  the  total  assets  of  all  companies,  $450,566,078;  the  premiums  re- 
ceived were  $199,800,505;    and  the  losses  paid,  $112,007,219. 


:|^ 


HI 


5  11-12)      DEVELOPMENT  OP  INSUKANCE  IN   UNITED  STATES.  15 

companies.  Charts  are  made  of  all  the  buildings  in  every  consider- 
able city,  and  the  underwriter  may  now,  by  a  mere  reference  to  the 
chart  to  be  found  in  his  office,  determine  the  quality  and  character  of 
any  risk  that  may  be  brought  before  him.  The  insurance  companies 
doing  business  in  the  cities  also  maintain  salvage  corps,  who  possess 
every  appliance  for  promptly  and  efficiently  protecting  the  property 
of  the  insured  against  injury  by  fire  or  water,  and  act  on  behalf  of 
the  insurance  companies  in  conjunction  with  the  fire  department  of 
the  city  in  which  they  are  found. 

Life  Insurance  in  the  United  States. 

The  first  effort  made  to  establish  life  insurance  in  the  United 
States  was  a  mutual  benefit  association  of  Presbyterian  ministers 
which  was  chartered  in  1769  in  the  colony  of  Pennsylvania.  There 
seem  to  have  risen  numerous  small  mutual  companies  of  a  similar 
kind  during  the  latter  part  of  the  eighteenth  and  the  first  part  of  the 
nineteenth  centuries,  but  that  life  insurance  was  of  little  importance, 
and  the  business  of  small  volume,  is  evidenced  by  the  fact  that  the 
earliest  case  **  on  the  subject  in  a  court  of  last  resort  was  decided  in 
1809  in  the  state  of  Massachusetts.  At  as  late  a  date  as  this  the 
court  went  gravely  into  the  question  of  whether  a  contract  of  life 
insurance  was  valid  under  the  law  of  Massachusetts,  it  being  con- 
tended that  the  common  law  of  England  was  not  in  this  respect  in 
force  in  that  state,  because  such  a  contract  was  repugnant  to  sound 
morals  and  contrary  to  public  policy.  In  referring  to  the  holding 
of  the  French  courts,  deciding  that  such  contracts  were  illegal  be- 
cause they  "set  a  price  upon  the  life  of  a  freeman,  which  is  above 
all  price,"  Chief  Justice  Parker  naively  observed  that  such  reasoning 
was  hardly  sufficient,  coming  from  France,  where  freedom  had  never 
been  known.  Notwithstanding  Chief  Justice  Parker's  decided  opin- 
ion on  the  subject,  the  contract  of  life  insurance  was  long  regarded 
with  suspicion,  many  moralists  holding  that  it  was  in  fact  speculat- 
ing in  life,  and  therefore  immoral.  In  consequence,  the  growth  of 
the  business  of  life  insurance  was  not  rapid  until  about  1850,  when 
the  increasing  prosperity  of  the  people  of  the  United  States  enabled 
them  to  give  effect  to  their  desire  to  make  a  suitable  provision  after 
death  for  the  support  of  those  depending  upon  them.  This,  with  the 
prevalence  of  sounder  views  with  regard  to  the  ethics  of  life  insur- 
ance, resulted  in  a  very  considerable  increase  in  the  volume  of  life 
insurance  prior  to  the  Civil  War.  After  the  close  of  the  Civil  War, 
in  1865,  life  insurance  began  to  grow  with  marvelous  rapidity.  Nu- 
merous companies  were  established  in  all  sections  of  the  United 
States,  many  of  them  on  very  insufficient  capital,  and  their  adminis- 
tration was  conducted  upon  very  reckless  and  unsound  methods. 

«*  LORD  Y.  DALL,  12  Mass.  115,  7  Am.  Dec.  38. 


T 


h  \ 


li 


I 


16 


HISTORICAL  AND   INTBODUCTOEY. 


(Ch.l 


Many  different  kinds  of  policies  that  were  expected  to  prove  at- 
tractive to  the  people  were  offered,  and  by  the  end  of  the  third  quar- 
ter of  the  century  life  insurance  had  suddenly  become  one  of  the 
most  important  financial  institutions  of  the  country.  During  the  last 
25  years  the  growth  of  life  insurance,  while  not  so  marvelous,  rela- 
tively, as  that  of  the  period  immediately  preceding,  has  yet  been 
most  wonderful,  and  the  volume  of  business  done  by  life  insurance 
companies  at  the  present  time  is  so  great  as  almost  to  stagger  the 
intelligence. 

The  total  amount  of  outstanding  insurance  of  all  life  companies 
doing  business  in  the  United  States  was  on  the  1st  day  of  January, 
1902,  $15,574,514,784,  and  the  premiums  paid  by  the  people  for  this 
insurance  $453,682,070,  while  the  losses  paid  to  policy  holders  dur- 
ing the  year  1901  reached  the  enormous  sum  of  $265,231,939." 

In  considering  the  causes  of  this  phenomenal  growth  of  life  in- 
surance, it  is  well  to  observe  that  this  business  is  not  now  confined 
to  mere  insurance  against  the  risks  and  accidents  of  life,  but  also 
includes,  as  perhaps  its  most  important  element,  the  feature  of  in- 
vestment. All  life  insurance  companies  now  issue  policies  embody- 
ing this  feature  of  investment  of  money  by  the  insured,  with  the 
double  purpose  of  securing  protection  for  those  dependent  upon  him 
in  case  of  death,  and  of  obtaining  a  safe  investment  for  his  surplus 
earnings  that  will  yield  him  a  reasonable  interest  return.  These  in- 
vestment policies  are  of  almost  infinite  variety,  and  are  known  vari- 
ously as  "endowment  policies"  or  "endowment  bonds."  So  popular 
is  this  investment  feature  of  insurance,  that  it  is  now  added  to  the 
ordinary  life  policy  in  nearly  all  modern  companies.  Thus  the  enor- 
mous sum  total  of  invested  assets  of  the  insurance  companies  in 
the  United  States  represents  not  only  the  reserve  value  of  the 

*»  These  fignres  Include  the  business  done  by  assessment  associations  and 
fraternal  orders,  the  statistics  of  which  are  probably  incomplete.  It  is  stated 
that  the  total  receipts  of  all  the  various  fraternal  orders  in  the  United  States 
during  1901  were  $81,628,597,  and  the  losses  paid  $68,412,804,  with  outstand- 
ing insurance  of  $5,656,453,465. 

From  these  figures  it  is  apparent  that  the  insurance  given  by  the  fraternal 
orders  is  much  less  costly  than  that  of  the  old-line  companies;  in  the  former 
the  losses  paid  being  more  than  80  per  cent,  of  premiums  received,  and  in 
the  latter  less  than  60  per  cent 

The  volume  of  life  insurance  business  In  the  United  States  may  be  well 
illustrated  by  figures  showing  the  condition  of  the  three  greatest  life  com- 
panies on  January  1,  1902: 

New  York  Life:  Total  income,  $71,274,150;  total  assets,  $290,743,386;  out- 
standing insurance,  $1,365,369,299. 

Mutual  of  New  York:  Total  income,  $65,624,306;  total  assets,  $352,838,972; 
outstanding  insurance,  $1,241,688,430. 

Equitable  Life:  Total  income,  $64,374,606;  total  assets,  $330,473,309;  out- 
standing  insurance,  $1,179,276,725. 


§§  11-12)      DEVELOPMENT   OP  INSURANCE   IN   UNITED  STATES.  17 

outstanding  policies  accumulated  to  enable  the  company  to  \neet 
losses  v^hen  occurring,  but  also  represents  the  savings  of  great 
numbers  of  people  who  have  adopted  this  form  of  investment.  The 
favor  with  which  this  kind  of  investment  has  been  met  in  the  United 
States  is  probably  due  to  the  large  proportion  of  salaried  workers 
in  this  country,  which  in  turn  is  due  to  the  fact  that  nearly  all  of  the 
industrial  enterprises  are  in  the  hands  of  corporations,  which  neces- 
sarily employ  agents  and  servants  and  pay  salaries.  These  employes, 
having  no  business  of  their  own  in  which  their  savings  can  be  in- 
vested, and,  on  account  of  the  nature  of  their  business,  being  usually 
not  in  a  position  to  secure  for  themselves  safe  and  satisfactory 
modes  of  investment,  are  almost  perforce  led  to  look  to  the  insur- 
ance companies  to  invest  their  money  for  them. 

In  the  subsequent  examination  that  is  to  be  made  of  the  principles 
which  determine  the  rights  of  the  several  parties  to  such  contracts, 
the  student  should  bear  in  mind  this  double  nature  of  the  modern 
life  insurance  contract :  That  it  is  a  contract  (1)  of  indemnity  to  de- 
pendents in  case  of  loss  of  life,  and  (2)  of  investment  of  savings. 

Another  important  factor  that  has  aided  in  the  great  increase  and 
popularity  of  life  insurance  is  to  be  found  in  the  establishment  and 
growth  of  the  various  mutual  aid  and  benefit  associations  among 
the  laboriiig  classes,  these  organizations  being  partly  social  in  their 
character,  and  beneficial  in  purpose 

Accident  Insurance. 

As  was  seen  above,  accident  insurance  is  but  a  modified  form  of 
life  insurance,  and  it  might  be  expected  that  its  importance  would 
increase  in  much  the  same  proportion  as  that  of  life  insurance. 
There  are  numerous  companies  insuring  against  the  consequences 
of  accident  in  all  its  forms  and  phases,  and  the  amount  of  business 
done  by  these  companies  is  such  as  to  justify,  in  a  later  chapter,  a  care- 
ful examination  of  any  peculiar  rules  of  law  that  apply  in  the  construc- 
tion of  their  contracts. 

Statutory  Regulations  of  Insurance  Business. 

On  account  of  the  peculiar  characteristics  of  the  insurance  con- 
tract, and  of  the  extensive  use  into  which  it  has  come,  it  has  afforded 
a  favorite  subject  for  legislation  in  all  of  the  states  of  the  Union 
Notwithstanding  the  frequency  with  which  such  contracts  are  made 
by  nearly  all  the  members  of  society,  it  is  safe  to  say  that  the  prin- 
ciples of  no  other  contract  are  so  little  known  to  even  the  more  in- 
telligent members  of  the  business  community  as  are  those  of  in- 
surance. ^  This  unfortunate  ignorance  of  the  fundamental  principles 
upon  which  the  conduct  of  insurance  is  based  has  manifested  itself 
m  a  great  mass  of  legislation,  much  of  which  is  undiscriminating. 
Certain  hardships  bearing  upon  the  insured  in  the  enforcement  of 
Vance  Ins.— 2 


i 


18 


HISTORICAL   AND    INTRODUCTOBT. 


(Ch.l 


the  common-law  principles  of  insurance  have  been  apparent  to  the 
unlearned  legislator,  and  have  been  sufficient  to  induce  him  to  apply, 
without  regard  to  the  serious  consequences  that  may  ensue,  such 
superficial  remedies,  by  sweeping  enactments,  as  may  have  suggest- 
ed themselves  either  to  him  or  to  his  even  less  knowing  constitu- 
ents. It  is  admitted  by  all  persons  having  any  adequate  knowledge 
of  the  nature  of  insurance  that  it  is  one  of  the  most  beneficial  in- 
ventions of  society,  and  it  is  peculiarly  unfortunate  that  it  should 
have  excited  such  pernicious  activity,  on  the  part  of  legislative 
bodies,  in  the  effort  to  regulate  the  administration  and  conduct  of 
companies  engaging  in  insurance.  In  many  cases,  however,  these 
legislative  regulations  have  been  wisely  conceived,  and  do  really  rem- 
edy deficiencies  of  the  common  law,  tending  to  promote  justice  and 
prevent  the  perpetration  of  fraud  upon  the  public.  These  statutes^ 
are  always  aimed  at  the  insurer,  and  intended  for  the  benefit  of  the 
insured.  In  accomplishing  this  desired  end,  the  statutes  may  be  said 
to  have  four  general  purposes:  (1)  To  insure  the  solvency  of  the 
companies  granting  insurance ;  (2)  to  prevent  the  insured  from  being 
trapped  by  conditions  of  forfeiture  set  forth  in  the  contract  that 
might  escape  his  attention ;  ^^  (3)  the  control  of  litigation  against 
the  insurer,  in  order  to  make  the  remedy  of  the  insured  under  his 
contract  speedy  and  efficient ;  and  (4)  a  general  control  of  the  busi- 
ness of  the  insurers,  in  order  to  prevent  any  unfairness  in  the  ad- 
ministration of  their  affairs,  either  to  the  public  or  to  the  policy 
holders,  and  for  their  proper  and  speedy  winding  up  in  case  of  in- 
solvency (ilA  fifth  general  aim  to  be  easily  observed  is  found  in  the 
regulations  intended  for  revenue  only.  The  insurance  company,  with 
its  extensive  business  and  large  invested  assets,  offers  a  tempting 
subject  for  taxation,  and  this  temptation  legislatures  are  by  no 
means  inclined  to  resist.  It  is  probable  that  the  insurance  business 
is  taxed  more  grievously,  and  bears  a  larger  proportionate  share 
of  the  burden  of  maintaining  the  government,  than  any  other  kind 
of  legitimate  business.'^ 

The  unhealthy  influence  exerted  by  the  rapid  growth  of  insurance 
business  shortly  after  the  close  of  the  Civil  War  resulted  in  the  es- 
tablishing of  a  large  number  of  unsafe  companies,  which,  after  more 
or  less  extended  struggles  for  existence,  suffered  the  collapse  that 
might  have  been  expected  from  their  reckless  methods.  The  occur- 
rence of  such  frequent  failures  on  the  part  of  insurance  companies 
had  the  double  result  of  entailing  very  considerable  loss  upon  nu- 
merous innocent  policy  holders,  and  also  of  exciting  a  deep  public 


>•  See  the  lerere  arraignment  of  insurance  companies  on  this  account  bj 
Doe,  J.,  in  De  Lancey  v.  Insurance  Co.,  52  N.  H.  581. 
>7  See  Elements  of  Life  Insurance,  by  M.  M.  Dawson. 


11-12)      DEVELOPMENT  OP  INSURANCE  IN   UNITED  STATES. 


19 


distrust  in  the  integrity  of  the  management  of  all  insurance  com- 
panies. From  this  condition  the  step  to  government  inspection  and 
supervision  was  a  short  one.  Practically  all  the  states  of  the  Union 
have  passed  laws  empowering  an  officer  of  the  state,  either  specially 
created  for  the  purpose,  and  called  "Insurance  Commissioner,"  or 
one  of  the  already  existing  state  officers,  to  require  all  insurance 
companies  doing  business  in  their  respective  states  to  make  annual 
sworn  reports  as  to  the  condition  of  their  business,  and  allowing  such 
officers  the  privilege  of  examining  the  books  of  the  companies  at 
pleasure,  and  also  authorizing  them  to  proceed  to  wind  up  any  in- 
surance companies  which  upon  inspection  are  found  to  be  insolvent. 
Statutes  are  also  to  be  found  in  all  of  the  states  requiring  that  each 
foreign  company  doing  business  in  the  state  shall  deposit  in  the  state 
treasury  a  sufficient  sum  to  secure  to  the  policy  holders  in  that  state 
the  performance  of  all  contracts  made  with  them.  The  funds  so 
deposited  in  the  treasury  of  the  state  are  required  to  be  a  certain 
per  cent,  of  the  capital  and  assets  of  the  company,  and  are  held  sub- 
ject to  a  lien  in  favor  of  the  resident  policy  holders.  In  some  states 
companies  are  not  allowed  to  carry  on  the  business  of  insurance 
unless  they  possess  a  certain  amount  of  capital  specified  in  the  statute, 
and  are  prohibited  from  accepting  a  single  risk  exceeding  a  specified 
percentage  of  that  capital."  These  regulations,  being  intended  to 
make  certain  the  solvency  of  all  insurers,  and  to  prevent  the  reckless 
and  unsound  conduct  of  insurance,  commend  themselves  more  high- 
ly to  reason  than  any  other  statutes  affecting  this  subject.  And  yet 
statistics  show  that  there  are  more  numerous  failures  among  the 
extensively  regulated  companies  in  the  United  States  than  among 
the  British  companies,  which  are  almost  unmolested. 

In  the  early  stages  of  the  business,  the  conduct  of  insurance  com- 
panies towards  their  policy  holders  was  so  illiberal  and  unwise,  and 
so  many  real  hardships  were  imposed  upon  unwary  policy  holders, 
that  it  is  not  surprising  that  we  find  upon  the  statute  books  of  the 
various  states  many  laws  intended  to  shield  those  buying  insurance 
from  the  supposed  wrong  intentions  and  harsh  practices  of  the  in- 
surer. However  well  justified  and  even  beneficial  these  regulations 
were  at  the  time  they  were  passed,  many  of  them  now  operate 
merely  to  vex  and  harass  the  insurance  companies  in  carrying  out 
the  more  liberal  policies  which  experience  and  reflection  have  shown 
to  be  wisest  and  best.  The  provisions  intended  to  protect  the  in- 
sured against  the  consequences  of  carelessness  or  ignorance  in  mak- 
ing the  contract  of  insurance  are  very  great  in  number  and  of  almost 


^ 
\ 


»« For  an  example,  see  Acts  Va.  189&-96.  p.  462,  c.  421.  Any  attempt  to  cite 
awurately  the  statutes  of  all  the  states  on  these  subjects  would  be  useless,  and 
might  prove  misleading,  since  they  shift  like  the  sands  of  tbt 


20 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


I* 


endless  variety,  and  only  those  most   general  and  important   can 
be  noticed.     It  is  a  well-recognized  rule  of  law  that  any  contractor 
accepting  an  instrument  known  to  contain  the  terms  of  his  contract 
is  conclusively  bound  by  all  of  the  terms  written  therein ;    yet  such 
was  the  character  of  the  poHcies  formerly  issued  by  insurance  com- 
panies that,  on  account  of  their  great  length,  fine  type,  long  lines, 
and  involved  statement,  the  ordinary  contractor  found  it  not  only 
exceedingly  inconvenient  and  burdensome  to  read  over  the  verbose 
stipulations,  but  also,  when  read,  they  were  practically  meaningless 
to  him,  unless  he  chanced  to  be  a  man  of  unusual  intellectual  powers 
and  legal  attainments.     The  result  was  that  upon  the  happening  of 
the  contingency  insured  against  the  policy  holder  frequently  learned 
for  the  first  time  that  all  rights  under  the  policy  had  been  forfeited 
by  reason  of  "some  condition  crouched  unseen  in  the  jungle  of  print- 
ed matter  with  which  a  modern  policy  is  overgrown."  "     In  order 
to  prevent  such  forfeitures,  which  were  regarded  with  the  utmost 
disfavor  by  the  public,  statutes  have  been  passed  providing  that  no 
condition  in  the  application  or  other  paper  referred  to  in  the  policy 
shall  be  valid  unless  set  forth  in  the  poHcy  itself  ;»•   that  no  condi- 
tion or  term  in  a  policy  shall  be  enforceable  unless  printed  in  type 
as  large  as  long  primer  '*  or  other  specified  size.    In  some  states  it 
is  enacted  that  the  insurer  may  avail  himself  of  no  charter  or  statute 
stipulation  unless  it  be  printed  on  the  policy,  although,  of  course,  the 
failure  so  to  print  such  a  provision  on  the  policy  will  not  prevent 
the  insured  from  claiming  any  right  given  thereby.**    In  many  states 
it  is  enacted  that  no  policy  shall  be  forfeited  by  reason  of  a  failure 
to  pay  any  premium  or  other  dues,  unless  the  insurer  shall  give  rea- 
sonable notice  of  the  fact  that  such  payment  is  due.     New  York,  fol- 
lowed by  some  other  states,  has  even  gone  so  far  as  to  enact  that 
after  the  third  year  a  life  poHcy  may  not  be  forfeited  by  failure  to 
pay  any  premium  or  dues,  but  that  the  reserved  value  of  the  policy 
at  the  time  of  such  failure  shall  be  used  in  extending  the  insurance." 
The  rule  of  law  absolutely  avoiding  insurance  policies  in  the  event 
of  a  breach  of  warranty,  however  immaterial  such  warranty  might 
be,  has  often  worked  great  hardship  upon  careless  policy  holders, 
and  as  a  result  of  this  fact  a  large  number  of  the  states  have  enacted 

«»  VAN  SCHOICK  T.  INSURANCE  CO.,  68  N.  T.  434;    Richards*  Casea, 

362. 

80  See  the  Pennsylvania  Statute  (Laws  1881,  p.  20),  set  out  In  RITTER  ▼. 
INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct.  300,  42  L.  Ed.  693. 

81  See  Code  Va.  1887,  §  3252.  There  exists  a  legal  presumption  that  the 
policy  conforms  to  the  requirements  of  the  statute.  Sulphur  Mines  Co.  T. 
Phenix  Ins.  Co.,  94  Va.  355,  26  S.  E.  856. 

««  See  Cllne  v.  Assurance  Co.,  101  Va.  496,  44  S.  B.  700. 
tt  See  3  Bey.  St  (8th  Ed.)  p.  1GS8. 


it 


§§  11-12)      DEVELOPMENT  OV  INSURANCE   IN   UNITED   STATES.  21 

statutes  declaring  that  no  policy  shall  be  forfeited  by  reason  of  a 
breach  of  warranty,  unless  the  fact  warranted  was  material  or  the 
statement  fraudulent.^*  In  Missouri  it  has  been  enacted  that  a 
breach  of  warranty  shall  not  avoid  a  policy,  unless  the  subject  of  the 
warranty  contributed  to  the  happening  of  the  event  upon  which  the 
poHcy  became  payable.  ^  . 

The  same  general  purpose  of  guarding  the  insured  agamst  unfair 
advantages  that  may  be  taken  by  the  insurer  under  the  terms  of 
the  policy  that  he  himself  has  written  is  subserved  by  a  statute,  to 
be  found  in  many  states,  declaring  that  the  agent  who  soHcits  the 
insurance  and  takes  the  application  shall  be  deemed  the  agent  of  the 
insurer,  and  not  of  the  insured,  in  spite  of  what  the  poHcy  may  pro- 
vide;"   that  the  insurer  shall  be  estopped  to  claim  a  forfeiture  by 
reason  of  a  false  statement  made  by  the  insured,  when  such  falsity 
was  known  to  the  agent  of  the  insurer ;  prohibiting  the  insurer  from 
setting  up  the  suicide  of  the  insured  in  defense  of  a  claim  under  the 
policy,»«  or  from  showing,  in  the  case  of  a  fire  policy,  that  the  real 
value  of  the  property  destroyed  was  less  than  the  amount  set  forth 
on  the  face  of  the  policy.     Statutes  containing  this  last  provision, 
known  as  "the  valued  policy"  acts,  are  the  most  vicious  and  short- 
sighted of  all  the  unwise  legislation  devised  for  the  regulation  of 
insurance  business.    They  are  not  only  based  upon  a  total  miscon- 
ception and  perversion  of  the  true  principles  of  insurance,  but  are 
also  contrary  to  public  poHcy,  inasmuch  as  they  tend  to  encourage 
arson  and  other  fraudulent  practices,  and,  moreover,  are  opposed  to 
the  real  interest  of  those  who  desire  to  insure  their  property.     The 
purpose  of  insurance  is  indemnity,  and  indemnity  only,  and,  when- 
ever it  is  applied  to  any  other  purpose,  such  use  is  a  perversion  of 
the  true  principle,  and  introduces  a  wrongful  and  immoral  element 
of  speculation  that  promotes  fraud  and  crime.    If  a  person,  by  fraud- 
ulent collusion  with  an  agent  of  the  insurer,  or  by  deceiving  such 
agent,  procures  insurance  upon  his  property  greater  than  its  value, 
he  is  under  constant  temptation  to  destroy  his  own  property,  and  this 
temptation,  which  is  all  too  frequently  yielded  to,  not  only  is  injuri- 
ous to  public  morals,  but  greatly  increases  the  average  per  cent,  of 
loss  in  property  insured,  and  necessarily  results  in  the  increasing  of 
rates  of  insurance.    Thus  the  inevitable  result  of  such  laws,  where- 
under  a  fire  may  cause  not  a  loss,  but  operate  as  a  means  of  a  most 

84  See  Union  Cent.  Life  Ins.  Co.  v.  Pollard,  94  Va.  146,  26  S.  E.  421,  36  h. 
R.  A.  271,  64  Am.  St.  Rep.  715. 

«5  See  Continental  Life  Ins.  Co.  v.  Chamberlain,  132  U.  S.  304,  10  Sup.  Ct 
87,  33  L.  Ed.  341;  Bankers'  Life  Ins.  Co.  v.  Robbins,  55  Neb.  117,  75  N.  W. 
585.     See,  also.  Acts  Va.  1887,  p.  349,  c.  271,  §  5. 

3  6  See  the  Missouri  Statute  set  out  in  Knights  Templars*  &  Masons'  Life 
Indemnity  Co.  v.  Jarman,  187  U.  S.  197,  23  Sup.  Ct.  108,  47  L.  Ed.  139. 


I 


HISTORICAL   AND   INTRODUCTORY. 


(Ch.l 


satisfactory  cash  sale  of  the  property  destroyed,  is  to  shift  upon  the 
honest  policy  holders  the  burden  of  paying  to  the  dishonest  destroyer 
of  his  overinsured  property  the  dishonest  gains  obtained  by  such 
overinsurance.  It  is  thus  seen  that  every  consideration  of  public  policy 
and  the  best  interests  of  the  insuring  public  should  prevent  the  enact- 
ment of  these  valued  policy  statutes,  yet  so  great  is  the  prejudice  in  the 
mind  of  the  ordinary  legislator  against  any  defense  that  may  be  made 
by  an  insurance  company  against  payment  und%r  its  policy  that  prob- 
ably one-half  of  the  states  of  the  Union  have  passed  such  injurious 
acts.'^ 

In  addition  to  these  general  acts  looking  to  governmental  super- 
vision and  control,  referred  to  above,  there  are  many  others  of  a 
more  desultory  character  that  are  found  in  the  various  states,  limit- 
ing the  powers  of  insurers  or  imposing  conditions  upon  their  busi- 
ness. Thus,  there  are  found  acts  regulating  the  right  retained  by 
all  companies  of  canceling  fire  policies,  and  still  others  that  establish 
certain  rules  with  regard  to  notice  and  proof  of  loss  in  case  of  fire 
policies,  with  which  the  terms  of  the  policies  themselves  are  required 
to  comply.  In  New  York,  and  many  other  states  where  the  valued 
policy  acts  are  not  in  force,  the  insurance  company  is  required  by 
statute,  in  case  the  value  of  the  property  in  the  event  of  loss  is 
found  to  be  less  than  the  face  of  the  policy,  to  return  such  propor- 
tion of  the  premium  received  as  was  in  excess  of  the  real  risk  borne. 
In  an  effort  to  prevent  unfair  discriminations  among  those  taking 
policies,  some  of  the  states  have  enacted  arbitrary  prohibitions 
against  any  discriminations  in  favor  of  any  individuals  of  the  same 
class,  either  in  regard  to  premiums  charged,  dividends  paid,  or  re- 
bates given;  others  forbid  discriminations  between  white  persons 
and  colored  persons.  The  anti-trust  crusades  of  recent  years  have 
also  had  their  effect  upon  insurance  regulations,  and  we  find  statutes 
in  a  large  number  of  the  states  prohibiting  insurance  companies  or 
their  agents  from  combining  together  to  fix  the  rates  of  insurance, 
or  making  any  other  agreements  that  would  tend  to  restrain  compe- 
tition among  companies  bidding  for  insurance.  These  laws  have 
often  worked  great  injustice  and  hardship  upon  insurance  companies, 
and  have  in  some  cases  resulted  in  causing  some  of  the  best  com- 
panies to  withdraw  entirely  from  the  state  attempting  to  enforce 
such  vexatious  regulations.  This  withdrawal  from  the  state,  of 
course,  removes  the  better  class  of  insurance  companies,  thus  leav- 
ing the  business  to  inferior  companies,  and  making  it  easy  for  them 
to  raise  the  rates.    Thus,  it  is  probable  that  these  anti-compact  laws 


»T  The  (Supreme  Court  appears  to  consider  such  statutes  not  to  be  opposed 
to  a  sound  public  policy.  See  Orient  Ins.  Co.  ?.  Daggs,  172  U.  S.  557,  19 
Sup.  Ct  281,  43  L.  Bd.  552. 


§§  11-12)      DEVELOPMENT  OP  INSURANCE  IN   UNITED   STATES.  23 

tend  rather  to  increase  the  evil  against  which  they  are  aimed — that 
is,  higher  insurance  rates — than  to  diminish  them. 

Many  states  have  also  manifested  a  strong  desire  to  retain  control 
of  all  litigation  in  connection  with  insurance  contracts,  and,  as  a  con- 
sequence, we  find  that  one  of  the  conditions  upon  which  foreign  com- 
panies are  allowed  to  do  business  in  such  states  is  that  they  shall  agree 
not  to  remove  any  causes  in  which  they  may  be  parties  defendant 
into  the  federal  courts.  Such  agreements,  of  course,  are  unenforce- 
able, and  cannot  operate  to  oust  the  jurisdiction  of  the  federal  courts, 
or  to  deprive  the  insurance  companies  of  the  right  to  remove  their 
causes  if  they  so  desire ; "  but  it  has  also  been  held  that  the  failure 
of  any  insurance  company  to  abide  by  its  agreement  to  allow  all 
litigation  to  remain  in  the  state  courts  is  sufficient  ground  for  a  revo- 
cation of  the  license  granted  to  the  foreign  insurance  company  to 
do  business  in  the  state."  So,  as  a  result  of  this  provision,  foreign 
insurance  companies  are  obUged  either  to  forego  their  constitutional 
right  to  have  suits  against  them  tried  in  the  federal  courts,  or  to  be 
deprived  of  the  privilege  of  doing  business  in  the  state. 

In  the  further  attempt  to  control  insurance  litigation,  many  states 
have  declared  that  any  term  in  the  insurance  contract  which  limits 
the  time  within  which  suit  may  be  brought  upon  the  poHcy  to  a  pe- 
riod less  than  the  statutory  limitations  shall  be  void.  The  unfortu- 
nate insurance  companies  arfe  further  harassed  by  additional  restric- 
tions and  limitations  that  grow  out  of  various  retaliatory  acts.  Thus, 
some  states  have  enacted  that  any  foreign  corporation  carrying  on 
the  business  of  insurance  within  their  limits  shall  be  subject,  in  addi- 
tion to  the  specific  requirements  of  their  own  statutes,  to  such  addi- 
tional limitations  as  may  be  imposed  by  the  state  of  the  domicile  of 
the  corporation  upon  foreign  companies  doing  business  there.  We 
may  further  mention  statutes  that  require  the  use  of  the  standard 
fire  policy,  which  are  eminently  wise,  and  can  hardly  be  objected  to 
by  any  straightforward  insurer. 

Just  in  the  proportion  that  regular  insurance  companies  are  unpop- 
ular and  considered  proper  subjects  for  all  sorts  of  vexatious  regu- 
lations that  certainly  tend  to  discourage  the  business,  so  the  various 
mutual  co-operative  and  benevolent  societies  that  are  organized  for 
the  double  purpose  of  social  satisfaction  and  financial  insurance  are 
regarded  with  peculiar  favor,  and  every  effort  is  made  to  encourage 
them  and  foster  their  growth.  It  will  be  found  that  in  most  states 
such  benefit  societies,  even  though  doing  insurance  business,  are  ex- 
empted from  the  operation  of  the  regulations  imposed  upon  the  gen- 
eral companies  as  set  forth  above. 

w  Home  Ins.  Co.  of  New  Yorls  v.  Morse.  20  Wall.  (U.  S.)  450,  22  L.  Ed.  367. 
»•  Doyle  T.  Insurance  Co.,  94  JJ-  S.  535,  24  L,  Ed.  148. 


I 


24 


HISTORICAL  AND   INTRODUCTORY. 


(Ch.l 


THE  EXTENSION  OF  THE  PRINCIPLES  OP  INSUBANCE  IN 

MODERN  TIMES. 

13.  The  rapid  g^rowtli  and  snccessfnl  condnot  of  the  regrnlar  forms  of 
marine,  fire,  life,  and  accident  insurance  have  in  recent  years 
stimulated  the  attempts  to  apply  the  principles  of  insurance  to 
contracts  of  indemnity  for  numerous  other  kinds  of  loss  hap- 
pening under  conditions  making:  insurance  practicable.  These 
attempts  have  resulted  in  a  more  or  less  successful  extension 
of  insurance  to  almost  innumerable  conditions,  among  which 
may  be  noted  as  the  most  important: 

(a)  Workingmen*s  or  industrial  insurance  against  the  peculiar  and 

extrahazardous  risks  assumed  by  employes  in  the  various  kinds 
of  industries. 

(b)  Guaranty  insurance,  by  which  the  insurer  agrees  to  indemnify 

the  insured  against  loss  or  liability  by  reason  of  the  lack  of 
fidelity  on  the  part  of  officials,  or  liability  incurred  by  reason 
of  default  of  any  other  person. 

(c)  Indemnity  to  employers  against  liability  that  may  be  incurred 

by  reason  of  personal  injury  suffered  by  employes. 

(d)  Insurance  against  losses  suffered  on  account  of  violence  of  nat- 

ural agencies,  such  as  wind,  hail,  flood,  lightning,  etc. 

(e)  Contracts  made  by  benevolent  and  fraternal  organizations  for  the 

purpose  of  g^ranting  indemnity  to  their  members  in  case  of  loss 
by  reason  of  sickness,  accident,  or  death. 

(f)  Some  unsuccessful  attempts  made  by  European  governments  to 

establish  insurance  under  governmental  control. 

In  General. 

The  beneficial  results  of  properly  managed  insurance  have  become 
so  well  recognized  by  all  classes  of  society  in  recent  years  that  there 
is  manifested  a  strong  tendency  to  apply  these  benevolent  principles 
to  all  conditions  that  give  rise  to  risk  of  loss  or  injury.  The  forms 
which  the  application  of  insurance  principles  to  these  varying  condi- 
tions takes  are  almost  innumerable,  and  the  nature  and  character  of 
the  risks  insured  against  are  even  more  numerous,  yet  the  principles 
applying  to  these  manifold  contracts  of  indemnity  are  in  all  cases 
practically  the  same.  There  are,  however,  some  features  of  these 
differing  contracts,  which  have  received  the  consideration  of  the  courts 
in  many  cases  that  are  to  be  noted  hereafter. 

The  student  must  observe  that  there  is  no  reason  why  a  contract 
of  insurance  shall  not  be  made  in  any  case  where  an  actual  loss  may 
be  suffered,  and  that  whatever  the  contract  may  be  called,  or  through 
whatever  agencies  it  may  be  made,  or  whatever  other  incidents  it 
may  have  associated  with  it,  the  agreement  is  still  one  of  insurance, 
and  subject  to  the  rules  of  insurance  law,  if  the  requisite  elements  are 
present 


M 


§13) 


EXTENSION   OF  PRINCIPLES  IN   MODERN   TIMES. 


25 


Workingmen's  or  Industrial  Insurance. 

It  is  manifest  that  no  insurance  company  could  safely  grant  insur- 
ance to  those  who  are  engaged  in  hazardous  employments,  upon  the 
same  rates  as  are  paid  by  policy  holders  whose  lives  are  subject  to 
slighter  risks.  There  have  therefore  sprung  up  numerous  compa- 
nies who  issue  special  poHcies  upon  special  premium  rates  to  work- 
ingmen  whose  employment  subjects  them  to  these  peculiar  risks. 
Many  of  the  great  railroads  of  the  country  have  established  and  are 
now  conducting  an  extensive  system  of  insurance  to  their  employes 
against  the  risk  incident  to  their  employment.  The  railway  compa- 
nies build  and  equip  hospitals,  and  agree  to  care  for  and  furnish 
medical  attendance  to  any  employe  injured  in  their  service,  and  to 
pay  certain  specified  sums  to  him  during  the  time  when  he  is  incapa- 
ble of  working  on  account  of  his  injury,  or  to  his  family  in  case  of 
his  death  by  accident.***  In  return,  the  employe  is  under  obligation 
to  allow  the  employer  to  reserve  a  certain  amount  from  his  monthly 
wages,  and  he  also  agrees  that  the  employer  shall  be  released  from 
any  common-law  liability  that  may  exist  by  reason  of  the  injury  suf- 
fered.*^ A  most  interesting  and  important  phase  of  workingmen's 
insurance  is  to  be  found  in  the  recent  efforts  made  by  the  German 
government  to  establish  a  compulsory  system  among  the  working 
classes,  having  as  its  object  relief  to  any  workingman  that  may  be 
disabled  from  earning  a  livelihood  by  reason  of  either  accident,  in- 
jury, sickness,  or  old  age.  The  first  introduction  of  the  interesting 
experiment  of  government  insurance  was  made  under  the  act  of  1884. 
Since  this  initial  attempt,  many  experimental  acts  have  been  passed 
by  the  German  government,  extending  and  elaborating  the  system, 
which  is  now  said  to  be  highly  efficient,  and  thoroughly  satisfactory 
to  the  classes  concerned.*    These  experiments  in  Europe  are  being  tried 

*oit  is  generally  held  that  such  relief  associations  do  not  carry  on  "in- 
surance" within  the  meaning  of  the  term  as  used  in  statutes  regulating  the 
conduct  of  insuiance  business,  and  that  the  railways  that  establish  such  as- 
sociations are  not  acting  ultra  vires.  See  State  v.  Pittsburg,  C,  0.  &  St.  L. 
R.  Co.,  68  Ohio  St.  9,  67  N.  E.  93,  96  Am.  St.  Rep.  635;  Ringle  v.  Railroad 
Co.,  164  Pa.  529,  30  Atl.  492,  44  Am.  St.  Rep.  628. 

*i  By  the  weight  of  authority  such  releases  are  valid.  See  Beck  v.  Rail- 
road Co.,  63  N.  J.  Law,  232,  43  Atl.  908,  76  Am.  St.  Rep.  211;  Chicago,  B.  & 
Q.  R.  Ci).  V.  Curtis,  51  Neb.  442,  71  N.  W.  42,  66  Am.  St.  Rep.  456;  Olementa 
V.  Railway  Co.  (1894;  App.  Cas.  482.  Contra,  Miller  v.  Railroad  Co.  (C.  C.) 
65  Fed.  306.  Pittsburgh,  C,  C.  &  St.  L.  R.  Co.  v.  Montgomery,  152  Ind.  1, 
49  N  E.  582,  71  Am.  St.  Rep.  301,  was  decided  under  a  local  statute  prohib- 
iting such  releases. 

♦  The  following  interesting  statement  is  taken  from  the  Outlook  for  August 
13,  1904  (volume  77,  p.  870) :  "The  way  in  which  the  German  government  regu- 
lates insurance  partly  accounts  for  the  ability  of  the  working  people  to  bear 
the  burden  of  military  and  other  taxation  which  weighs  on  them  so  heavily, 
and  in  some  measure  removes  the  fear  of  poverty  from  many  thousands  for 
whom  no  other  means  of  financial  assistance  would  be  available,  and  who 


26 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.  1 


«13) 


EXTENSION   OF  PRINCIPLES  IN   MODERN  TIMES. 


27 


1 

ii't 


jMii 


t 


along  the  same  lines  as  those  pursued  by  the  larger  corporations  spoken 
of  above  in  this  country,  and  may  well  be  watched  by  us  with  great 
interest,  with  a  view  to  their  extension  by  corporate  employers,  and 
possibly  to  the  ultimate  adoption  of  such  insurance  as  a  governmental 
function. 

Guaranty  Insurance, 

The  necessity  for  insuring  the  fidelity  and  integrity  of  persons 
placed  in  positions  of  trust  has  long  been  recognized  and  accomplish- 
ed by  taking  bonds  for  the  faithful  performance  of  duty  by  such  per- 
sons, with  private  sureties  thereon.  There  are  now,  however,  nu- 
merous and  important  companies  that  have  been  formed  for  the' pur- 
pose of  granting  insurance  against  official  infidelity.  These  compa- 
nies not  only  furnish  bonds  for  all  persons  in  positions  of  trust,  but 
also  agree  to  indemnify  against  loss  by  reason  of  the  dishonesty  of 
employes,  or  the  insolvency  of  debtors,  or  against  loss  in  trade,  or 
from  nonpayment  of  obligations,  and  against  other  breaches  of  con- 
tract. Under  this  general  class  of  contracts  fall  also  those  that  guar^ 
anty  title  to  real  estate,  which  are  now  frequently  made,  and  have 
given  rise  to  numerous  large  and  influential  title  guaranty  compa- 
nies. Other  insurances  of  this  same  general  sort  are  such  as  are 
granted  against  loss  by  burglary. 

Employers'  Insurance  against  Injury  to  Employes. 

No  inconsiderable  item  of  expense  connected  with  the  conduct  of 
a  large  industrial  enterprise,  having  in  its  employ  large  numbers  of 
laborers,  is  made  up  of  the  sums  that  must  be  paid  out  to  those  em- 
ployes who  have  suffered  injury  in  the  course  of  their  employment, 
and  in  some  cases  such  employers  deem  it  advisable  to  secure  insur- 
ance against  loss  by  such  accidents  to  their  employes,  and  the  companies 
granting  such  indemnity  carry  on  a  business  of  very  considerable 
volume. 

Insurance  against  Loss  by  Reason  of  Violence  of  Natural  Agencies, 

While  loss  by  reason  of  the  violence  of  the  elements  is  not  so  fre- 
quent as  that  by  fire,  yet  it  is  extensive  enough  to  justify  the  forma- 

would  otherwise  be  thrown  on  charity.  The  Insurance  Is  chiefly  against  acci- 
dent, sickness,  and  infirmity  due  to  old  age.  The  number  of  working  people, 
of  whom  over  2,000,000  were  women,  thus  protected  in  1902  was  17,582,000,  and 
is  now,  judging  by  the  present  rate  of  Increase,  probably  in  excess  of  20,000  000 
In  1902  there  were  711,330  cases  of  accident  Indemnified,  and  in  the  present 
year  663,140  pensions  for  disability  are  in  force,  besides  14,186  pensions  fop 
Illness  and  156,618  pensions  for  old  age.  The  total  income  of  workingmen's 
insurance  funds  in  1901  was  $131,648,430,  and  the  total  expenses  were  $106,- 
043,003  in  that  year.  To  the  total  income  the  employers  contributed  45  20 
per  cent,  the  employees  37.64  per  cent,  and  the  government  6.43  per  cent,  while 
the  balance  of  10.73  per  cent  was  derived  from  interest  and  earnings.  More 
than  $250,000  per  day  was  paid  ont  that  year  in  benefits  to  working  people^'* 


tion  of  companies  for  the  purpose  of  insuring  against  such  loss.  The 
most  frequent  risks  of  this  character  insured  against  are  those  from 
wind,  hail,  and  lightning.  It  has  been  decided  that  destruction  by 
lightning,  in  the  absence  of  conflagration,  is  not  covered  by  a  policy 
insuring  against  loss  by  fire,  but  in  modern  times  most  fire  policies 
include  a  clause  insuring  against  destruction  by  lightning.  Con- 
tracts somewhat  similar  to  these  are  granted  against  the  explosion 
of  steam  boilers.  This  last  kind  of  insurance  has  become  of  great 
importance,  and  the  business  of  a  company  granting  such  insurance 
also  usually  includes  the  inspection  of  the  boilers  insured  at  certain 
specified  periods.  Contracts  granting  indemnity  against  loss  by  rea- 
son of  the  breaking  of  plate  glass  have  also  become  of  frequent  oc- 
currence. 

Insurance  by  Benevolent  and  Fraternal  Organizations. 

Associations  of  men  living  in  the  same  community,  and  under  sim- 
ilar conditions,  for  mutual  aid  against  disaster,  as  well  as  for  social 
pleasure,  have  been  known  from  the  earliest  times.  The  guilds  in 
the  Middle  Ages  were  well  organized,  and  were  administered  under 
carefully  drawn  regulations.  It  is  probable  that  even  at  that  early 
time  these  voluntary  associations  may  have  possessed  some  of  the 
features  resembling  mutual  insurance,  but  it  is  only  within  the  last 
two  decades  that  these  voluntary  associations  of  laboring  men  have 
engaged  in  the  practice  of  insuring  their  members  against  sickness, 
injury,  and  death,  to  any  considerable  extent  The  natural  gregari- 
ousness  of  laboring  men,  and  the  rapid  growth  in  popularity  of  the 
trades  union,  have  resulted  in  the  establishing  of  great  numbers  of 
benevolent  associations,  organized  for  the  double  purpose  of  social 
pleasure  and  mutual  aid  in  time  of  distress.  In  carrying  out  this  lat- 
ter purpose  a  most  extensive  form  of  life  and  accident  insurance  on 
the  co-operative  and  mutual  assessment  plan  has  grown  up.  This 
,Vind  of  insurance  will  be  further  considered  in  a  later  chapter.** 

Attempts  to  Establish  Government  Insurance  against  Fire. 

As  early  as  the  sixteenth  century  the  government  of  Portugal  at- 
tempted to  promote  its  commerce  by  providing  certain  regulations  for 
insuring  all  maritime  ventures  by  the  government  The  premiums, 
however,  that  the  government  required  to  be  paid  exceeded  those  that 
were  demanded  by  private  insurers  in  other  countries  at  the  same  time, 
and  this  effort  on  the  part  of  the  Portuguese  government  to  carry  on 
governmental  insurance  seems  to  have  been  early  abandoned. 

Within  comparatively  recent  times  the  city  of  Zurich,  in  Switzerland, 
attempted  to  institute  a  system  of  municipal  insurance  on  the  property 

*2  See  post  p.  58.  Guaranty,  liability,  and  other  special  kinds  of  insurance 
are  discussed  in  chapter  17,  post,  p.  590. 


I 


28 


HISTORICAL  AND   INTRODUCTOEY, 


(Ch.l 


ll 


* 


of  its  citizens  upon  the  payment  of  a  specified  tax  premium.  It  soon 
became  manifest,  however,  that  so  many  delicate  conditions  entered  into 
the  fixing  of  the  amount  of  insurance,  and  the  premiums  to  be  paid  for 
such  insurance,  that  the  attempt  to  carry  on  successfully  the  business 
of  fire  insurance  by  employes  of  the  government  would  necessarily  fail. 
Peculation,  favoritism,  and  incompetency,  that  might  have  been  expect- 
ed to  characterize  the  administration  of  such  a  complicated  govern- 
mental business,  soon  resulted  in  running  the  premium  rates  up  far 
higher  than  they  had  been  when  insurance  was  in  the  hands  of  private 
individuals.  The  result  was  that  the  city  soon  gave  up  this  attempt,  and 
no  considerable  effort  has  since  been  made  to  repeat  such  an  unpromis- 
ing experiment.*'  The  insurance  of  workingmen  under  government 
regulation  that  is  now  being  carried  on  in  Germany  may,  if  contin- 
uously successful,  perhaps  revive  these  attempts  to  conduct  other 
branches  of  insurance  bv  eovernmental  ag:encies. 

THE  FORMS  AND  KINDS  OF  POLICIES. 


I' 


I 


14.  Policies  of  insurance  are  as  diverse  in  form  as  are  the  contracts 

whicli  they  embody.  In  1779  IJoyd's  adopted  a  standard  form 
of  marine  policy  which,  -with  few  changes,  remains  in  prac- 
tically universal  use  in  the  British  w^orld.  A  standard  form 
of  fire  policy  has  been  adopted  by  many  of  the  American  states, 
w^hich  is  in  general  use  throughout  the  United  States. 

15.  Policies  difPer  according  to  the  character  of  the  contract  made* 

The  most  important  kinds  may  be  classified  as  folloxirs: 
As  to  the  aniount  payable,  policies  are  ''valued**  or  ''open." 


(a) 
(b) 
<c) 

(d) 


As  to  duration  they  are  "time**  or  "voyage**  policies. 

As  to  the  subject-miatter  of  insurance,  policies  are  termed  "float- 
ing,** "running,**  or  "blanket**  policies. 

Life  policies  are  known  as  "regular  life,"  "tontine,**  "endow- 
ment,** and  "joint  life**  policies,  and  by  many  other  descriptive 
names* 


From  what  has  before  been  said  it  is  seen  that  the  contracts  of  mod- 
em insurance  are  so  very  diverse,  both  as  regards  the  subject-matter  of 
insurance  and  the  terms  of  the  contracts  themselves,  that  the  policies 
in  which  these  contracts  are  embodied  are  of  almost  infinite  variety; 
yet  it  early  began  to  be  manifest  that  much  needless  difficulty  and  con- 
fusion had  come  into  insurance  law,  especially  with  regard  to  the  adjust- 
ment of  losses  suffered  upon  property  insured  under  several  policies. 
Because  of  this  troublesome  diversity  in  the  terms  of  similar  policies,  an 
effort  was  early  made  to  reduce  the  various  contracts  of  insurance 
against  certain  frequently  occurring  perils,  such  as  loss  by  marine  dis- 
aster, to  a  uniformity  in  terms.    As  a  result,  the  insurance  brokers  of 

4t  See  article  "Insurance,**  in  13  Enc  Brit 


i 

i 


29 

§§  14r-16)  -     THE  FORMS  AND  KIKDS  OF  POUCIB8. 

Lloyd's  Society  in  1779  adopted  the  curious  form  of  P^l'^^f''*  ^^ 
ever  since  been  known  as  "Lloyd's  Standard  Policy,    f  "^  wh  ch  desp.te 
its  incoherence  and  uncertainty,  has  been  so  frequently  -^^f  ™/^  ">  ^J 
of  its  important  terms  by  the  courts  as  to  remam  ^J"^  ^o  the  pre^^^J 
time  the  most  satisfactory  and  generally  used  form  of  marine  msurance 
pTcy"    This  policy  was  intended  at  first  to  be  used  only  by  the 
rnderwriters  dofng  business  at  Lloyd's,  and  the  -ntra^f ^  u^^^^^^^^^ 
form  were  held  in  special  favor  for  many  years  ''y  «7"  ^^^'^/^/^ff  ^ 
they  were  made  under  the  guaranty  of  accredited  members  of  the 
sodety  at  Lloyd's.    But  the  form  came  into  general  use  among  all  ma- 
Sd  rtriLs  in  England,  and  by  the  Marine  I"-;-- ^m  of  1899 
this  venerable  document  was  recognized  as  the  standard  form  of  ma 
rine  do&v  for  the  British  Islands."    In  the  United  States  no  standard 
form  ?f  Irine  po^^^^  has  ever  been  adopted  by  legislative  enactment. 

The  Standard  Fire  Policy. 

With  the  remarkable  growth  of  the  business  of  fire  msurance  in  the 
latter  half  of  the  nineteenth  century,  the  evils  consequent  upon  the  grea 
variety  of  policies  issued  by  different  companies  covering  the  same 
kfnd  of  risks  became  so  evident  and  annoying  that  an  effort  was  made 
to  secure,  by  legislative  interference,  uniformity  in  the  terms  of  s.m.la 
Contracts  of  insurance,  by  whatever  insurer  made.  I«  ^^f  tl'^»>'"f/"^'^ 
a  standard  form  of  fire  policy  Massachusetts  took  the  lead,  under  an 

act  first  passed  in  1873.     This  act  was  ^"''^f^l^^^J^  „^%t„^^,;"^*. 
prese:it  standard  form  exists  under  an  act  of  1886      Shortly  there 
after  New  York  took  steps  toward  framing  a  standard  form  of  policy 
for  all  contracts  of  fire  insurance  made  in  that  state.    Under  the  pro- 
visions of  the, New  York  statute,  the  act  was  to  be  drafted  by  a  commit- 
tee from  the  New  York  Board  of  Fire  Underwriters,  but  the  work  was 
actually  done  by  that  committee  collaborating  with  a  committee  of  the 
National  Board  of  Fire  Underwriters,  with  the  assistance  and  lega 
counsel  of  some  of  the  most  distinguished  specialists  in  msurance  law  at 
the  New  York  bar.    In  the  construction  of  this  important  document, 
herefore.  it  is  seen  that  use  was  made  of  the  best  talent  and  the  most 
extensive  experience  possessed  by  those  engaged  in  insurance  business, 
under  the  guidance  of  those  skilled  as  counselors  in  the  P^acface  of  in- 
surance law.    The  attempt  made  by  those  having  charge  of  .*•«  work 
was  not  only  to  give  as  clear  and  precise  expression  as  possible  to  the 
usual  terms  of  a  contract  of  fire  insurance,  but  also  to  adapt  the  terms 

«4  Lord  Mansfield  in  1812  said  of  this  policy:    "This  PoW^y  »' ';»'"'""~ 
is  a  ^^  sttange  instrument,  as  we  all  know  and  feel."    See  Le  Chemmant 

"  JiriVJ^InsNTth  B«.)  P.  12  et  seq..  where  this  I«cu-lar  docnm^jt  ta 
printed  in  full.  There  ta  also  given  an  account  of  recent  statutor,  dumge* 
of  Uoyd'B  policy. 


30 


f 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


§§  14-16) 


THE   FORMS  AND  KINDS  OP  POIilCTBS. 


31 


used  to  the  judicial  precedents  in  existence  at  that  time.  The  New 
York  standard  policy,  as  finally  reported  by  this  committee  of  experts, 
and  adopted  by  the  Legislature  in  1886,  differs  in  some  respects  from 
the  Massachusetts  form,  but  has  generally  been  recognized  as  an  instru- 
ment of  great  merit  and  value,  and  has  been  adopted  with  various  minor 
changes,  by  the  legislatures  of  several  other  states.  It  has  recently 
b.een  decided  in  Missouri  *«  that  the  promulgation  of  such  a  standard 
form  by  the  properly  authorized  state  officers,  and  the  requirement  that 
all  policies  subsequently  written  shall  be  in  such  form,  is  not  such  a  vio- 
lation of  the  civil  rights  of  citizens,  guarantied  under  the  fourteenth 
amendment  of  the  Constitution  of  the  United  States,  as  will  justify 
a  court  in  enjoining  such  promulgation  at  the  suit  of  protesting  prop- 
erty owners.  &  *-    *- 

This  standard  form  of  fire  policy  is  now  in  general  use  throughout 
the  United  States,  and  has  resulted  in  greatly  simplifying  the  always 
vexatious  and  difficult  problem  of  adjusting  losses,  and  has  also  done 
much  toward  rendering  more  harmonious  the  legal  precedents  fixing 
the  rights  of  parties  under  the  contract.  No  effort  has  yet  been  made 
to  reduce  either  life  or  accident  policies  to  any  sort  of  uniformity,  and, 
on  account  of  the  numerous  variations  of  which  these  contracts  are  capa- 
ble. It  is  hardly  probable  that  any  such  effort  could  be  made  with  any 
considerable  success. 

The  Different  Kinds  of  Policies. 

Certain  ones  of  the  most  frequently  occurring  contracts  of  insurance 
have  received  names  that  should  become  familiar  to  the  reader,  in  order 
that  subsequent  reference  to  them  may  be  more  easily  understood 
Generally,  policies  are  spoken  of  as  being  either  "interest"  policies  or 

wager  policies.  The  first  is  merely  the  ordinary  valid  policy  of  in- 
surance, based  upon  a  substantial  interest  in  the  insurer,  while  the 
second  IS  a  gambling  contract,  based  upon  an  event  in  which  the  parties 
have  no  interest  other  than  the  payment  of  some  wager.  Such  wager 
pohaes  were  probably  valid  at  common  law,  but  now  in  England,  under 
the  act  of  19  George  II,  they  are  prohibited,  and  they  have  in  most  cases 
been  held  wholly  invalid  in  the  United  States,  apart  from  the  statutes 
prohibiting  wagering  contracts.*^ 

A  "valued"  policy  is  one  in  which  a  definite  valuation  is,  by  the 
agreement  of  both  parties,  put  upon  the  subject-matter  of  insurance  and 
wntten  in  the  face  of  the  policy,  as,  for  example,  a  policy  insuring  "The 
Ship  Empress,  valued  at  thirty  thousand  pounds."     Such  a  valuation 
m  the  absence  of  fraud  or  mistake,  is  conclusive  upon  the  parties,' 

*•  Business  Men's  League  v.  Waddlll,  143  Mo.  495,  45  S.  W.  262,  40  U  R 
A.  501. 

4T  CONxXECTICUT  MUT.  MFB  INS.  CO.  y.  SOHAEFER,  94  U.  S.  457.  460, 


and  in  case  of  total  loss  it  always  furnishes  the  basis  of  settlement.  An 
"open"  policy  is  one  in  which  a  certain  agreed  sum  is  written  in  the 
face  of  the  policy,  not  as  the  value  of  the  property  insured,  but  as  the 
maximum  limit  of  recovery  in  case  of  destruction  by  the  peril  insured 
against,  as,  for  instance,  a  house  insured  for  $10,000.  In  case  property 
insured  under  such  open  policy  is  totally  destroyed,  the  insurer  may  in- 
troduce evidence  to  show  that  the  property  was  not  really  worth  $10,000, 
but  some  other  less  sum.  Of  course,  however,  the  amount  written  in 
the  policy  is  always  the  limit  of  recovery,  beyond  which  there  is 
no  liability  upon  the  insurer,  even  for  damage  actually  suffered.  As 
has  been  heretofore  noted,  many  of  the  American  states  have  by  statute 
prohibited  the  insurer  from  showing,  in  the  absence  of  fraud,  that  the 
value  of  property  destroyed  is  any  less  than  the  amount  written  in  the 
face  of  the  policy,  thus  converting  all  open  policies  arbitrarily  into 
valued  policies. 

A  "time"  policy  is  one  granting  insurance  from  one  specified  date 
until  another,  as,  for  instance,  upon  a  ship  from  the  1st  day  of  January, 
1901,  to  the  1st  day  of  January,  1902,  or  upon  a  house  for  a  period  of 
five  years  from  July  1,  1900.  A  "voyage"  policy  is  one  that  insures  a 
vessel  or  its  cargo  during  a  certain  voyage  between  specified  termini, 
as  "At  and  from  London  to  Melbourne  and  return."  Sometimes  a 
policy  is  written  as  both  a  time  and  voyage  policy,  as  "At  and  from 
Liverpool  to  Canton,  for  six  months  from  January  1,  1902."  Policies 
upon  goods  shipped  in  a  certain  named  vessel  are  sometimes  calle-:' 
"named"  policies. 

Blanket  Policies. 

Ordinarily  the  subject-matter  of  insurance  must  be  designated  with 
such  particularity  as  will  make  its  identification  certain,  yet  in  some 
cases  the  nature  of  the  property  insured,  or  the  circumstances  of  the 
granting  of  the  insurance,  are  such  as  to  make  it  impossible  to  have  such 
certainty  in  the  subject-matter.  Thus,  insurance  may  be  carried  on  a 
constantly  changing  stock  of  goods,  or  on  grain  that  is  being  carried  to 
and  fro  in  the  harbor  on  lighters,  and  under  such  circumstances  these 
policies  are  usually  known  as  "floating."  Other  names,  having  the 
same  significance  and  given  to  the  same  kind  of  policies,  are  "running," 
"open,"  and  "blanket."  *• 

Kinds  of  Life  Policies. 

The  kinds  of  life  policies  are  limited  in  number  only  by  the  ingenuity 
of  the  actuaries  and  managers  of  the  numerous  competing  companies, 
insuring  against  loss  of  life,  and  only  the  more  important  and  usual 
kinds  may  be  mentioned.    The  oldest  and  most  frequent  form,  even  at 

48  For  an  Interesting  case  involving  a  blanket  policy,  and  the  apportion- 
ment of  loss  between  blanket  and  specific  policies,  see  Schmaelzle  v.  Insur- 
ance Co.,  75  Conn.  397,  53  Atl.  863,  60  L.  R.  A.  536,  96  Am.  St  Kep.  233. 


32 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


PREMIUMS  AND   RESERVE   FUND. 


33 


the  present  time,  is  known  as  the  "regular  life,"  under  the  terms  of 
which  the  insured  is  required  to  pay  a  certain  fixed  premium  annually 
throughout  life,  and  the  beneficiary  is  entitled  to  receive  payment  un- 
der the  policy  only  upon  the  death  of  the  insured. 

Another  kind  of  policy  which,  from  the  time  of  its  invention  by  Lo- 
renzo Tonti,  an  Italian,  in  1650,  has  always  proved  exceedingly  at- 
tractive, is  the  "tontine."  The  original  tontine  contract  was  for  the 
purpose  of  securing  government  loans  on  advantageous  terms  from  the 
people,  and  was  based  upon  a  division  of  the  lenders  into  classes,  only 
the  survivors  of  which  were  at  any  given  period  to  participate  in  the 
payment  of  the  dividends  or  principal.  This,  in  its  simple  form,  is 
seen  to  be  the  reverse  in  many  respects  of  the  ordinary  contract  of  life 
insurance,  under  which  it  is  to  the  interest  of  the  insurer  that  the  insured 
should  survive  the  making  of  the  contract  long  enough  to  pay  in 
premiums  an  amount  equal  to,  or  in  excess  of,  the  sum  received  by 
the  beneficiaries  under  the  policy.  Under  the  tontine  contract,  however, 
death  before  the  dividend  period  entirely  deprived  the  decedent,  or  his 
nominee,  of  any  benefits  from  the  contract  whatever,  but  the  interest 
of  all  dying  would  pass  to  the  survivors,  so  that  the  last  survivor  of 
any  class  would  receive  the  dividends  that  originally  accrued  to  the 
whole  class,  and,  if  the  terms  of  the  contract  so  provided,  might  also 
receive  the  entire  principal  sum  of  the  loan.  A  great  many  of  the  mod- 
ern life  insurance  policies  contain  tontine  features,  more  or  less  modi- 
fied to  suit  the  desires  of  the  insured.  Thus,  in  many  endowment  poli- 
cies, it  is  provided  that  dividends  shall  be  apportioned  to  all  policies  sub- 
sisting after  a  certain  period,  whether  five,  ten,  or  twenty  years.  Under 
such  contracts,  those  policies  maturing  or  lapsing  prior  to  the  expiration 
of  the  dividend  period  receive  no  dividends,  but  those  still  in  force  at 
the  end  of  the  tontine  period  receive  the  benefit,  by  way  of  increased 
dividends,  of  the  maturing  or  the  cancellation  of  other  policies. 

As  has  been  stated  heretofore,  the  modem  life  insurance  contract  is 
as  much  a  contract  of  investment  as  of  insurance.  In  the  regular  life 
policies  defined  above,  the  insurance  feature  is  g^ven  prominence,  but 
there  are  written  many  and  various  kinds  of  life  policies  in  which  the 
investment  feature  is  paramount.  Such  policies  are  generally  called 
"endowment  policies,"  and  usually  provide  that  the  insured  shall  pay 
a  certain  premium  annually  for  a  stated  period  of  years.  If  the  insured 
dies  before  the  end  of  the  endowment  period,  the  beneficiary  receives 
the  amount  which  is  agreed  to  be  paid  in  the  policy ;  but  if  the  insured 
survives  the  endowment  period,  he  is  entitled  at  its  end  to  receive  the 
amount  written  in  the  face  of  the  policy,  with  any  dividends  that  may 
be  awarded  under  the  authority  of  the  directors  of  the  company  from 
the  surplus  receipts  of  the  company.  Instead  of  such  cash  payment, 
the  insured  is  given  the  privilege  of  receiving  a  paid-up  policy  for  some 
specified  sum,  or  of  taking  the  benefit  accruing  under  the  matured  policy 


t 


§§  16-21) 

in  various  other  alternative  forms.  A  "joint  life"  policy  is  one  under 
which  there  is  an  agreement  that  the  premium  shall  be  paid  during  the 
joint  lives  of  the  persons  insured,  the  policy  maturing  and  becoming 
payable  upon  the  death  of  any  one  of  those  jointly  insured.  A  ''sur- 
vivorship" policy  is  one  that  is  payable  upon  the  death  of  the  survivor 
of  several  joint  lives. 

A  policy  of  "reinsurance"  is  merely  a  contract  made  by  one  insurer 
with  another,  whereby  the  first  reinsures  with  the  second  some  portion 
of  the  risks  originally  taken  by  himself.  Such  contracts  of  reinsurance 
are  made  for  the  purpose  of  distributing  a  risk  that  is  deemed  so  large 
that  a  payment  in  case  of  loss  would  seriously  cripple  and  endanger  the 
prosperity  of  the  original  insurer.  With  the  exception  of  some  peculiar 
incidents  to  be  discussed  hereafter,  the  same  rules  apply  to  the  making 
of  contracts  of  reinsurance  as  to  those  of  original  insurance. 

PREMIUMS  AND  RESERVE  FUND. 

< 

16.  In  fixing  the  amount  of  preniium  in  any  given  ease  of  marine,  fire, 

or  accident  insurance,  the  insurer  strikes  an  equation  between 
the  sum  to  be  paid  by  all  of  the  insured  and  the  amount  neces- 
sary for  the  payment  of  probable  losses  and  probable  expenses 
during  a  specified  term.  To  do  this  it  is  necessary  to  require 
that  each  insured  shall  pay  such  a  percentage  of  the  amount  of 
his  insurance  as  experience  has  shoivn  that  the  probable  losses 
suffered,  plus  expenses  to  be  incurred,  will  bear  to  the  total  of 
the  outstanding  insurance. 

17.  In   cases   of   *'level   premium"   life   insurance,    the   insurer   must 

equate  the  present  worth  of  the  sum  payable  under  the  terms 
of  the  policy  with  the  present  worth  of  all  the  premiums  that 
may  be  received  from  the  insured  during  the  probable  duration 
of  his  life,  plus  the  proportionate  part  of  the  expense  of  man- 
agement. 

18.  In  "assessment"  iusurance,  the  premium  exacted  of  the  insured 

is  determined  by  apportioning  the  actual  losses  suffered  and  the 
expenses  incurred  in  any  given  term  among  the  surviving  in- 
sured, due  regard  being  had  to  the  expectancy  of  life  possessed 
by  each  one  insured.  Expectancy  of  life  in  any  case  is  deter- 
niined  by  reference  to  accepted  mortuary  tables. 

i^,  THE  RESERVE  FUND  for  any  given  policy  is  a  sum  aoonmulated 
from  the  premiums  paid  for  the  purpose  of  discharging  the 
payment  due  under  the  policy  upon  its  uiaturity.  Such  reserve 
is  made  up  of  that  portion  of  the  annual  premiums  payable 
v^hich,  with  compound  interest  at  a  fixed  rate  per  cent.,  will, 
at  the  time  the  policy  is  calculated  to  niature,  amount  to  the 
sum  payable  under  the  policy. 

20«  THE  RESERVE  VALUE  of  the  policy  at  any  given  time  is  the 
sum  of  all  such  reserved  portions  of  the  premiunis  paid  during 
its  currency,  and  the  aggregate  reserve  values  of  all  policies 
outstanding  determine  the  liability  of  the  insurer  im  reference 

Vance  Ins. — 3 


34 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.l 


to  outstanding  insurance.  Tlius,  tlie  reserve  value  of  subsist- 
ing policies,  and  not  the  amount  of  insurance  outstanding,  is 
to  be  looked  to  in  determining  the  solvency  of  tbe  insurer,  and 
the  rights  of  policy  holders  in  cases  of  insolvency. 
21.  The  "surrender  value"  of  a  policy  is  based  upon  its  reserve  value, 
but  is  usually  fixed  at  a  somewhat  lower  figure. 

The  fixing  of  premiums  for  the  various  kinds  of  insurance  is  done  by 
the  actuaries,  and  involves  the  application  of  difficult  and  abstruse 
mathematical  principles,  as  well  as  the  calculation  of  tabulated  proba- 
bilities from  the  most  extensive  data  obtainable.     In  every  case  of 
fixing  insurance  rates,  the  real  problem  is  to  determine  what  proportion 
of  the  losses  that  are  actually  suffered  from  the  perils  insured  against 
shall  be  borne  by  each  of  those  participating  in  the  benefits  of  the  in- 
surance.    The  machinery  for  making  this  distribution  of  losses  and 
apportioning  the  burden  is  usually  supplied  by  a  corporation,  whose 
officers  make  the  proper  calculations  and  attend  to  the  details  necessary 
to  render  effective  the  agreement  for  distribution.     In  each  case  it  is 
necessary  merely  to  require  from  all  of  those  in  the  class  insured  against 
certain  perils  the  payment  of  such  sums  as  will  realize  an  amount  suf- 
ficient to  pay  the  losses  when  they  shall  happen,  and  also  defray  the 
cost  of  administration.     In  marine,  fire,  and  accident  insurance,  where 
the  contract  of  insurance  appears  in  its  simplest  and  purest  form,  the 
sum  to  be  exacted  as  premium  for  insurance  during  any  given  term 
can  be  easily  fixed  if  it  is  known  what  percentage  of  the  total  amount  of 
insurance  that  is  granted  will  be  required  to  be  paid  in  losses.     In  ma- 
rine and  fire  insurance  long  experience,  and  careful  recordation  of  prop- 
erty insured  and  of  losses  under  such  insurances,  have  resulted  in  the 
formation  of  tables  which  give  with  considerable  accuracy  the  prob- 
able percentage  which  the  losses  by  any  specified  peril  will  bear  to  the 
total  amount  of  property  insured  during  any  given  term.     With  these 
tables  at  hand  the  insurer  has  but  to  fix  his  premium  at  the  same  rate 
per  cent,  of  the  amount  of  the  insurance  granted  as  the  probable  loss 
during  the  period  will  bear  to  the  total  property  insured.     To  this  net 
premium  so  obtained  is  added  a  certain  amount  of  "loading,"  intended 
to  cover  the  cost  of  administration,  and  to  give  a  surplus  from  which 
any  losses  in  excess  of  those  anticipated  may  be  paid.     In  order  to  pro- 
vide against  emergencies,  such  as  may  arise  on  account  of  a  great  storm 
at  sea,  or  a  great  conflagration  on  land,  such  as  that  at  Chicago  in  1871, 
marine  and  fire  companies  are  always  careful  to  provide  a  safe  margin 
between  the  amount  which  experience  tables  show  will  probably  be 
needed  to  meet  the  losses,  and  the  sum  actually  realized  from  premium 
payments.     It  should  be  noted  here  that  in  the  various  kinds  of  mixed 
insurance  contracts,  such  as  that  of  insuring  boilers  against  explosion, 
there  are  many  other  considerations  that  enter  into  the  calculation  of  the 
amount  of  the  premium  besides  the  probable  amount  of  loss  that  would 


§§  16-21) 


PREMIUMS  AND  RESERVE  FUND. 


35 


be  suffered.  Thus,  in  the  case  of  boiler  insurance,  the  contract  re- 
quires that  there  shall  be  inspection  of  the  boilers  insured  at  stated 
periods,  and  a  portion  of  the  premium  that  is  paid  is  in  effect  the  fee 
charged  for  the  inspection,  and  has  therefore  no  proper  relation  to  in- 
surance. 

Fixing  Premiums  in  Life  Insurance, 

The  problem  of  determining  what  charge  shall  be  made  to  the  in- 
sured under  the  contract  of  life  insurance  involves  many  elements  that 
are  not  found  in  the  case  of  fire  insurance  contracts,  and  presents  many 
difficulties  that  do  not  obtain  in  the  calculation  of  premiums  for  pure 
insurance.  It  is  first  to  be  noted  that  while  the  loss  msured  against  in 
a  marine  or  fire  contract  or  an  accident  policy  may  never  take  place,  and 
in  the  great  majority  of  instances  does  not  take  place,  yet  the  loss  that 
the  life  insurance  contract  agrees  to  indemnify  is  certain  to  occur,  the 
only  element  of  contingency  being  the  time  at  which  the  loss — ^that  is, 
the  death  of  the  insured — will  occur.  It  is  plain  that  if  the  contract  of 
life  insurance  is  performed  by  both  parties  the  sum  will  certainly  be- 
come payable  at  some  future  time,  and  it  becomes  necessary  for  the 
insurer  to  provide  from  the  premiums  received  a  sure  means  of  ac- 
cumulating a  sufficient  fund  to  enable  him  to  make  the  payment  prom- 
ised under  the  policy  when  it  shall  mature.  In  order  to  do  this,  it 
is  needful  for  him  to  be  able  to  calculate  with  a  reasonable  degree  of 
certainty  upon  the  number  of  annual  premiums  he  may  expect  to  re- 
ceive from  a  healthy  person  of  a  given  age  who  may  be  insured.  Such 
knowledge  is  now  obtained  by  the  insurer  from  certain  tables,  ordi- 
narily known  as  "mortuary  tables." 

The  Several  Mortuary  Tables  and  Their  Origin. 

The  first  attempt  made  to  construct  a  table  showing  what  proportion 
of  a  class  of  men,  taken  at  a  given  age,  will  die  in  successive  years 
thereafter,  was  made  by  John  Graunt  in  1662,  being  made  up  from 
baptismal  and  death  records  kept  during  a  number  of  years  in  London. 
This  table  was  very  crude,  and  was  much  improved  by  a  similar  effort 
made  by  Halley  in  1693,  from  data  obtained  from  the  death  records  of 
the  city  of  Breslau,  in  Germany.**  The  first  table,  however,  to  present 
even  an  approximately  accurate  result,  obtained  from  a  more  compre- 
hensive compilation  of  vital  statistics,  was  that  given  forth  by  Johann 
Siissmilch  in  1742.  It  was  on  this  table  that  the  rates  of  the  venerable 
Equitable  Life  Insurance  Institution,  founded  in  1765,  were  based.  In 
1815,  the  more  accurate  Carlisle  Tables  were  compiled,  and,  being 
framed  from  very  much  more  carefully  collected  and  assimilated  sta- 
tistics, very  soon  became  popular  with  the  insurance  companies.    In 


I 


^*  For  an  interesting  account  of  the  yarions  mortuary  tablet  in  use,  see 
Elements  of  Life  Insurance,  by  M.  M.  Dawson. 


f 


36 


HISTOEICAIi  AND   INTRODUCTORY. 


(Ch.l 


§§  16-21) 


PREMIUMS  AND  RESERVE  FUND. 


37 


later  times  many  other  mortuary  tables  have  been  constructed,  but  the 
Actuaries'  Experience  Tables,  made  up  from  the  data  obtamed  from  the 
records  of  seventeen  of  the  largest  English  companies,  and  the  American 
Experience  Tables,  compiled  by  Shephard  Romans,  the  famous  actuary 
of  the  Mutual  Life  Insurance  Company  of  New  York,  are  generally  re- 
o-arded  as  being  the  most  accurate  in  the  results  tabulated,  and  now  fur- 
nish a  basis  for  the  calculation  of  all  insurance  values  m  the  various 
states  of  the  Union.     New  York,  Virginia,  and  many  other  states  use 
the  American  Experience  Tables,  while  Massachusetts  and  other  states 
use  the  Actuaries'  Table.     All  of  these  mortuary  tables,  however,  as 
experience  has  abundantly  shown,  are  too  unfavorable  to  the  insured, 
and  the  expectancy  of  Hfe  as  shown  by  them  is  unquestionably  less 
than  the  experience  of  insurance  companies  has  demonstrated  to  be  the 
actual  average  duration  of  lives  at  the  given  ages.    The  three  most 
popular  tables  do  not  differ  widely  in  the  results  obtained,  but  it  is 
to  be  observed  that  in  the  American  Tables  the  ultimate  limit  of  life  is 
placed  at  95  years,  while  in  the  Cariisle  and  Actuaries'  Tables  the  ulti- 
mate limit  is  placed  at  100.     Actual  experience  has  shown  that  the  ulti- 
mate limit  of  life  is  greater  even  than  100,  and  it  necessarily  follows  that 
the  American  Tables,  especially,  placing  the  ultimate  limit  at  95,  give 
too  unfavorable  results  for  the  more  advanced  ages.    It  is  admitted 
by  all  that  these  mortuary  tables  are  far  from  being  as  accurate  as 
might  be  obtained,  and  records  are  now  being  made  from  which  it  is 
probable  that  there  will  be  ultimately  compiled  some  vital  statistics 
that  will  show  with  reasonable  accuracy  what  is  the  expectancy  of  life 
at  any  given  age.     It  is  manifest  that  such  a  table,  if  accurate  and  re- 
liable results  are  to  be  reached,  must  take  account  of  locality,  heredity, 
and  of  sex,  none  of  which  were  regarded  in  the  construction  of  exist- 
ing tables. 

Natural  Premiums,  Level  Premiums,  and  Assessments. 

Whatever  may  be  the  form  of  life  insurance,  the  ultimate  problem 
before  the  actuaries  in  determining  the  premium  charge  to  be  made  is 
always  the  same.  The  insurer  must  require  of  the  insured,  during  his 
expectancy  of  life  as  determined  by  the  experience  tables,  premiums  to 
such  an  amount  that  the  present  value  of  the  aggregate  sum  of  all  the 
premiums  that  may  be  paid  from  year  to  year  shall  equal  the  present 
worth  of  the  sum  payable  under  the  policy  at  the  time  of  its  calculated 
maturity.  It  is  plain  that  as  life  advances  the  risk  of  loss  increases, 
and  with  the  increasing  loss  would  come  increasing  cost  of  insuring 
against  the  happening  of  such  loss.  If  life  insurance  contracts  were 
made  from  year  to  year,  the  insurer  agreeing  merely  to  grant  insurance 
against  loss  in  any  given  year,  the  insured  would  be  required  to  pay  for 
such  term  of  insurance  only  in  accordance  with  the  actual  risk  of  loss 
at  his  age,  such  amount,  of  course,  increasing  from  year  to  year  as 


the  probability  of  death  during  each  successive  year  increased,  until 
finally,  when  the  ultimate  limit  of  life  was  reached,  the  cost  of  insur- 
ance against  death  would  approach  the  amount  to  be  paid  at  death. 
The  premium  that  would  thus  be  paid  for  insurance  during  any  given 
year,  or  indeed  for  a  term  of  years  specified,  would  be  in  many  respects 
similar  to  that  required  for  insurance  for  loss  by  fire  or  peril  by  sea,  and 
is  known  as  a  "natural"  premium.  Natural  premium  insurance  is  un- 
questionably the  cheapest  method  of  obtaining  pure  insurance  against 
loss  of  life,  and  many  efforts  have  been  made  to  popularize  this  form  of 
life  insurance.  But,  as  is  seen,  it  contains  nothing  of  the  investment 
feature,  and,  furthermore,  imposes  ever  increasing  burdens  upon  the 
insured  that  fall  upon  him  during  the  later  years  of  his  life,  when  he 
is  least  able  to  bear  them.  It  is  probably  this  characteristic  that  has  pre- 
vented natural  premium  insurance  from  attaining  any  considerable 
vogue,  notwithstanding  the  ardent  efforts  made  in  its  behalf  by  Mr. 
Romans,  the  actuary  mentioned  above. 

The  demand  for  insurance  at  a  fixed  annual  rate,  which  shall  continue 
the  same  throughout  the  currency  of  the  policy,  has  given  rise  to  the 
prevailing  form  of  level  premium  insurance,  which  is  by  all  means  the 
most  popular  form  that  modern  contracts  of  life  insurance  assume. 
It  will  be  readily  seen  that  in  fixing  a  level  rate  for  life  poHcies  the 
actuary  is  confronted  with  many  difficulties  that  do  not  exist  in  the 
case  of  natural  premium  insurance.     The  actual  risk  insured  against 
increases  rapidly  with  the  increasing  age  of  the  insured,  and  it  becomes 
necessary  for  the  actuary  to  strike  such  an  average  rate  as  will,  after 
due  regard  has  been  paid  to  the  interest  earning  power  of  accumulated 
premiums,  yield  a  sufficient  sum  to  ensure  the  ability  of  the  insurer  to 
make  the  payment  promised  under  the  policy  when  death  occurs,  which, 
of  course,  is  calculated  to  take  place  at  the  end  of  the  period  specified 
in  the  experience  tables  as  the  expectancy  of  life  possessed  by  the  in- 
sured.    The  premium  charge,  which  will  be  merely  sufficient  to  dis- 
charge at  maturity  the  obligation  assumed  to  the  insured  under  the 
policy,  is  termed  the  "net"  premium ;  but,  as  has  been  said,  the  actuary 
must  add  to  the  net  premium  so  fixed  a  sufficient  amount,  denominated 
"loading,"  to  defray  the  expenses  connected  with  the  administration 
of  the  business  of  the  company.     The  charge  thus  made,  including  this 
loading,  is  termed  the  "office"  premium.     Of  course,  the  method  of 
calculation  of  both  net  and  office  premiums  will  vary  considerably  with 
the  terms  of  each  particular  contract.    Thus,  in  the  case  of  a  twenty- 
payment  life  policy,  the  actuary  must  take  into  account  the  fact  that 
the  insurer  cannot  possibly  receive  more  than  twenty  payments,  and 
may  receive  fewer  in  case  of  the  death  of  the  insured  before  the  lapse 
of  the  specified  period.     In  the  case  of  a  ten-year  endowment  policy, 
the  insurer  must  base  his  calculation  upon  the  certain  maturity  of  the 
policy  after  ten  years,  and  its  possible  maturity  by  the  death  of  tlie 


38 


HISTORICAL   AND    INTRODUCTORY. 


(Ch.  1 


§§  16-21) 


PREMIUMS  AND  RESERVE  FUND. 


39 


S 


insured  before  the  expiration  of  that  time.  In  all  cases,  however,  the 
essential  principle  upon  which  the  calculation  of  the  premium  is  based 
remains  the  same. 

Assessment  Insurance.^^ 

Theoretically,  assessment  insurance  should  be  the  cheapest  and  most 
satisfactory  form  for  determining  the  charge  which  should  fall  upon 
every  member  of  a  class  of  persons  insured  in  return  for  the  indemnity 
guarantied.  Pure  assessment  insurance  requires  that  the  loss  that  may 
be  suffered  in  the  case  of  the  death  of  any  person  in  the  class  insured 
shall  be  met  by  levying  a  proportionate  assessment  upon  all  of  the 
surviving  members  of  that  class,  with  such  additional  amount  as  may 
be  necessary  to  defray  the  expenses  of  administration.  It  is  plain 
that  the  charges  made  for  insurance  under  the  assessment  plan  would 
thus  closely  approach  the  actual  cost  of  the  insurance,  the  method  of 
levying  insurance  after  the  loss  has  accrued  eliminating  any  neces- 
sity for  calculating  probabilities.  But  in  the  practical  conduct  of  as- 
sessment companies  it  is  found  that  it  is  impossible  to  apply  successfully 
the  pure  theory,  described  above,  inasmuch  as  there  is  no  means 
of  insuring  the  faithful  performance  by  all  of  the  insured  of  their  agree- 
ment to  pay  all  assessments  levied.  Experience  shows  that  the  mem- 
bers of  such  companies  will  pay  the  assessment  when  they  deem  it  to 
be  to  their  advantage  to  do  so,  but  otherwise  they  will  not.  Conse- 
quently it  is  impossible,  in  cases  where  pure  assessment  insurance  is 
put  into  practice,  to  determine  beforehand  what  is  going  to  be  the 
amount  realized  by  any  assessment  that  may  be  levied.  As  a  result, 
promises  to  pay  losses  are  rendered  uncertain,  and  the  company  is  apt 
to  be  abandoned  by  those  who  do  not  feel  inclined  to  pay  assessments, 
when  uncertain  whether  the  obligation  of  the  company  to  themselves 
will  be*met  when  it  matures.  In  order  to  do  away  with  this  element  of 
weakness  in  the  conduct  of  assessment  insurance,  it  is  found  necessary 
to  secure  to  the  insurer  some  means  of  penalizing  the  members  for  a 
failure  to  pay  assessments.  This  is  ordinarily  accomplished  by  requir- 
ing that  certain  dues  and  fees,  somewhat  in  the  nature  of  the  premiums 
of  level  premium  companies,  shall  be  paid  in  at  stated  intervals  by  the 
members  of  the  assessment  company.  The  funds  so  received  are  used 
to  defray  expenses,  and  also  to  accumulate  a  sort  of  reserve,  known  as 
the  "emergency  fund."  In  case  of  the  failure  on  the  part  of  any  mem- 
ber to  pay  any  assessment  when  properly  levied,  his  interest  in  the  re- 
<;erve  fund  to  which  his  previous  payments  have  contributed,  will  be 
forfeited.  In  this  way  assessment  insurance  associations,  which  are 
usually  in  the  form  of  some  fraternal  organization,  that  may  include  in- 
surance as  only  one  of  its  purposes,  have  become  very  numerous,  and 

80  As  to  the  extent  of  assessment  life  insurance  in  the  United  States,  see 
North  American  Review,  vol.  151,  p.  507. 


carry  on  life  insurance  extensively,  and  with  considerable  success,  al- 
though, on  account  of  insufficient  rates  and  unbusinesslike  management, 
failures  among  them  have  been  numerous. 

The  Meaning  and  Function  of  the  Reserve  Fund. 

Under  the  ordinary  level  rate  life  policy,  if  it  is  not  allowed  to  lapse 
by  the  insured,  the  sum  promised  to  be  paid  by  the  insurer  will  certamly 
become  due  at  a  future  time,  which,  though  uncertain  in  every  mdividual 
case,  yet  in  the  average  may  be  ascertained  with  reasonable  accuracy 
from  the  experience  tables.  The  insurer  is  obliged  to  make  provision 
for  such  payment,  and  must  from  the  premium  received  each  year  set 
aside  or  reserve  a  sufficient  amount  to  enable  him  to  discharge  his  obli- 
gation when  it  matures.  This  accumulated  fund,  which  is  seen  to 
measure  the  ability  of  the  insurer  to  keep  his  promise  for  payment,  is 
known  as  the  "reserve  fund."  •* 

Bi  The  method  of  determining  the  amount  that  must  necessarily  be  re- 
served in  this  fund,  and  its  meaning  in  the  contract  of  insurance  as  affect- 
ing the  rights  of  all  the  parties  thereto,  may  be  best  explained  by  reference 
to  the  following  table: 


Tear. 


Number 
of  Pol- 
icies in 
Force. 


Insurance 
Outstand- 
ing. 


Premium 
Receipts. 


Total 
Assets. 


Losses 
Paid. 


Reserve 
Fund. 


Reserve 
Value     of 
Each  Pol- 
icy. 


i 
s 
s 

4 

5 
f 

7 

8 

9 

10 


10 
9 
8 
7 
6 
5 
4 
3 
2 
1 


$110,000 
99.000 
88,000 
77,000 
66,000 
55,000 
44.000 
33.000 
22,000 
U.OOO 


$20,000 

18,000 

16,000 

14,000 

12.000 

10.000 

8,000 

6,000 

4,000 

2,000 


$20,000 

$11,000 

27,000 

n.ooo 

32,000 

u.ooo 

35.000 

u.ooo 

36,000 

11,000 

35,000 

11,000 

32.000 

U,000 

27.000 

11,000 

20,000 

U.OOO 

11,000 

11,000 

$  9.000 
16,000 
21,000 
24,000 
25,000 
24,000 
21,000 
16,000 
9,000 


$1,000 
2,000 
3,000 
4,000 
6,000 
6,000 
7,000 
8,000 
9.000 


In  order  to  show  the  method  of  calculation  of  the  reserve  fund  and  its 
function  most  clearly,  we  will  take  an  example  which,  though  impossible  in 
practice  yet  fully  exhibits  principles  which  in  a  more  complex  form  apply 
to  the  actual  contracts  as  made.  Thus,  suppose  that  ten  men  of  uniform  age 
form  a  class  of  persons  insured.  We  will  suppose  that  each  one  carries  an 
insurance  of  $11,000,  and  that  all  are  of  such  an  age  that,  in  accordance 
with  the  mortuary  tables,  one  may  be  expected  to  die  each  year.  It  is  evi- 
dent  that  all  will  be  dead  after  the  tenth  year,  and  that  the  insurer  may 
expect  to  receive  the  first  year  ten  premiums,  the  next  year  nine  premiums, 
and  so  on.  From  the  whole  class  of  ten  he  will  receive  fifty-five  premiums. 
To  all  ten  it  will  be  necessary  to  pay  the  aggregate  sum  of  $110,000.  Now, 
disregarding  all  questions  of  interest  and  expense,  in  order  to  simplify  the  il- 
lustration it  is  apparent  that  the  insurer  must  raise  the  sum  of  $110,000 
from  fifty-five  premiums.  It  will  therefore  be  necessary  to  require  that  each 
annual  premium  paid  shall  be  $2,000. 

By  reference  to  the  table,  it  is  seen  that  at  the  end  of  the  first  year,  when 


iil 


40 


HISTORICAL  AND   INTBODUCTOBT, 


(Ch.l 


§§  16-21) 


PREMIUMS  AND  RESERVE   FUND. 


41 


I 


Itlii 


Surrender  Values. 

Most  life  policies,  especially  in  later  years,  stipulate  that,  if  the  policy 
shall  be  in  force  for  a  given  number  of  years,  there  shall  be  paid  to  the 
insured  a  certain  amount  upon  his  surrendering  his  policy  for  cancella- 
tion.*^* The  amount  of  this  surrender  value  offered  is  based  upon  the 
reserve  value  of  the  policy  at  the  time  of  surrender,  and  it  is  plain  that 
the  insurer  can  well  afford  to  pay  to  the  insured  the  entire  reserve  value 
of  his  policy  in  consideration  of  his  surrendering  it  for  cancellation; 
but,  inasmuch  as  insurance  companies  desire  to  discourage  the  surren- 
der of  policies  so  far  as  they  can  equitably  do  so,  the  surrender  value 
fixed  upon  a  policy  is  usually  set  at  a  considerably  lower  figure  than 
that  which  would  be  established  by  its  reserve  value.  It  seems  that, 
in  the  absence  of  a  specified  promise  so  to  do,  the  insurer  is  under  no 
obligation  to  pay  any  portion  of  the  reserve  value  of  a  policy  upon  its 
surrender.** 

the  first  payment  of  $11,000  must  be  made,  there  !s  outstanding  Insurance 
to  the  amount  of  $110,000,  and  during  that  year  premiums  have  been  paid 
in  to  the  amount  of  $20,000.  After  the  loss  of  $11,000  has  been  paid  out  of 
the  income  for  that  year,  there  remains  a  balance  of  $9,000  unexpended. 
This  $9,000  must  be  reserved  by  the  insurer  to  meet  losses  that  will  subse- 
quently occur,  and  constitutes  the  reserve  fund  necessary  for  the  outstand- 
ing insurance  of  $99,000,  with  which  the  second  year  begins.  The  reserve 
value  of  each  policy  is  manifestly  found  by  dividing  the  total  amount  of  re- 
serve by  the  number  of  policies  outstanding.  Thus,  in  the  example  taken,  at 
the  beginning  of  the  second  year  there  are  nine  policies  outstanding,  with  a 
reserve  fund  in  the  hands  of  the  insurer  of  $9,000;  therefore  the  reserve 
value  of  each  policy  is  $1,000.  In  order  further  to  explain  the  relation  of 
these  values,  let  us  note  the  condition  of  our  supposed  company  at  the  end 
of  the  sixth  year.  It  is  seen  that  during  the  sixth  year  there  is  outstanding 
insurance  to  the  amount  of  $55,000,  but  the  amount  of  premiums  received 
is  now  only  $10,000,  whereas  the  loss  occurring  that  year  requires  the  pay- 
ment of  $11,000,  the  loss  thus  exceeding  the  premium  income.  This  excess, 
however,  is  more  than  made  good  by  the  reserve  fund  of  $25,000,  which 
has  been  accumulated,  and  which,  added  to  the  premium  received  that  year, 
gives  $35,000,  from  which  the  $11,000  of  loss  for  that  year  must  be  paid, 
leaving  the  reserve  fund  at  $24,000  at  the  end  of  the  sixth  year.  At  the  be- 
ginning of  the  seventh  year  there  are  four  policies  outstanding,  and  a  re- 
serve fund  of  $24,000  has  been  accumulated.  Thus,  the  reserve  value  of 
each  policy,  at  the  beginning  of  the  seventh  year,  is  $6,000.  At  the  begin- 
ning of  the  tenth  year  there  is  but  one  policy  outstanding,  and  a  reserve 
fund  of  $9,000  on  hand.  There  is  due  under  this  one  policy  a  premium 
of  $2,000,  which,  added  to  the  reserve  fund  of  $9,000,  enables  the  insurer 
to  pay  the  sum  due  under  the  last  policy  at  its  maturity  at  the  end  of  that 
year.  (Illustration  adapted  from  that  in  Dawson's  Moments  of  Life  In- 
surance.) 

52  In  many  states  statutes  require  that  the  reserve  value  of  a  lapsed  policy 
shall  be  applied  as  a  single  premium  payment  in  the  purchase  of  paid-up  in- 
surance. See  the  New  York  statute,  set  out  in  full  in  Nielsen  v.  Society,  139 
Cbl.  332,  73  Pac.  168,  96  Am.  St.  Rep.  146. 

63  Haskell  v.  Society,  181  Mass.  341,  63  N.  K  899. 


Surplus, 

As  has  been  explained  above,  the  income  received  by  msurance  com- 
panies that  conduct  their  business  upon  a  conservative  basis,  as  ex- 
perience has  shown,  considerably  exceeds  the  liabilities  that  become, 
fixed  under  the  policies  at  their  maturity.    The  liability  of  the  insurer 
under  the  policies  outstanding  is  at  any  time  not  the  face  value  of  those 
policies,  for  the  liability  under  them  is  contingent ;   but  is  always  de- 
termined by  reference  to  such  reserve  fund  as  calculated  by  the  ex- 
perience tables,  and  at  some  fixed  rate  "  of  compound  interest  will 
enable  the  insurer  to  discharge  all  obligations  under  the  policies  when 
those  obligations  become  due.    Therefore,  the  reserve  value  of  all  of 
the  outstanding  policies  is  the  criterion  of  the  solvency  of  the  insurer. 
If  its  assets  fall  below  the  amount  that  should  be  reserved  in  order  to 
maintain  the  reserve  fund  intact,  under  the  laws  of  most  of  the  states 
the  insurance  commissioner  is  authorized  to  take  possession  of  the  as- 
sets and  to  take  steps  to  wind  up  the  company  for  the  benefit  of  its  cred- 
itors.    In  winding  up  such  insolvent  company  each  policy  holder  is 
deemed  to  have  a  fixed  claim  against  the  company  to  the  amount  of  the 
reserve  value  of  his  individual  poHcy.     In  order  to  prevent  the  danger 
of  their  assets  falling  below  the  amount  necessary  to  maintain  their 
reserve,  and  thus  to  insure  their  solvency,  most  insurance  companies  set 
aside  a  certain  portion  of  the  surplus  income  above  that  needed  for  the 
payment  of  losses  and  the  maintenance  of  the  reserve,  and  place  it  in  a 
surplus  fund,  upon  which,  in  case  of  epidemics  or  other  unusual  or  un- 
expected  losses,  they  can  draw  in  order  to  preserve  their   reserve 
funds  and  avoid  insolvency.     The  residue  of  the  income  received  is 
apportioned  by  the  directors  under  the  charter  and  by-laws  as  dividends 
to  the  several  policy  holders  as  their  contracts  mature.     It  has  recently 
beei.  decided  in  New  York  that  policy  holders,  upon  maturity  of  their 
contracts,  have  no  rights  in  the  surplus  funds  set  aside  for  the  purpose 
described  above  but  can  claim  to  participate  in  the  surplus  income  of  the 
company  only  to  such  an  extent  as  dividends  may  be  apportioned  to 
them  by  the  o/der  of  the  directors  of  the  company." 

8*  See,  for  example,  Codp  Va.  1887,  §  1278. 

"  GreeCf  v.  Society,  160  N.  Y.  19,  54  N.  E.  712,  46  U  R.  A.  288,  TO  Am.  St 
Rep.  659. 


42 


THE  NATUBB  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


§§  22-23) 


NATURE  or  CONTRACT — IN   GENERAL. 


48 


I 


CHAPTER  n. 

THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 

22-23.  The  Nature  of  the  Insurance  Contract— In  General 

24.  An  Aleatory  but  Not  a  Wagering  Contract 

25.  An  Executory  and  Conditional  Contract. 
26-27.  A  Personal  Contract  Uberrimse  Fidel. 

28.  A  Contract  Essentially  of  Indemnity. 

29.  The  Nature  of  the  Contract  of  Life  Insurance^ 

80.  The  Nature  of  Mutual  Benefit  Insurance. 

81.  The  Contract  of  Reinsurance. 

82.  When  the  Contract  is  Divisible. 

33.    Requisites  for  the  Validity  of  the  Contract 


THE  NATURE  OF  THE  INSURANCE  CONTRACT— IN  GENERAXi. 

22.  Any   contract  wIlIcIl   proTides   indemnity   for  contingent   loss   or 

damage  is  a  contract  of  insurance,  ivliateTer  be  its  form.  Its 
essential  requisite  is  a  risk  to  be  assun&ed;  and,  wherever  a  risk 
not  involving  any  illegal  acts  exists,  a  contraot  of  insurance 
may  be  made  for  the  assuniption  of  that  risk. 

23.  The  contract,  which  is  ordinarily  entire,  the  whole  premium  being 

earned  upon  the  attachment  of  the  risk,  covers  t 

(a)  A  loss  due  to  the  negligence  of  the  insured. 

(b)  But  not  a  loss  intentionally  caused  by  the  insured. 

As  has  before  been  indicated,  the  insurance  contract  is  character- 
ized by  the  features  possessed  by  other  contracts,  and  is,  under  or- 
dinary circumstances,  to  be  construed  in  accordance  with  the  rules 
that  apply  to  contracts  in  general;  but  there  are  some  additional 
characteristics  possessed  by  the  contract  of  insurance,  that  require 
special  rules  to  be  applied  by  the  courts  of  law  in  properly  determin- 
ing the  rights  of  parties  to  them.  The  primary  requisite  essential  to 
the  existence  and  validity  of  every  contract  of  insurance  is  the  pres- 
ence of  a  risk  of  actual  loss.  The  insurer  in  all  cases  agrees  to  as- 
sume this  risk,  in  return  for  a  valuable  consideration  paid  to  him  by 
the  insured.  Wherever  such  an  actual  risk  exists,  and  that  risk  is 
assumed  by  one  of  the  parties  to  the  contract,  whatever  be  the  form 
which  the  contract  may  wear,  or  the  name  which  it  may  bear,  it  is  in 
fact  a  contract  of  insurance.  The  question  as  to  whether  any  given 
contract  is  one  of  insurance  really,  or  one  merely  wearing  the  guise 
of  insurance,  becomes  important,  not  only  for  the  purpose  of  decid- 
ing whether  the  peculiar  principles  of  insurance  law  are  applicable, 
but  also,  and  most  frequently,  in  order  to  determine  whether  the  con- 


<^ tract  is  subject  to  statutory  provisions  governing  insurance  business. 
It  has  been  held  repeatedly  that  the  contracts  made  between  the  vari- 
ous correlated  lodges  and  chapters  of  benefit  associations  with  the 
members  of  such  associations,  if  they  provide  for  a  real  indemnity 
against  loss  of  life,  or  the  consequences  of  sickness  or  accident,  are 
contracts  of  insurance,  and  are  subject  to  the  insurance  laws,  unless 
excepted  from  their  operation.^  So  a  contract  whereby  one  of  the 
parties  agrees  to  indemnify  the  other  against  the  losses  that  may  be 
sustained  on  account  of  the  insolvency  of  debtors,  inasmuch  as  it 
provides  for  the  shifting  of  an  actual  risk  from  one  party  to  another, 
is  a  contract  of  insurance,  whatever  be  its  form  and  name.*  Where 
a  newspaper  company  offers,  in  each  paper  issued,  to  pay  a  certain 
amount  to  the  heirs  of  any  person  who  suffers  death  by  accident 
within  a  specified  time  after  its  issuance,  provided  he  is  found  with 
a  copy  of  that  paper  upon  his  person,  with  the  printed  offer  signed 
by  him,  is  liable  as  under  a  contract  of  insurance,  in  case  the  pur- 
chase of  the  paper  was  induced  by  the  offer.*  So  contracts  to  pay 
for  the  loss  of  a  bicycle,*  for  damages  sustained  by  an  employer  by 
reason  of  injuries  inflicted  by  his  employes  in  driving  his  vehicles,* 
for  losses  that  may  be  suffered  by  reason  of  accident  in  connection 
with  the  running  of  an  elevator,  or  for  injuries  that  may  be  suffered 
by  a  workman  in  the  employ  of  a  contractor,  are  contracts  of  insurance 
as  truly  as  are  those  which  are  written  in  the  regular  course  of  busi- 
ness and  in  the  standard  form  of  policy.* 

But  it  is  not  every  contract  that  wears  the  appearance  of  insurance 
that  is  really  a  policy  of  insurance.  Thus,  where  a  corporation  provides 
means  of  making  investments  of  small  sums  paid  in  monthly  install- 
ments by  certain  holders  of  certificates,  with  the  agreement  that  the  cer- 
tificates shall  be  redeemed  in  accordance  with  certain  agreed  stipu- 
lations, this  contract  is  not  one  of  insurance,  even  though  it  may  be 
based  upon  the  ordinary  tables  used  in  insurance,  and  may  include 
some  other  characteristics  of  the  insurance  contract.^  When  a  light- 
ning rod  dealer,  upon  the  sale  of  a  lightning  rod,  agreed  to  pay  all 
damages  resulting  to  the  building  from  lightning,  to  which  the  rod 

1  As  to  the  nature  of  these  organizations,  see  further,  p.  68. 

«  Claflin  V.  Credit  Svstem  Co.,  165  Mass.  504,  43  N.  E.  293,  52  Am.  St.  Rep. 
628;  Tebbets  v.  Guarantee  Co.,  73  Fed.  ©6,  19  G.  C  A.  281;  Shakman  v. 
Credit  System  Co.,  92  Wis.  366,  66  N.  W.  528.  32  L.  R.  A.  383,  53  Am.  St 

Rep.  920.  „    ^^„ 

8  Commonwealth  v.  Philadelphia  Inquirer  (Com.  PI.)  15  Pa.  Co.  Ct.  R.  463. 
*  In  re  Solebury  Mut.  Protective  Soc,  3  Del.  Co.  R.  139. 
B  EMPLOYERS'  LIABILITY  ASSUR.  CORP.  v.  MERRILL,  155  Mass.  404, 

29  N   E   529 

«  EMPLOYERS'  LIABILITY  ASSUR.  CORP.  v.  MERRILL,  155  Mass.  404, 

20  N.  E.  529. 

t  State  V.  Federal  Inv.  Co.,  48  Minn.  110,  50  N.  W.  1028. 


oNb 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


§§  22-23) 


NATURE  OF  CONTRAC5T — IN  GENERAL. 


45 


I 


ii 


was  attached,  within  a  specified  term,  the  contract  made  was  held  to 
be  one  of  guaranty,  and  not  of  insurance.®  But  where  a  corporation, 
even  though  it  was  called  a  surety  company,  agreed  for  a  valuable 
consideration  to  indemnify  the  other  party  against  loss  by  reason  of 
uncollectible  debts,  this  was  a  contract  of  insurance,  and  not  a  con- 
tract of  guaranty."  Where  a  number  of  young  men  made  a  mutual 
agreement  whereby  each  member,  upon  the  payment  of  a  certain  ini- 
tiation fee  and  annual  dues  and  assessments,  and  upon  giving  a  guar- 
anty that  he  would  not  be  married  within  two  years  from  the  date  of 
his  initiation,  was  to  receive  one  thousand  dollars  at  the  time  of  his 
marriage,  this  was  held  to  be  a  mere  gambling  contract  in  restraint 
of  marriage,  and  not  a  contract  of  insurance.^®  It  is  to  be  noticed 
that  in  all  those  cases  which  were  held  not  to  be  contracts  of  insur- 
ance there  was  an  element  of  chance,  but  no  assumption  of  a  risk 
of  actual  loss.*^ 

It  is  manifest  that  the  risk  of  loss  must  not  be  so  great  as  to  be 
prohibitory  of  the  enterprise  in  which  it  is  encountered,  and  that 
there  must  be,  in  order  to  the  successful  practice  of  insurance,  a 
sufficiently  large  number  exposed  to  the  same  risk  to  make  it  prac- 
ticable and  advantageous  to  distribute  the  loss  falling  upon  a  few. 
This  is  well  expressed  in  the  quaint  language  of  an  old  writer,  who 
speaks  of  "this  most  laudable  custom  of  assurances,  whereby  the 
danger  and  adventure  of  goods  is  divided,  repaired,  or  borne  by 
many  persons  consenting  and  agreed  upon  between  them  what  part 
everie  man  will  be  contented  to  assure,  make  goode,  and  pay  if  any 
loss  or  casualtie  should  happen  to  the  goods  adventured,  or  to  be 
adventured,  at  the  seas  as  also  by  land,  to  the  end  that  merchants 
might  enlarge  and  augment  their  trafficke  and  commerce,  and  not 
adventure  on  in  Bottome  to  their  loss  and  over-throw,  but  that  the 
same  might  be  repaired  and  answered  for  by  many."  *' 

«  Cole  v.  Haven  (Iowa)  7  N.  W.  383.  While  the  reanlt  of  this  decision  is 
correct,  inasmuch  as  the  lightning  rod  dealer  should  have  been  estopped 
to  set  up  his  own  violation  of  the  insurance  laws,  there  can  be  little  doubt 
that  the  contract  in  question  was  really  one  of  insurance. 

»  Tebbets  v.  Guarantee  Co*,  73  Fed.  95,  19  C.  C.  A.  281,  38  U.  S.  App.  4S1. 

10  State  V.  Towle,  80  Me.  287,  14  Atl.  195. 

11  Evidence  of  the  rapid  extension  of  the  principle  of  Insurance  to  all  the 
perils  of  commerce  and  life  is  found  in  the  recent  press  reports  of  the  es- 
tablishment of  corporations  insuring  against  loss  by  strikes,  and  of  other 
corporations  guarantying  to  their  members  the  payment  of  their  burial  ex- 
penses up  to  the  amount  of  $100.  Corporations  engaged  in  carrying  on  such 
"burial  insurance**  in  New  York  have  recently  been  enjoined  from  continu- 
ing in  business  without  first  complying  with  the  requirements  made  by  the 
laws  of  that  state  for  the  regulation  of  insurance  businesa. 

1  a  May  hies.  Lex  Mercatoria,  Ed.  1622,  146. 


Contract  an  Entirety,  .  j  •    *i,*  «Ke.«..-  r»f  a 

The  contract  of  insurance  is  an  entirety,"  and  m  the  absence  of  a 
stipulation  to  the  contrary,  if  the  risk  is  once  attached,  no  portion 
of  the  premium  is  returnable,  even  though  the  subject  msured  may 
be  lost  by  reason  of  an  excepted  peril  before  the  expiration  of  the 
term  for  which  the  insurance  is  granted.-  But  unless  the  risk  does 
attach,  the  contract  fails  of  its  purpose,  and  the  insured  may  recover 
the  premium  paid,  upon  the  ground  that  the  consideration  therefor 
has  failed." 

No  Indemnity  for  Intentional  Damage.  .       .   ^        .,     .         i^,. 

The  contract  does  not  contemplate  grantmg  indemnity  for  a  loss 
which  is  due  to  the  intentional  act  of  the  insured,  for  one  of  the  req- 
uisites of  insurance  is  that  the  risk  shall  not  be  subject  m  any  wise 
to  the  control  of  the  parties.    Upon  this  principle,  as  well  as  upon 
deeper  grounds  of  public  policy,  the  insurer  is  not  required  to  indem- 
nify the  insured  for  a  loss  that  has  been  caused  by  his  owri  crimina 
act "    The  insured  may  not  recover  for  the  loss  of  a  building  that 
has  been  burned  by  himself,-  and,  in  the  recent  case  o    R^tt^r^  v. 
Mutual  Life  Ins.  Co.  of  New  York,"  the  Supreme  Court  of  the  Unit- 
ed States  has  held  that  not  only  is  suicide  of  the  insured,  while  sane 
a  good  defense  under  the  ordinary  policy,  but  also  that  a  contract 
stipulating  for  payment  in  case  of  suicide  would  be  contrary  to  pubhc 
policy  and  void. 

'Thl%tSedfsToMndemnified  under  the  contract  for  the 
consequences  of  his  criminal  wrong,  the  same  principle  is  not  ex- 
tended so  far  as  to  preclude  his  right  to  mdemnity  when  the  loss  is 

1.  For  some  purposes  It  Is  sometimes  held  separable     See  Infni,  P-  ra- 
il Tvrle  T  Fletcher,  Cowp.  666,  Richards,  Cas.  265.    See,  also,  Hendricks 
V.  insurance  CO  ,8  Johns.  (N.  Y.)  1;  J-'^-  ^endy  Ma^h,  Work.  v.  Amert- 
ain  Steam  Boiler  Insurance  Co.,  86  Cal.  248,  24  Pac.  1018,  21  Am.  St  Rep.  W. 
°.  Forces  T  Church,  3  Johns.  Cas.  (N.  Y.)  159;   Insurance  Co.  y.  Pyle,  44 
nhift  St  1<)   4  N   E  465.  58  Am.  Rep.  781.  _  _    ^^ 

""  »  miiEE  V  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct  300,  42  U  Bi 
693  •  Names  t.  Insurance  Co.,  95  Iowa,  642,  64  N.  W.  628 ;  Western  HorsB  &  Cat. 
Tins.  CO. V  O'Neill,  21  Neb.  548,  32  N.  W.  581.  But  see  Westchest«  Fl^e  Ina 
On  V  Foster  90  III.  121,  and  Morris  v.  Assurance  Co.,  183  Pa.  5M,  i»  Ati. 
m"  Th?po^lcy  IS  not  avoided  If  the  Insured  was  Insane  at  the  time  he  d^ 
Buoyed  thV insured  property,  or.  In  the  case  of  a  life  policy  when  ^J0^^»^, 
suidde  Karow  v.  Insurance  Co.,  57  Wis.  56,  15  N.  W.  27,  46  Am.  Rep.  17, 
Van  zindtv  Insurance  Co..  55  N.  Y.  169,  14  Am.  Rep.  215;  Grand  Lodge  T. 
WletlnK  168  111.  408,  48  N.  E.  59,  61  Am.  St  Rep.  123.    See  post  P-  61ft 

mk  the  defen;e  may  be  sustained  upon  a  P^PO"?^""^^  «"f  ^^^ 
Blaeser  T.  Insurance  Co.,  37  Wis.  31,  19  Am  Rep.  747;  GreenU  Ey.  (16th  Ed.) 
S  81d     See  Commonwealth  t.  Andrews,  155  Mass.  68,  28  N.  ^-J^- 

1.  RITTER  Y.  MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK.  168  U.  S.  ISft,  M 
Sup.  Ct  300,  42  L.  Ed.  693. 


II 


16 


THB  NATURB  AND  REQUISITES  OF  THE  CONTRACT.    (Ch.  2 


25) 


AN  EXECUTORY  AND  CONDITIONAL  CONTRACT. 


47 


m 


occasioned  by  his  own  negligence,  provided  there  is  no  fraud.^'  It 
has  frequently  been  held  that  the  doctrine  of  contributory  negligence 
does  not  in  any  way  apply  to  rights  under  a  contract  of  insurance.^** 

AN  AI.EATORT  BUT  NOT  A  IVAGERINQ  CONTRACT. 

24.  Insnrance  i«  an  aleatory  but  not  a  wasering  contract.  It  is  not  a 
contract  of  chance,  bnt  a  contract  ^vherennder  sonie  of  the 
rights  of  the  parties  are  contingent  upon  chance  events. 

It  is  erroneous  to  regard  the  contract  of  insurance  as  a  "contract 
of  chance,"  in  the  ordinary  meaning  of  the  phrase.  In  a  wagering  . 
contract  the  parties  contemplate  gain  through  chance ;  in  a  contract 
of  insurance  the  parties  seek  to  avoid  loss  by  reason  of  chance.  The 
gambler  courts  fortune ;  the  insured  seeks  to  avoid  misfortune.  The 
contract  of  gambling  tends  to  increase  the  inequality  of  fortune, 
while  the  contract  of  insurance  tends  to  equalize  fortune.  It  is  for 
this  reason  that  insurance  is  termed  an  "aleatory"  contract,  in  con- 
tradistinction to  a  "commutative"  contract,  under  the  terms  of  which 
each  of  the  parties  is  supposed  to  give  an  exact  equivalent,  either 
in  obligation  or  performance,  to  the  other;  whereas,  in  insurance 
each  party  must  take  a  risk;  the  insurer  that  of  being  compelled, 
upon  the  happening  of  the  contingency,  to  pay  the  entire  sum  agreed 
upon,  and  the  insured  that  of  parting  with  the  amount  required  as 
premium,  without  receiving  anything  therefor  in  case  the  contingency 
does  not  happen.  It  is,  however,  inaccurate  to  say  that,  in  case  the 
peril  insured  against  does  not  arise,  the  insured  receives  nothing  in 
return  for  the  payment  made.  In  consideration  of  his  payment  of 
the  stipulated  premium,  he  receives  what  is  ordinarily  termed  "pro- 
tection," which  means  nothing  more  than  that  he  is  free  to  take  part 
in  enterprises  which  would  expose  him  to  the  given  peril,  with  the 
assurance  that  in  case  loss  is  suffered  he  will  not  be  ruined  by  the 
event,  but  that  the  loss  will  be  shifted  by  the  terms  of  the  contract 
upon  the  insurer.  That  this  protection  is  regarded  as  a  valuable 
consideration  in  itself  is  shown  in  the  decision  of  that  class  of  cases 
which  hold  that  premiums  paid  by  infants  under  contracts  of  life  in- 

!•  Gove  v.  Insnrance  Co.,  48  N.  H.  41,  97  Am.  Dec.  572,  2  Am.  Rep.  168; 
Travelers'  Ins.  Co.  v.  Randolph,  78  Fed.  754,  24  C.  a  A.  305  (accident  policy); 
Hutchins  v.  Ford,  82  Me.  363,  19  Atl.  832  (marine  policy);  Cowan  v.  Rob- 
berds,  6  Adol.  &  E.  75 ;  Sadler  y.  Dixon,  8  Mees.  &  W.  895. 

20  Travelers'  Ins.  Co.  v.  Randolph,  78  Fed.  754,  24  C.  C.  A.  305;  SCHNEI- 
DER v.  INSURANCE  CO.,  24  Wis.  28,  1  Am.  Rep.  157;  Providence  Life  Ins. 
&  Inv.  Co.  of  Chicago  v.  Martin,  32  Md.  310.  Contra,  Morel  v.  Insnrance 
Co.,  4  Bush  (Ky.)  535;  Scottish  Union  &  Nat  Ins.  Co.  Y.  Strain  (Ky.)  70  S. 
W.  274. 


surance  cannot  be  recovered  by  them  upon  disaffirmance  of  the  con- 
tract, such  contract  being  regarded  as  executed  to  the  extent  to 
which  protection  has  been  given.*^ 

AN  EXECUTORY  AND  CONDITIONAL  CONTRACT. 

25.  The  oontraot  of  insnraaoe  i»  often  executed  on  one  side  by  the 
payment  of  the  premium  for  the  entire  term  of  the  insurance, 
remaining  executory  as  to  the  insurer;  or  the  contract  may  he 
executory  on  both  sides.  The  contract  in  its  very  nature  is  not 
only  executory,  but  subject  to  conditions,  the  principal  one  of 
which  is  the  happening  of  the  event  insured  against.  In  addi- 
tion to  this  main  condition,  the  contract  usually  includes  many 
other  conditions  which  must  be  compUed  with  as  precedent  to 
the  right  of  the  insured  to  claim  benefit  under  it. 

Even  in  cases  of  fire  insurance  contracts  for  a  given  term,  when 
the  premium  has  been  prepaid  for  the  entire  term  the  contract  is  to 
a  certain  extent  executory  with  reference  to  both  parties.  Manifest- 
ly the  insurer's  promise  is  executory,  inasmuch  as  it  is  not  to  be  per- 
formed except  upon  condition ;  and  certain  duties  under  the  contract 
remain  yet  to  be  performed  by  the  insured,  such  as  giving  notice  of 
an  increase  of  risk,  or  making  repairs,  or  of  travel  or  change  of  res- 
idence or  occupation  in  case  of  life  insurance. 

The  contract  of  insurance  is  one  peculiarly  subject  to  conditions, 
some  of  which  are  precedent  and  others  subsequent.     The  main  con- 
dition upon  which  the  insurer  becomes  liable  to  pay  the  sum  named 
in  the  policy  is  a  suspensory  condition,  but  ordinarily  termed  a  "con- 
dition precedent."    The  latter  term,  however,  is  scarcely  accurate,  in- 
asmuch as  the  obligation  of  the  insurer  attaches  immediately  upon 
the  completion  of  the  contract,  and  his  liability  to  pay  is  rather  sus- 
pended until  the  happening  of  the  specified  contingency.     This  is 
certainly  the  case  in  life  insurance.    Perhaps  it  may  be  more  prop- 
erly said  that  the  happening  of  the  peril  insured  against  in  the  case 
of  marine  and  fire  insurance  is  a  condition  precedent  to  the  liability 
of  the  insurer.    There  are,  however,  numerous  conditions  purely  pre- 
cedent to  be  found  in  every  contract  of  insurance ;   as,  for  instance, 
the  provision  that  the  policy  shall  not  go  into  effect  until  delivery 
and  the  payment  of  the  first  premium,  or  that  no  waiver  shall  be 
valid  unless  indorsed  on  the  policy  by  certain  specified  officers. 
Rights  once  acquired  under  the  policy  may  be  defeated  by  conditions 
subsequent  set  forth  therein ;  thus,  the  introduction  into  a  house  in- 
sured of  inflammable  substances  forbidden  by  the  policy,  or  making 

«i  JOHNSON  y.  INSURANCE  CO.,  56  Minn.  365,  67  N.  W.  034,  58  N.  W. 
892,  26  L.  B.  A.  187,  45  Am.  St  Rep.  473. 


II 


48 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT.     (Ch.  2 


I  i 


II 


I 


repairs  upon  the  building,  or  its  being  vacated  without  the  consent 
of  the  insurer,  or,  in  the  case  of  Hfe  poHcies,  engaging  in  prohibited 
hazardous  employments,  or  changing  the  place  of  residence,  or  trav- 
eling in  prohibited  regions,  without  the  consent  of  the  insurer,  may 
entirely  defeat  the  rights  of  the  insured  under  the  policy. 

A  PEBSONAIi  CONTRACT  UBERRIMA:  FIDEI. 

26.  A  contract  of  insurance  is  essentially  personal,  eaoli  party  having 
in  vieiv  the  character,  credit,  and  condnct  of  the  other.  The 
contract  conteniplates  the  payment  of  money  by  one  to  the 
other,  in  order  to  make  good  a  loss  that  niay  be  suffered  u^ith 
reference  to  the  interest  that  may  be  insured.  The  subject- 
matter  of  the  contziact  is  the  payment  of  money,  although  the 
subject  of  the  insurance  may  be  property;   hence 

(a)  The  contract  of  insurance  is  not  attached  to  nor  does  it  acconi* 

pany  the  property  urhich  is  the  subject  of  the  insurance. 

(b)  As   a   general   rule,    the   rights   under   a   contract   of   insurance 

against  fire,  so  long  as  it  remains  executory,  cannot  be  assigned 
by  one  party  without  the  consent  of  the  other. 

27*  In  making  the  contract  of  insurance,  good  faith  requires  that  each 
party  shall  disclose  to  the  other  all  material  facts  in  his  knowl- 
edge that  niay  affect  the  making  of  the  contract,  and  that  in 
all  matters  concerning  the  insurance  each  shall  exercise  a  high 
degree  of  good  faith  in  his  dealings  with  the  other. 

In  ordinary  parlance  it  is  said  that  certain  property  is  insured,  or 
that  a  life  is  insured,  but  this  is  inaccurate.  As  a  matter  of  fact,  every 
contract  of  insurance  is  between  two  persons,  and  contemplates  in- 
suring one  of  them  against  loss  that  may  be  suffered  with  reference 
to  a  certain  designated  property  or  life.  As  was  pointed  out  by 
Brett,  L.  J.,  in  the  leading  English  case  of  Rayner  v.  Preston,"  there 
is  a  distinction  to  be  made  between  the  subject-matter  of  the  contract 
of  insurance  and  the  subject-matter  of  the  insurance;  the  subject- 
matter  of  the  contract  is  the  payment  of  money,  the  subject-matter 
of  the  insurance  may  be  property  or  some  other  valuable  interest. 
Therefore,  when  the  property  which  is  the  subject-matter  of  insur- 
ance is  destroyed,  there  arises  simply  an  obligation  on  the  part  of 
the  insurer  under  the  contract  to  pay  money  over  to  the  other  party 
to  the  contract.  Hence  it  follows  that  there  is  no  necessary  legal  re- 
lation existing  between  property  that  may  have  been  lost,  and  the  in- 
surance money  received  by  the  owner  of  that  property  to  indemnify 
him  against  that  loss.  Thus  insurance  money  paid  to  a  mortgagor 
under  a  policy  taken  out  by  him  is  not  affected  by  the  lien  of  the 

tt  BAYNER  V.  PRESTON,  L.  R.  18  Ch.  Div.  1,  Richards*  Cases,  276L 


g§  26-27)  A  PERSONAL  CONTRACT  UBERRIMA   FIDEI.  *9 

mortgage,  nor  is  the  mortgage  debt  to  be  reduced  by  the  amount  of 

^^^  insurance  money  paid  to  the  mortgagee  under  a  contract  of  in- 

;  anc"  th^^^^^^^^  -ay  have  taken  out  upon  the  mortg^^^^^^^ 

•  oo      cTfated  broadlv    the  rule  is  that  the  insurance  contract 

<C::t^"rufw  th  Si"  oAther  property  insured.'    This  is  well 

Uustrrted  in  the  case  of  Rayner  v.  Preston,  referred  to  above     In 

Us  case  the  plaintiff  had  made  a  binding  contract  for  the  purchase 

of  certain  r^a'  estate  owned  by  the  <^^'^-^-\fZ:^'^''Z 
Ld  been  completed,  but  before  a  conveyance  had  been  made   the 
Sdtags  uponV  property  were  destroyed  by  fire,  and  the  vendor 
3  to  possession,  collected  the  amount  due  under  the  contract  o^ 
Surance  which  he  had  taken  out  upon  the  proper^.     The  vend^ 
cktaed  that  the  money  received  under  the  policy  of  msurance  nght- 
Kelonged  to  him,  inasmuch  as  the  equitable  interest  m  the  prop- 
SiZr!^  was  already  in  him  before  the  conveyance  of  the  legal 
Se,  and  that,  inasmuch  as  the  real  loss  suffered  was  Jis  ow".  th« 
money  paid  on  account  of  that  loss  should  be  awarded  to  him.    But 
Ae  court  held  that  the  contract  of  insurance  was  purely  personal  be- 
weentfe  vendor  and  the  insurer;  that  it  did  not  run  wrth  the  land 
EUs  sold;   and  that  the  vendee^  as  a  stranger  to  the  contra^ 
could  take  no  rights  under  it.»«    The  same  rule^apphes  with  refer 
ence  to  the  insurance  of  personal  property."     In  the  language  of 
Chancellor  King,  in  Lynch  v.  Dalzell."  "These  Pol'"«*  "^  .^J^ 
.urances  on  the  specific  things  mentioned  to  be  insured,  «o>-  do  such 
insurances  attach  on  the  realty,  or  in  any  manner  go/'«h  \he  same 

as  incident  thereto  by  any  conveyance  o'-.'^*^?"™^"*'.'";*  ^loss 
onlv  specific  agreements  with  the  person  msunng  agamst  such  loss 
or  damage  as  they  may  sustain."  This  view  of  the  contract  is  sus- 
°ained  by  abundant  American  authority."    Thus,  where  real  prop- 

..Dlsbrow  y.  Jones.  Harr.  Ch.  (Mich.)  48 :  Flanagaa  y.  »»J^°<*j^;^ 
N  T  Taw  BOB-  Lett  y.  Insurance  Co.,  125  N.  Y.  82,  2.5  N.  a  108»,  "a""  ;• 
N.  J.  I^'^'f^'  ^"/-  '"_,  «-.  QTJARLBS  y.  OLATTON,  87  Tenn.  308, 
Insurance  Co..  4  Hill  (N.  x.)  id<,  wy^'^^'^  '•  ^  m  t  t«t»  'U  S2  All 
10  S.  W.  tS05.  3  L.  B.  A.  170;  Kase  v.  Insurance  C^  58  N.  J.  Law.  M  32  At 
1057.  See.  also.  Wright  y.  Insurance  Co..  117  Ga.  4f  ■  «S.  B.  700.  For  a^ful 
discussion  of  the  respectlye  rights  of  mortgagor  and  mortgagee  with  reler 
enoo  in  in<inrance  on  the  mortgaged  property,  see  post,  p.  4l(.  ^.  ^  . 

'-"^eXcWne  M  rIyNEK  y.  PRESTON  ^S^^TtlT'^  AmTt^ep 
in  this  country.    Skinner  y.  Houghton,  92  Md  68  ^8  ^tl  f ,  84  Am.  St^Rep. 
485     See   also   State  Mut  Fire  Ins.  Co.  y.  UpdegrafT,  21  Pa.  513;    Reed  y. 
iri4  Pa'm  84Tn.  Dec.  425.    «  has  no  application  where  «ie  yen- 
dee  pa^  the  premiums.    Williams  y.  Lllley,  67  Conn.  50,  84  Atl.  765.  37  L. 

''■»  ilc^nald  y.  Black's  Adm'r,  20  Ohio.  185.  65  Am.  Dea  448;  Kortlander  T. 
Elston.  6  V.  S.  App.  283,  62  Fed.  180.  2  C.  C.  A-  657. 

"  LYNCH  y.  DALZELL.  4  Bro.  Pari.  Cas.  ^2.  ^     _.    ,-^. 

"See  Carpenter  v.  Insurance  Co..  16  Pf  OJ.  W  «6.  »  f-  ™:  ^ 
QBARLES  V.  CLAYTON.  87  Tenn.  308.  10  S.  W.  606,  8  L.  E.  A.  170.    Klnf 

Vance  Ins.— 4 


Hi 


50 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


CCh.2 


erty  was  insured  by  the  owner,  the  insurance  payable  to  himself,  his 
executors,  administrators,  and  assigns,  it  was  held  that  upon  the 
death  of  the  insured  the  interest  in  the  policy  passed  to  his  executor 
rather  than  to  his  heirs.^* 

It  is  possible,  however,  for  the  parties  to  frame  the  contract  so  as 
to  attach  it  to  the  property  and  give  successive  owners  of  the  prop- 
erty rights  under  the  contract.  Thus,  where  the  insurance  is  "on 
account  of  the  owners,"  or  for  "whom  it  may  concern,"  or  where  the 
loss  is  made  payable  to  bearer,  the  subsequent  transferees  become, 
by  the  terms  of  the  contract,  the  real  parties  to  the  contract  of  insur- 
ance.** Such  contracts,  by  which  the  insurance  policy  is  made  to 
pass  from  owner  to  owner,  are  of  the  nature  of  successive  novations. 

Contracts  of  Fire  Insurance  not  Ordinarily  Assignable. 

From  the  fact  that  the  contract  of  fire  insurance  is  peculiarly  per- 
sonal, the  result  follows  that  rights  under  it,  so  long  as  it  remains 
executory,  cannot  be  assigned  by  one  party  without  the  consent  of 
the  other.**  The  insurer,  in  estimating  the  character  of  the  risk  that 
he  is  to  assume  under  the  contract,  always  takes  into  consideration 
the  character  of  the  party  insured,  and  also  his  previous  conduct.  An 
insurer  is  very  unwilling  to  grant  insurance  to  a  person  who  has  been 
a  too  frequent  sufferer  from  loss  by  fire,  or  to  one  of  whose  good 
faith,  for  any  other  reason,  he  may  have  grounds  of  suspicion.  The 
insurer  may  be  quite  willing  to  take  the  risk  upon  property  while  in 
the  possession  of  and  owned  by  a  person  who  will  use  every  effort 
that  diligence  and  good  faith  may  suggest  to  preserve  the  property 
from  loss,  when  quite  unwilling  to  accept  the  same  risk,  on  the  same 
terms,  in  case  the  possession  or  ownership  should  be  changed.  It 
follows,  therefore,  that  a  person  whose  property  is  insured,  when  sell- 
ing his  property  to  another  person,  cannot  thrust  upon  the  insurer, 
as  his  successor  in  the  contract  of  insurance,  a  stranger  to  the  con- 
tract in  the  person  of  his  vendee.*^  The  insurer  may  consent  to  the 
substitution  of  the  vendee  for  the  vendor,  in  which  case  there  is,  of 
course,  a  new  contract  created.**  Nearly  all  of  the  contracts  of  in- 
surance upon  property  provide  for  the  transfer  of  such  contracts  to 

V.  Preston,  11  La.  Ann.  95;  Clinton  ▼.  Insurance  Co.,  45  N.  T.  454;  Plimpton 
V.  Insurance  Co.,  43  Vt  497,  5  Am.  Rep.  297.    But  see  note  24,  supra. 

28  Wyman  v.  Prosser,  36  Barb.  (N.  Y.)  368. 

a»  See  Rogers  v.  Insurance  Co.,  6  Paige  (N.  Y.)  583,  588. 

soKase  v.  Insurance  Co.,  58  N.  J.  Law,  34,  32  Atl.  1057;  New  England 
Loan  &  Trust  Co.  v.  Kenneally,  38  Neb.  895,  57  N.  W.  759;  Wbite  v.  Rob- 
bins,  21  Minn.  370. 

«i  Nor  can  the  Insurer,  without  the  consent  of  the  insured,  substitute  an- 
other in  his  place.    Basher  v.  Insurance  Co.,  69  N.  Y.  101. 

»J  Ellis  V.  Insurance  Co.  (C.  C.)  32  Fed.  646;  CONTINENTAL  INS.  CO.  v. 
MUNNS,  120  Ind.  30,  22  N.  E.  78,  5  L.  R.  A.  430. 


A   PERSONAL   CONTKACT   UBEFwRlMiE   FIDEL 


51 


§§  20-27) 

vendees  under  certain  conditions,  or,  in  the  absence  of  such  transfer, 
for  a  repayment  of  a  proportionate  amount  of  the  insurance  premi- 
um received  from  the  vendor.  Of  course,  this  applies  only  to  exec- 
utory contracts  of  insurance.  After  the  loss  has  been  suffered,  and 
a  right  to  demand  money  of  the  insurer  has  accrued,  the  insured  may 
assign  such  claim  as  freely  as  any  other  money  demand. 
The  Highest  Degree  of  Good  Faith  Required  of  the  Parties  to  the 

Contract.  .      .  ..i.:«„ 

In  the  earliest  forms  of  the  insurance  contract— for  the  assumption 

of  marine  risks— the  subject  of  the  insurance,  whether  ship  or  cargo, 
was  seldom  present  for  inspection,  but  the  contract  was  necessarily 
made  in  a  place  remote  from  the  property  insured.    Therefore  the  in- 
surer in  determining  the  quality  of  the  risk  he  was  asked  to  assume, 
was  compelled  to  rely  entirely  upon  the  statements  made  by  the  ap- 
plicant for  insurance.    This  necessarily  created  a  fiduciary  relation 
between  the  parties,  and  imposed  upon  the  applicant  the  duty  ot 
making  full  and  free  disclosures  of  all  the  facts  that  would  in  any 
wise  affect  the  making  of  the  contract.    Not  only  was  the  apphcant 
required  to  make  full  disclosures,  but  it  was  also  necessary  that  any 
statements  made  by  him,  and  upon  which  the  insurer  would  rely, 
should  be  absolutely  true.    From  such  circumstances  as  these,  at- 
tending the  making  of  the  contract,  arose  the  peculiar  rules  respect- 
ing the  making  of  contracts  of  insurance,  and  fixing  the  doctrines 
with  reference  to  concealments,  representations,  and  warranties,  that 
are  hereafter  to  be  discussed.    The  rule  thus  derived,  requiring  that 
all  material  facts  should  be  made  known  to  the  insurer,  is  not  based 
upon  the  principle  of  fraud,  as  it  might  be  easily  possible  for  the  in- 
sured to  fail  in  his  duty  of  disclosure,  with  no  fraudulent  purpose 
whatever.    Thus,  in  the  case  of  Proudfoot  v.  Montefiore/*  the  agent 
of  the  insured  shipped  a  cargo  of  madder  from  Smyrna  for  Liver- 
pool, having  notified  the  principal  of  the  shipment,  but  failed  to  tel- 
egraph to  him  the  fact  that  the  vessel  was  subsequently  wrecked  at 
the  mouth  of  the  harbor,  and  the  cargo  lost.    The  principal,  after  the 
destruction  of  the  cargo,  and  after  he  might  have  received  the  tele- 
graphic information  of  that  fact  if  the  agent  had  properly  performed 
his  duty,  secured  insurance  "lost  or  not  lost"  on  the  venture,  but  did 
not,  of  course,  disclose  the  fact  of  loss  that  was  not  known  to  him. 
It  was  held  that  the  policy  was  avoided  by  the  failure  to  disclose  the 
fact  that  should  have  been  known  to  the  insured,  even  though  in  re- 
ality he  was  as  ignorant  of  the  fact  as  was  the  insurer. 
While  questions  involving  the  exercise  of  good  faith  and  the  duty 

"  Nease  t.  Insurance  Co.,  32  W.  Va.  288,  9  S.  B.  283.    And  see  post.  "As- 
fiignments,"  p.  468, 

^*  PIIOUDFOOT  V.  MONTEFIORB,  L.  B.  2  Q.  B.  51L 


52 


THE   NATURE   AND    IIEQUISITES    OF    THE    CONTRACT.  (Ch.  2 


of  disclosure  usually  arise  with  reference  to  the  insured,  yet  the  in- 
surer is  also  required  to  act  in  perfect  good  faith  towards  the  insur- 
ed, and  cannot,  in  making  the  contract,  take  any  unfair  advantage  of 
him.  This  accounts  for  the  readiness  with  which  the  courts  apply  the 
doctrine  of  estoppel  as  against  the  insurer  when  he  seeks  to  take  ad- 
vantage of  some  condition  of  forfeiture  in  order  to  escape  payment 
under  the  policy.  As  said  by  Christian,  J.,  in  Manhattan  Fire  Ins. 
Co.  V.  Weill,* »  "Where  good  faith  and  fair  dealing  are  of  the  very 
essence  of  the  contract  of  insurance,  insurance  companies  will  be  es- 
topped from  asserting  a  defense  which  not  only  tends  to  a  breach  of 
good  faith,  but  to  actual  and  positive  fraud." 

A  GOIfTRACT  ESSENTIAIXY  OF  INDEMNITY. 


28.  The  basis  of  the  eontract  of  insurance  is  indemnity.  Indemnity 
is  its  sole  leg^tiniate  pnrpose,  and  any  contract  of  insurance 
that  contemplates  a  possible  gain  to  the  insured  by  the  happen- 
ing of  the  event  upon  which  the  liability  of  the  insurer  becomes 
fixed  is  contrary  to  the  proper  nature  of  insurance,  and,  in  the 
absence  of  statute,  will  not  be  allowed.    Hence: 

(a)  No  person  may  secure  insurance  upon  property  or  Utcs  in  urhich 

he  has  no  interest. 

(b)  The  value  of  the  interest  destroyed  or  damaged  is,  in  every  case, 

the  limit  of  reoovery  under  a  contract  of  insurance  upon  such 

interest, 
(e)  In  marine  insurance,  the  owner  of  property  partially  insured  is 

deemed  co-insurer  to  the  extent  of  the  value  uncovered  by  the 

policy, 
(d)   The  insurer  is  entitled  to  be  subrogated  to  any  claim  whereby  the 

insured,  who  is  indeninified  under  the  terms  of  the  policy,  might 

have  had  his  loss  reduced  or  made  good  by  some  third  party. 

The  Principle  of  Indemnity  Requires  the  Presence  of  cm  Insurable 
Interest, 
As  has  been  shown  before,  any  contract  of  insurance  that  does  not 
contemplate  indemnifying  the  insured  against  an  actual  loss  that 
may  be  suflFered  by  reason  of  the  designated  perils  is  a  wagering 
policy,  contrary  to  public  policy  and  void.  The  interest  subject  to  ' 
the  perils  insured  against,  and  for  the  loss  of  which  the  contract  pro- 
vides an  indemnity,  is  termed  "insurable  interest,"  and,  inasmuch  as 
a  person  having  no  insurable  interest  in  the  subject  of  insurance  can- 
not suffer  loss  on  account  of  stipulated  perils,  it  is  manifest  that  the 
presence  of  such  insurable  interest  is  necessarily  required  by  the 
principle  of  indemnity.    While  it  is  therefore  true  that  indemnity  is 

»»  28  Grat.  (Va.)  389,  396,  26  Am.  Rep.  364.    See,  also,  Germania  Ins.  Ck). 
T.  Rudwig,  80  Ky.  223. 


§28) 


CONTRACT  ESSENTIALLY   OF  INDEMNITY. 


53 


the  sole  legitimate  purpose  of  the  ordinary  contract  of  insurance,  ye 
here  are  certain  apparent  limitations  upon  this  general  principle  that 
deserve  to  be  noticed.  The  contract  provides  for  indemnity  only  for 
proximate  damages  resulting  from  the  designated  penis,-  and  does 
not  ordinarily  indemnify  the  insured  for  the  loss  of  expected  profits 
or  other  speculative  benefits."  Neither  does  the  contract  provide 
to  damages  sustained  by  reason  of  the  peculiar  ^''^^^'}^^^^\''^'''^ 
nected  with  the  subject  of  insurance;  that  is,  it  can  take  into  account 
no  pretTum  affectionis,  in  the  absence  of  specific  valuation  that  may 
be  based  upon  such  peculiar  value. 

Rule  as  to  Recovery  under  Valued  Policies. 

Under  the  strict  principle  of  indemnity,  the  actual  value  of  the  sub- 
ject of  insurance  is  always  the  limit  of  recovery."    So,  under  the  or- 
dinary open  policy,  the  amount  written  therem  is  mtended  to  desig- 
nate merely  the  maximum  amount  which  may  be  recovered,"  pro- 
vided the  amount  of  the  loss  may  be  proved  to  be  so  much;  that  is 
to  say,  that  if  under  the  ordinary  policy  a  house  is  msured  for  $10,- 
000,  and  burns,  the  insured  can  in  no  event  recover  more  than  $10  - 
000,  however  much  greater  the  real  value  of  the  house  «n»y  ^"^  =  ^ut 
if  it  can  be  proved  that  the  house  was  m  fact  worth  on^y  $8,000,  its 
actual  value  thus  ascertained  is  the  limit  of  recovery     This  principle 
of  strict  indemnity  is,  however,  subject  to  some  modifications  m  cas- 
es of  valued  policies.    It  is  perfectly  competent  for  the  parties  to  a 
contract  of  insurance  to  determine  by  prior  agreement  what  shall 
be  regarded  as  the  value  of  the  property  insured,  m  case  of  its  de- 
struction;  and,  in  the  absence  of  fraud,  accident,  or  mistake,  such 
valuation  is  the  measure  of  recovery,  even  though  it  might  be  proved 
that  the  actual  value  of  the  property  lost  is  more  or  less.       The  mere 
fact  of  overvaluation  is  not  a  good  defense  to  an  action  for  the 

..  HUUer  y.  Insurance  Co.,  8  Pa.  470,  «  Am  Dec.  656;  LTON  GAS  * 
ELECTRIC  CO.  V.  MEKIDEN  FIBE  INS.  CO..  158  Mass  870,  33  NR  67^ 
20  L.  R.  A.  297,  36  Am.  St  Rep.  540.  See  FREEMAN  '•  f  SSOCIATION,  loO 
Mass.  351,  30  N.  B.  1013,  17  L.  R.  A.  753;  WHITE  ^-  Il^"'?A'^S'|=„°°o'  1 
Me.  91,  2  Am.  Rep.  22;  Travelers'  Ins.  Co.  v.  MeUck,  65  Fed.  178,  12  0.  0.  A. 

1i  in  tte\ttt^of  Wright  and  Pole.  1  Adol.  &  B.  621.  "Inf  """Ity  d^s 
not  contemplate  unrealized  profits."  Ostrander,  Fire  Ins.  (2d  Ed.)  i  180. 
quoted  in  Niaraga  Fire  Ins.  Co.  v.  Heflln  (Ky.)  60  S.  W.  393.  „.    .  „    -, 

»«  STATE  INS.  CO.  T.  TAYLOR,  14  Colo.  499,  24  Pac.  333.  20  Am.  St. 
Rep.  281;    Fisher  v.  Insurance  Co.  (C.  0.)  33  Fed.  544. 

«»Dacey  v.  Insurance  C!o..  21  Hun  (N.  T.)  83. 

"  The  insured  may  not  prove  that  the  value  is  more.  Holmes  v.  Insurance 
Co,  10  Meto.  (Mass.)  211.  43  Am.  Dec.  428.  The  Insurer  may  not  show  tMt 
the  value  Is  less.  Borden  v.  Insurance  Co..  18  Pick  (Mass.)  523.  29  Am-  Det 
614:  Patapsco  Ins.  Co.  v.  Biscoe  (Md.)  7  Gill  &  J.  293,  28  Am.  Dec  319  (Insui- 
•nee  on  freight);  HARRIS  v.  INSURANCE  CO..  6  Johns.  (N.  T.)  868. 


54 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


^ 


'•*t 


amount  set  forth  in  a  valued  policy,**  though  such  overvaluation 
may  be  regarded  as  evidence  of  fraud ;  and,  in  case  the  overvaluation 
is  great,  its  weight  as  evidence  will  be  great.**  Such  contracts  of 
agreed  valuation  are  analogous  to  agreements  for  liquidated  dam- 
ages in  ordinary  contracts.*"  While  they  may  possibly  result  in  the 
payment  by  the  insurer  of  a  sum  that  will  more  than  indemnify  the 
insured  for  the  loss  sustained  in  case  of  an  overvaluation,  not  fraud- 
ulent, yet  this  is  only  an  apparent  exception  to  the  rule  that  only  in- 
demnity can  be  provided  by  the  contract  of  insurance.  As  has  been 
intimated,  it  is  always  possible  to  show  fraud  in  the  valuation,  and, 
in  the  absence  of  fraud,  it  is  plain  that  at  the  time  of  the  making  of 
the  contract  the  parties  regarded  the  sum  specified  as  the  value  of 
the  property  as  merely  the  amount  necessary  to  indemnify  the  own- 
er for  its  loss. 

Double  Insurance — Contribution, 

That  nothing  more  than  indemnity  can  be  secured  under  the  con- 
tract of  insurance  is  illustrated  in  cases  where  the  same  property  is 
covered  by  policies  written  by  two  or  more  insurers,  and  a  partial 
loss  occurs.  Each  of  the  insurers  is  Hable  for  the  whole  amount  of 
the  loss  up  to  the  sum  specified  in  his  policy,**  but  the  insured  can 
recover  his  loss  only  once,  and,  if  he  has  been  fully  indemnified  in  an 
action  against  one  insurer,  such  recovery  bars  a  subsequent  action 
against  a  co-insurer.*'  The  co-insurers  stand  to  one  another  in  the 
mutual  relation  of  principal  and  surety,  and  that  insurer  who  has 
been  called  upon  to  make  good  the  loss  to  the  insured  has,  of  course, 
his  right  to  recover  proportionately  from  his  co-insurers.*'  Such 
circuity  of  procedure,  however,  is  now  generally  avoided  by  the  pro 
rata  clause  included  in  modern  policies,  whereby  each  one  of  several 
insurers  is  liable  only  for  his  ratable  proportion  of  any  partial  loss 
that  may  be  suffered.*' 

41  Sturm  v.  Insurance  Co.,  63  N.  T.  77;  FRANKLIN  FIRE  INS.  CO.  v. 
VAUGHAN,  92  U.  S.  516,  23  L.  Ed.  740;  Borden  v.  Insurance  Co.,  18  Pick. 
(Mass.)  523,  29  Am.  Dec.  614. 

**  See  post,  "Fraud  and  False  Swearing,"  p.  454. 

4»  See  HARRIS  v.  INSURANCE  CO.,  supra;  Sturm  v.  Insurance  Oo.,  supra. 

4*  NBWBY  v.  REED,  1  W.  Bl.  416;  Godln  v.  Assurance  Co.,  1  Burr.  489; 
Thurston  v.  Koch  (0.  C,  Fa.  Dist.)  4  Dall.  348,  Fed.  Cas.  No.  14,016,  1  L.  Ed. 
862.    See,  also,  Wiggin  y.  Insurance  Co.,  18  Pick.  (Mass.)  145,  29  Am.  Dec.  576. 

*»  Williamsburg  City  Fire  Ins.  Co.  v.  Gwinn,  88  Ga.  65,  13  S.  E.  837. 

4«  LUCAS  v.  INSURANCE  CO.,  6  Cow.  (N.  Y.)  635;  Millandon  v.  Insur- 
ance Co.,  9  La.  27,  29  Am.  Dec.  433. 

47  In  the  New  York  standard  fire  policy  this  clause  reads  as  follows: 
"This  company  shall  not  be  liable  under  this  policy  for  a  greater  proportion 
of  any  loss  on  the  described  property,  or  for  loss  by  any  expense  of  removal 
from  premises  endangered  by  fire,  than  the  amount  hereby  insured  shall 
bear  to  the  whole  in^rance,  whether  yalid  or  not,  or  by  solyent  or  insolvent 


§28) 


A  CONXBACT  ESSENTIALLY  OF  ISDEMKITT. 


66 


The  Insured  a  Co-Insurer  under  Marine  Policies.  •    „...  _« 

Under  the  usual  contract  of  fire  insurance  the  msurer,  in  case  of 
a  partial  loss  of  the  subject  of  the  contract   is  required  to  give  full 
indemnity  for  such  loss  up  to  the  amount  written  m  his  policy,  even 
though  the  property  be  very  inadequately  insured     Thus   if  proper- 
ty valued  at  $10,000  is  insured  for  $5,000,  and  is  damaged  by  fire  to 
the  extent  of  one-half  of  its  value,  the  insurer  will  be  compelled  to 
oav  the  entire  $5,000  that  is  necessary  to  repair  the  loss.    Ihis,  how- 
ever, is  not  the  rule  in  marine  insurance,  in  which  the  insured  is 
considered  the  co-insurer  for  an  amount  determined  by  the  difference 
between  the  insurance  taken  out  and  the  value  of  the  Property  in- 
sured "    Thus,  if  a  vessel  worth  $100,000  is  msured  for  only  $80,000 
and  is  damaged  to  the  extent  of  $50,000,  the  insurer  wiU  be  reqmred 
to  ply  only  80  per  cent,  of  the  loss  suffered,  or  $40000;  the  other 
20  per  cent.,  or  $10,000,  being  borne  by  the  msured  himself.    It  is 
sonietimes  stipulated  in  contracts  of  fire  insurance  that  the  msured 
shall  be  co-insurer  to  the  extent  that  the  property  is  not  covered  by 
the  policy,  and  it  is  said  that  the  rule  applying  m  tiiis  respect  to  ma- 
rine insurance  governs  in  fire  insurance  also  in  France  and  other 
Continental  countries. 

The  Insurer  Entitled  to  Subrogation. 

Inasmuch  as  the  insured  is  under  no  circumstances  entitled  to  re- 
ceive any  profit  by  reason  of  the  contract  of  insurance  he  is  required, 
after  being  indemnified  by  the  insurer  for  the  loss  suffered,  to  subro- 
gate the  insurer  to  any  claims  or  right  that  he  might  have  enforced 
against  third  parties,  with  respect  to  that  loss  whereby  it  might  have 
been  either  reduced  or  made  good."  This  right  of  subrogation,  to 
which  the  insurer  is  thus  entitled,  will  be  discussed  at  length  m  a  later 
chapter  in  this  work. 

insurers,  covering  such  property."    See  C«««'ty/-  I°«"J»°^  vV^ttf^f 
49,  8  South.  138;    German  Ins.  Co.  T.  Heiduk,  30  Neb.  288  ^  N.  W.  481,  ^ 
Am.  St.  Rep.  402:   LUCAS  v.  INSUKANCE  CO.,  6  Cow    ^- 
«.  Hughes  on  Admiralty.  33,  citing  Western  Assnr.  Co.  v.  Transp.  Co..  16 

'•^B^'rigSho'^eTy.  '^:  V.  Rogers,  76  Va-  f 3;  Springa^d  Fire  &  Martne 
Ins.  Co.  V.  Allen,  43  N.  T.  889.  8  Am.  Rep.  711;  OASTBLUAIN  v.  PRESTON. 
U  Q.  B.  DlT.  380. 


i« 


P 


THS  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


THE  NATURE  OF  THE  CONTRACT  OF  LIFE  INSURANCE. 

29.  Tl&e  ordinary  contract  of  life  insurance  is  based  upon  tlie  principle 
of  indemnity,  but  is  not  itself  a  contract  of  indemnity.  It 
is  ratber  a  contract  wbereby  one  party,  called  tbe  "insurer,** 
purchases  an  annuity  to  be  paid  to  bim  during  tbe  life  of  an- 
otber,  denon&inated  tbe  "insured,"  in  consideration  for  wbich 
tbe  insurer  agrees  to  pay  a  specified  sum  upon  tbe  deatb  of  tbe 
insured.  Public  policy  requires  tbat  tbe  principle  of  indemnity 
sball  be  so  far  regarded  as  to  bold  tbat  any  contract  for  tbe  in- 
surance of  a  life,  in  tbe  continuance  of  wbiob  tbe  insured  bas 
no  real  interest,  sball  be  Toid. 


I«  \ 


The  life  insurance  contract  differs  materially  from  the  other  kinds 
of  insurance.  It  may  be,  like  them,  purely  a  contract  of  indemnity, 
if  the  insurance  is  merely  for  a  specified  term,  as,  for  instance,  where 
insurance  is  granted  upon  the  life  of  a  person  for  the  space  of  one 
year,  or  five  years,  as  is  the  case  in  "natural  premium"  insurance. 
Such  contracts,  however,  as  has  already  been  stated,  are  relatively 
infrequent.  The  ordinary  contract  of  life  insurance  contemplates  the 
certain  payment  of  a  specified  sum  at  an  uncertain  time,  and  the  pre- 
miums are  so  calculated  that,  in  accordance  with  the  insured's  ex- 
pectancy of  life,  there  will  be  paid  to  the  insurer  as  great,  or  a  great- 
er, sum  in  premiums  and  interest  thereon  than  will  become  due  at 
the  death  of  the  insured.  In  the  case  of  fire  or  marine  insurance,  the 
insurer  takes  merely  a  risk  that  a  loss  may  take  place,  it  being  known 
by  experience  that  such  losses  do  not  occur  in  the  great  majority  of 
cases ;  whereas,  in  Hfe  insurance,  the  event  upon  which  the  payment 
is  to  be  made  is  absolutely  certain  to  happen  at  some  future  time. 
The  fact  that  the  insurer  thus  accumulates  from  the  premiums  a  sum 
which  he  holds  to  be  paid  out  upon  the  death  of  the  insured,  intro- 
duces into  this  so-called  "contract  of  insurance"  a  predominant  ele- 
ment of  speculative  investment.'®  The  presence  of  this  element  nec- 
essarily precludes  the  application  of  the  principle  of  strict  indemnity, 
since,  as  is  easily  seen,  in  the  average  case  the  insurer  only  pays  back 
the  money  that  has  been  given  to  him  to  hold  in  quasi  trust  for  the 
insured. 

Another  serious  obstacle  in  the  way  of  regarding  life  insurance  as 
a  contract  of  indemnity  exists  in  the  difficulty  to  be  encountered  in 
fixing  any  sort  of  pecuniary  value  upon  life.  It  is  a  well-recognized 
principle  that,  granting  the  existence  of  an  actual  interest,  the  law 
fixes  no  limit  to  the  amount  of  insurance  which  may  legally  be  placed 


•0  Phcenix  Life  Ins.  Co.  v.  Bailey,  13  Wall.  616,  20  L.  Ed.  501 ;  CJrosswel  v.  In- 
demnity  Ass'n,  61  S.  C.  103,  28  S.  E.  200.    See,  also.  6  Va.  Law  Reg.  775. 


v'  \ 


§29) 


THE  NATURE  OF  THE  CONTRACT  OF  LIFE  INSURANCE. 


m 


uoon  the  life  of  any  person,  even  though  that  person  might  be  a 
helpless  invalid  whose  life  was  rather  a  burden  upon  the  party  m  m- 
terest  than  a  benefit  possessing  a  pecuniary  value.  ^ 

While  life  insurance  thus  cannot  be  regarded  as  a  contract  ot  in- 
demnity to  the  same  extent  as  fire  or  marine  insurance,  yet  it  is  man- 
ifest that  no  practice  cguld  be  more  vicious  than  that  of  speculating 
in  human  life.    Therefore  a  contract  in  which  the  assured  has  no  in- 
surable interest  in  the  life  of  the  insured  is,  on  the  broadest  and 
soundest  principles  of  public  policy,  absolutely  void  in  this  country 
and  also  under  the  statute  in  England.^^     As  will  be  seen  later,  the 
criterion  for  determining  the  presence  of  an  insurable  interest  is  loss 
or  detriment  to  be  suffered  by  the  insured  upon  the  happening  of  the 
peril  insured  against;  so  it  is  clear  that  the  basis  of  an  insurable  in- 
terest is  indemnity.    Therefore  the  contract  of  life  insurance  is  based 
upon  the  principle  of  indemnity,  in  so  far  as  it  cannot  exist  unless 
there  is  an  insurable  interest  in  the  party  insured  at  the  time  of  the 
making  of  the  contract.    But  beyond  this  the  principle  of  indemnity 
does  not  apply  to  life  insurance.    As  was  said  by  Parke   B.,  in  the 
leading  English  case  of  Dalby  v.  The  India  &  London  Life  Assur. 
Co  •  "   "The  contract  commonly  called  'life  assurance,'  when  prop- 
erly* considered,  is  a  mere  contract  to  pay  a  certain  sum  of  money  on 
the  death  of  a  person,  in  consideration  of  the  due  payment  of  a  cer- 
tain annuity  for  his  life;  the  amount  of  the  annuity  bemg  calculated 
in  the  first  instance  according  to  the  probable  duration  of  hfe,  and, 
when  once  fixed,  is  constant  and  invariable.    This  species  of  insur- 
ance in  no  way  resembles  a  contract  of  indemnity."    While  the  doc- 
trine thus  enunciated  has  been  contested  by  some  American  author- 
ities," yet  it  may  now  be  regarded  as  thoroughly  well  established  by 
the  overwhelming  weight  of  authority  in  the  United  States."    The 

«i  Trinity  College  v.  Insurance  Co.,  113  N.  C.  244.  18  S.  »•  175  22  L-  «•  A. 
291:  SINGLETON  v.  INSURANCE  CO.,  66  Mo.  63,  27  Am.  Rep.  321.  In  the 
latter  case  the  court  says  that  "the  question  may  be  considered  an  open  one 
m  this  state,"  and,  after  citing  numerous  cases,  concludes  that  a  2®"cy  of 
Insurance  procured  by  one  upon  the  life  of  another,  for  the  benefit  of  the 
former,  who  has  no  pecuniary  interest  in  the  continuance  of  the  life  insured, 
is  against  public  policy,  and  therefore  void."    See,  also.^ra,  P.  125. 

"^  Under  14  Geo.  Ill,  c.  48.  See  HALFORD  ▼.  KYMER.  10  Barn.  &  Cress. 
724 

ei  DALBY  v.  THE  INDIA  &  LONDON  LIFE  ASSUR.  CO..  15  C.  B.  36o. 

Richards*  Cases,  271. 
•*  See  May  on  Ins.  (3d  B3d.)  §§  7,  8,  115,  116.  ^  phoenix 

•»  Trinto/Mut  Life  &  Fire  Ins.  Co.  v.  Johnso^  24  N.  J.  ^^«^'^f »  !^2."1^^^ 

Lifelns.  Co.  y.  Bailey,  13  WalL  618,  JW  U IM,  Wl ;  BAWLS  J- ^NSUR^J^E  CO, 

era?-  (^af  L^lm  IV,  ^;   Nyr^.^^ran^^^^^^^^^^^  ^^ind.  l^^^  ^ 

r^.7^    rJitrLerCas.;287j  ^I™/ J'^^^^^^^^.^  s^^^^^ 
Atl.  890,  2  L.  R.  A.  844;    Bacon^s  Ben.  Soc   &  L.  Ins.  §  163     But  see  Ex 
change  Bank  of  Macon  v.  Loh,  104  Ga.  446,  31  S.  B.  459,  44  L.  R.  A.  372. 


58 


THE  NATURE  AND  REQUISITKS  OF  THE  CONTRACT. 


(Ch.2 


§30) 


THE   NATURE   OF   MUTUAL   BENEFIT   INSURANCE. 


69 


question  usually  arises  when  the  interest,  which  the  assured  had  in 
the  life  insured  at  the  inception  of  the  policy,  has  ceased  before  its 
maturity.  In  such  case  it  is  plain  that  the  death  of  the  person  whose 
life  is  insured  causes  no  loss  to  the  assured  which  could  be  the  sub- 
ject of  indemnity,  and,  if  the  principle  of  indemnity  were  to  be  strict- 
ly applied,  there  could  certainly  be  no  recovery  by  the  insured  under 
such  circumstances ;  and  such  was  the  holding  in  the  case  of  Godsall 
V.  Boldero,*'  in  which  it  was  decided  that  a  tradesman  who  had  in- 
sured the  life  of  William  Pitt,  to  secure  a  debt  owed  to  him  by  that 
statesman,  could  not  recover  under  the  policy  after  all  Mr.  Pitt's 
debts  had  been  paid  in  accordance  with  an  act  of  Parliament.  But 
this  case  was  overruled,  and  its  doctrine  distinctly  repudiated,  by  the 
case  of  Dalby  v.  The  India  &  London  Life  Assur.  Co.,'^  which  arose 
upon  very  similar  facts.  The  doctrine  of  this  last  case  has  been 
adopted  by  the  Supreme  Court  of  the  United  States,  which,  in  the 
case  of  Connecticut  Mut.  Life  Ins.  Co.  v.  Schaefer,"  in  which  a  di- 
vorced wife  sought  to  recover  under  a  policy  upon  the  life  of  her 
former  husband,  held  that  the  termination  of  the  wife's  interest  in 
the  life  of  her  husband  did  not  in  any  wise  affect  her  right  of  recov- 
ery under  the  policy.  Justice  Bradley  stated  the  law  in  these  broad 
terms :  "We  do  not  hesitate  to  say,  however,  that  a  policy  taken  out 
in  good  faith,  and  valid  at  its  inception,  is  not  avoided  by  the  cessa- 
tion of  the  insurable  interest,  unless  such  be  the  necessary  effect  of 
the  provisions  of  the  policy  itself."  And  this  statement  of  the  law 
seems  to  have  been  fully  concurred  in  by  other  American  courts. '^* 

THE  KATUBE  OF  MUTTTAI.  BENEFIT  IirSURANCE. 

30.  Life  insurance  by  mntnal  benefit  associationa  and  fraternal  orders 
does  not  contraotnally  differ  in  any  niaterial  respect  from  regu- 
lar life  insurance.  Since  tbe  purposes  of  sucb  organizations, 
however,  are  benevolent,  and  not  commercial,  tbey  are  usually 
differentiated  in  tbe  statutory  regulation  of  insurance. 

Life  Insurance  by  Mutual  Benefit  and  Assessment  Associations. 

The  fact  that  the  various  benefit  associations  include  insurance  up- 
on the  lives  of  their  members  as  only  one  of  the  many  functions  un- 
dertaken by  them,  has  induced  many  authorities  to  make  statements 

••  GODSALL  v.  BOLDERO,  9  Bast,  72. 

•7  DALBY  V.  THE  INDIA  &  LONDON  LIFE  ASSUR.  CO.,  Biipra. 

•8  CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  SCHAEFER,  94  U.  S.  457,  24 
L.  Ed.  251. 

B»  Overhlser's  Adm'x  t.  Overhlser,  63  Ohio  St  77,  67  N.  B.  965,  50  L.  R. 
A.  552,  81  Am.  St.  Rep.  612;  Appeal  of  Corson,  113  Pa.  438,  6  Atl.  213,  57 
Am.  Rep.  479;   RAWLS  v.  INSURANCE  CO.,  27  N.  Y.  282,  84  Am.  Dec.  28o. 


implying  that  insurance  by  such  associations  is  peculiar,  and  not  sub- 
let to  the  rules  of  law  applying  to  the  ordinary  contract  of  life  insur- 
ance •«    This,  however,  is  not  correct.    For  whatever  may  be  the  ul- 
timate motive  of  the  members  of  such  benefit  associations,  and  how- 
ever true  that  their  membership  may  be  based  upon  the  fraterna 
desire  of  mutual  aid,  and  for  the  promotion  of  social  pleasure,  yet 
the  rights  of  members  to  demand  the  benefits  due  in  case  of  sickness 
or  death,  in  accordance  with  the  terms  of  the  membership  certificate 
Ts  purli;  a  contract  right,  and  none  the  less  subject  to  the  rules  of 
law  applying  to  contracts  of  life  insurance  because  of  its  intimate  con- 
nection with  the  other  benevolent  purposes  of  the  association.     It 
may  therefore  be  properly  said  that,  so  far  as  the  contract  of  mem- 
bership in  such  benefit  associations  provides  for  the  contingent  pay- 
ment of.money  in  case  of  sickness  or  death,  the  agreenient  is  one 
purely  of  life  insurance,  and  in  no  wise  different  from  the  contrac 
Tsimilar  effect  made  by  the  so-called  "oM^ine"  companies."     Yet 
there  is  this  distinction  between  the  contract  ordinarily  set  forth  in 
a  membership  certificate  in  a  benefit  association  and  the  contract  of 
the  old-line  companies.    As  has  been  shown  above,  the  ^^ore  popu- 
lar forms  of  level  premium  insurance  contam  an  important  feature 
of  investment,  and,  in  so  far,  are  not  contracts  of  msurance  at  all 
but   in  the  pure  form  of  benefit  or  mutual  assessment  insurance, 
there  is  no  feature  of  investment  whatever.    The  contract  contem- 
plates merely  the  indemnifying  of  the  insured  against  ^^^^^'^^^^^ 
death,  and  is  therefore  in  its  nature  more  strictly  a  contract  of  msur- 

•0  Commonwealth  v.  Equitable  Ben.  Ass'n,  137  Pa.  412,  18  Atl.  1112;   State 
V    low^  mT  A  d  Ass'n,  59  Iowa,  125.  12  N.  W.  782;    Commonwealth  y. 
Na^olal  Mut  AM  Ass'n,' 94  Pa.  481;    Chosen  F^end.  v   Fa^^  ^  How. 
Prac   (N  Y)  886;   Commercial  League  Ass'n  t.  People,  90  111.  166,   biate  t. 
Mutual  Protectiok  Ass'u,  26  Ohio  St  19;   Northwestern  Masonic  ^^^ 
rj^nes   154  Pa   99   26  Ati.  263.  35  Am.  St  Kep.  810;    Martin  v.  Stubblngs. 
m  ni  387  18  N   m  ^7,  9  Am.  St.  Rep.  620.    These  decisions  will  be  found 
^oVever""  ;  L^u^rJtatutes  specially  providing  f- tnUnfsu'S'^^e.i: 
"societies  (or  beneficial  or  protective  purposes,"  »' ««f  P*^"*,^""^.^!^^  „? 
from  the  regulations  imposed  upon  »°»°«"<=^'°'°P'^^^^,J^"  J?V^S^ney 
statutory  provisions,  it  Is  clear  that  any  association  «^«°  J*°"8^  "J^ben^Tl- 
olent  or  charitable,  and  provide  benefits  for  Its  ««°L^™  ~  *^^_ ''""'f^t 
arles  only,  IncldentaUy,  yet  «  U  contracts  to  pay  » '^f^ata  sum  to  .uch  ben^^^ 
flclarles  upon  the  decease  of  such  -members  in  consideration  of  wnWbuHons 
made  by  them,  it  is  doing  an  insurance  business.     COMMONWEALTH  v. 
WETHBRBEE,  105  Mass.  149;  Endowment  &  Benev.  Ass  n  '•  S*^^^>*°; 
253,  10  Pac.  872;  Chartbrand  v.  Brace,  16  Colo.  19.  26Pa<^  152.  12  L.  K.  A^ 
209   25  Am.  St  Rep.  235;    Bolton  v.  Bolton,  73  Me.  299;    ftatej.  Farmers 
Ben.  Ass'n,  18  Neb  281.  25  N.  W.  81;  Rensenhouse  v   Sf  •ey.,/^  Mich.  ««, 
40  N.  W.  765;  State  ex  rel.  Atty.  Gen.  v.  Merchants'  Excb.  Mut  Benev.  Soc. 
72  Mo.  146;    Bacon,  Ben.  Soc.  &  Life  Ins.  §  52. 

.1  See,  further,  Danlher  v.  Grand  Lodge,  10  Utah.  110,  37  Pac  245;   Su- 
preme Coun>.:U  v.  Larmour.  81  Tex.  71.  IB  S.  W.  633. 


Il 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT.     ^Ch.  2 


ance.  It  has  also  been  shown  heretofore,  however,  that  in  practice 
the  mutual  benej&t  associations  are  gradually  approaching  the  meth- 
ods of  business  used  by  the  old-line  companies,  and  that  in  nearly  all 
cases  there  is  provided  some  sort  of  reserve  fund,  whether  called  a 
"contingent  fund,"  "emergency  fund,"  or  "surplus."  The  provision  of 
such  a  fund  is  manifestly  necessary  to  do  away  with  the  evil  consequen- 
ces that  would  ensue  from  fluctuations  in  the  death  rates  or  in  the  pay- 
ment of  assessments,  or  from  other  emergencies  requiring  an  unusual 
and  unexpected  expenditure.  But  the  accumulation  of  this  fund  is  in  so 
far  a  departure  from  the  principles  of  purely  mutual  assessment  in- 
surance. 

While  the  provision  made  by  these  benefit  associations  for  pay- 
ing sick  and  death  benefits  is  thus  nothing  less  than  a  contract  of  life 
insurance,  and  therefore  subject  to  the  same  rules  of  law  as  apply  in 
other  similar  contracts,  yet  such  associations  are  frequently  given  a 
different  standing  from  the  old-line  companies  by  special  statutes 
that  are  enacted  in  their  favor.  In  most  of  the  states  are  found  stat- 
utory provisions  for  the  organization  and  conduct  of  these  mutxial 
benefit  associations,  and  in  such  cases  it  has  been  held  that  the  gen- 
eral law  governing  the  conduct  of  life  insurance  business  does  not 
apply  to  benevolent  associations  established  under  the  special  law.'* 
Furthermore,  it  has  been  frequently  held  that  the  benevolent  char- 
acter of  these  associations  will  be  recognized  under  the  statute  ex- 
empting charitable  and  benevolent  associations  from  taxation,  and  it 
is  not  essential  to  the  charitable  nature  of  these  associations  that 
their  benefits  shall  be  bestowed  upon  all  alike,  without  restriction  to 
any  designated  classes.  As  said  by  Lewis,  P.,  in  City  of  Petersburg 
V.  Mechanics*  Association :  ••  "The  objects  of  the  association,  which 
was  incorporated  by  the  Legislature  in  1826,  are  set  forth  in  the  con- 
stitution and  by-laws,  and  in  the  preamble  thereto,  which  declare 
that,  in  instituting  a  society  of  mechanics,  charity  should  be  the  prin- 
cipal, but  not  the  only  object.  Its  revenues,  as  testimony  shows,  are 
wholly  applied  to  the  payment  of  its  current  expenses,  the  assistance 
of  its  indigent  members,  and  the  families  of  such  of  them  as  may 
have  died  in  needy  circumstances.  These  are  charitable  purposes, 
and  the  relief  afforded  is  none  the  less  charity  because  confined  to 
the  members  of  the  association  and  the  families  of  deceased  mem- 
bers. It  is  not  essential  to  charity  that  it  shall  be  universal."  In  the 
language  of  the  Tennessee  court  in  a  recent  case :  •*  "The  order  of 

•s  See  Commonwealfh  r.  Bqultable  Ben.  Ass'n,  137  Pa.  487,  18  Atl.  1112; 
State  V.  Whitmore,  75  Wis.  332,  43  N.  W.  1133;  Donald  v.  Railway  Cb.,  93 
Iowa,  284,  61  N.  W.  971,  33  L.  R.  A.  492. 

«3  78  Va.  431,  436. 

•«  Supreme  Lodge  K.  P.  v.  La  Malta,  95  Tenn.  157,  31  S.  W.  493,  30  L.  B. 
A.  8o5. 


THE  CONTRACT   OF  KEINSURANCB. 


61 


the  Knights  of  Pythias  is  not  a  regular  life  insurance  company  but 
t  is  a  benefit  association  with  Ufe  insurance  as  one  feature,  to  be  en- 
joyed  or  not  by  each  particular  member  at  his  own  election,  and  up- 
on  certain  terms  and  conditions." 

THE  CONTRACT  OP  REINSURANCE. 

^^act  1.  personal  between  the  ln.nrer  ««l  the  r.ln.nr.,.  «wl 
<.,   Xhrco-S'r  .r.rnfan7e'u"^  lli^  --rtahi...  ^  »- 

Ch,   r:lT.^.TZ  t^^  nnae,  the  -o-^*, -^^^ 
bT  the  liabiUty  of  the  original  iiuinrer,  not  by  hi.  abiUty  to  pay. 

i:t""T.:  r«  h.tly'S::::^^  »<»ey  paid  l.,  the  r.lnsn,ex 
(d^    B^  wh»r.  reln.nrer>.  promi..  1.  t.  pay  l...e.  ^•-"«/^^  ^^ 
poUcy  holder.,  the  original  in«nred  th«  take,  a  ^Bht  of  .idt 
Snder  the  eontxact  thn.  n-d.  for  hi.  benefit,  even  though  he 

(.,   A^y  °:t«e»rn?^X  the  ln.nrer,  without  the  eon.ent  of^e 
*  '   ^ri^nrer,   whieh  i«p..e.   addition^  Wen.   upon  the  rein- 
.nrer,  will  relea«»  the  latter  from  hi.  UabiUtr. 

Reinsurance  is  merely  a  further  extension  of  *«  *«"^^^!!'^;,«*^  °^ 
insurance,  that  is,  a  distribution  among  many  of  the  "f  >^«?^»g '^^ 
one  When  an  insurer  finds  that  he  has  undertaken  a  single  nsk  so 
great  th^Ae  happening  of  the  peril  insured  against  would  r«,der  h.m 
fnsolvent,  or  seriously  cripple  his  efficiency,  it  is  <="^tornary  for  him  to 
reinsure  such  risk,  or  a  portion  thereof,  with  one  ^^  «<^^^  °*^  "f  5^ 
ers.  It  sometimes  happens,  also,  that  an  insurer  desires  entirely  to 
relieve  himself  of  liability  under  contracts  made,  and  remsures  all  his 

sks  Such  contracts  are  plainly  beneficial  to  the  P"W.c,  inasmuch  as 
they  promote  both  efficiency  and  stability  m  tiie  conduct  of Jje  uisur^ 
ance  business.  Yet  they  have  at  times  been  in  great  disfavor  as  pro- 
moting speculation  in  the  rise  and  fall  of  premiums,  and  were  f onner- 
ly  prohibited  in  England  by  statute."  No  such  discnminahon  how- 
ever, has  ever  been  made  against  contracts  of  reinsurance  »  *«  ~"n- 
try,"  and  it  has  become  a  common  practice  among  msurers.    Of  course, 

..  Defined  In  Commercial  Mut.  Ins.  (3o.  v.  Detroit  Fire  &  Marine  Ina.  Co„ 
38  Ohio  St.  16,  43  Am.  Rep.  413. 

«e  19  Geo.  II,  c.  37.    Repealed  30-31  Vict  c.  23.  toaNSP   OO 

•'  3  Kent,  Oomm.  276;    PHCENIX  INS.  CO.  T.  BRIB  *  W.  TEANSP.  CO., 


Hji^  m    mi»m  ■ 


i 


It 


^ 


THB  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


it  stands  to  reason  that  a  contract  of  reinsurance,  like  any  other  contract 
of  insurance,  must  be  supported  by  an  insurable  interest;  therefore 
the  reinsurance  may  not  be  for  a  greater  amount  than  the  original  in- 
surance, although  it  may  be  easily  for  a  less  amount. ••  Likewise,  the 
amount  payable  under  the  contract  of  reinsurance  cannot  be  more  than 
an  indemnity  to  the  insurer,  and,  if  the  insurer  becomes  liable  to  pay 
any  sum  less  than  the  amount  of  reinsurance,  the  sum  so  payable  will 
fix  the  liability  of  the  reinsurer.*  • 

Contracts  Improperly  Termed  Reinsurance, 

It  is  well  to  call  to  the  reader's  attention  the  distinction  which  exists 
between  a  contract  of  reinsurance  and  other  somewhat  similar  contracts 
that  frequently  pass  under  the  same  name.  When  a  person  who  has 
already  insured  his  property  secures  a  second  insurance  upon  the  same 
property,  the  second  contract  is  frequently  called  "reinsurance,"  but 
this  is  merely  a  case  of  double  insurance,  and  not  at  all  "reinsurance" 
in  the  technical  sense  of  the  word.  Another  instance  of  the  untech- 
nical  use  of  the  word  occurs  when  two  insurance  companies  are  con- 
solidated, or  when  one  buys  out  another,  assuming  all  of  its  policies  and 
obligations,  in  order  that  that  other  may  discontinue  its  business.  In 
such  cases  the  consolidated  company,  or  the  purchasing  company,  is 
said  to  "reinsure"  the  risks  of  the  company  that  ceases  to  exist;  but 
this  is  a  case  of  substitution,  in  which  the  so-called  "reinsurers"  engage 
to  take  the  place  of  the  original  insurer,  and  themselves  directly  to  make 
good  losses  to  the  holders  of  the  original  policies.  It  must  be  borne  in 
mind  that  such  cases  of  consolidation,  or  of  successive  insurance,  are 
not  technically  cases  of  reinsurance,  and  what  is  said  of  the  rules  of  law 
determining  the  peculiar  rights  of  the  parties  to  the  contract  of  rein- 
surance does  not  apply  to  the  cases  mentioned.  It  is  also  to  be  noted 
that  the  contract  of  reinsurance  does  not  amount  to  a  novation,  even 
when  the  contract  provides  for  a  payment  by  the  reinsurer  directly  to 
the  original  insured,  in  case  of  the  happening  of  the  event  insured 
against.    This  is  so  although  the  original  insured  may  accept  the  obli- 


117  U.  S.  312,  323,  6  Sup.  Ct  750,  29  I..  Ed.  873;  Sun  Mut  Ins.  Co.  t.  Ocean 
Ins.  Co.,  107  U.  S.  485,  1  Sup.  Ot  582,  27  L.  Ed,  337;  MERRY  v.  PRINCE, 
2  Mass.  176.  'There  can  be  no  doubt  that  the  original  insurer  may  protect 
himself  to  the  whole  extent  of  his  liability."  Insurance  Co.  of  North  Amer- 
ica V.  Hibemia  Ins.  Co.,  140  U.  S.  565,  11  Sup.  Ct  909,  35  L».  Ed.  517.  See, 
also,  Acts  Va.  1895-96,  p.  452,  c.  421. 

••Berry  v.  Insurance  Co.,  132  N.  Y.  49,  30  N.  B.  254,  28  Am.  St.  Rep. 
548;  Manufacturers*  Fire  &  Marine  Ins.  Co.  v.  Western  Assur.  Co.,  145  Mass. 
419,  14  N.  E.  632;  Insurance  Co.  of  North  America  v.  Hibemia  Ins.  Co.,  140 
U.  S.  565,  11  Sup.  Ct  909,  35  L.  Ed.  517;  Commonwealth  Ins.  Co.  v.  Globe 
Insurance  Co.,  35  Pa.  475. 

69  ILLINOIS  MUT.  FIRE  INS.  00.  T.  ANDES  INS.  CO.,  67  UL  362,  16 
Am.  Rep.  620. 


S31) 


THE  CONTRACT  OF  REINSUBANOB. 


63 


nation  assumed  by  the  reinsurer,  and  bring  suit  against  hun  to  enforce 
the  payment  undertaken  under  the  contract^^ 

Statute  of  Frauds, 

There  is  some  conflict  of  authority  as  to  whether  an  agreement  to 
make  a  contract  of  reinsurance  is  enforceable  if  made  by  parol.     1  here 
is  authority  for  holding  that  the  agreement  of  the  reinsurer  is  to  answer 
for  the  debt  of  another,  and  therefore  must  be  in  wntmgm  order  to  be 
hindinff  "     But  this  view  arises  from  a  misconception  of  the  nature  ot 
the  coniract     It  is  an  agreement  made  with  the  debtor  to  indemnify 
him  against  any  debt  that  may  be  incurred  under  the  original  contract 
of  insurance,  and  is  not  a  promise  made  to  the  creditor,  and  therefore 
does  not  fall  within  that  class  of  cases  required  to  be  m  wnting  by  the 
fourth  section  of  the  statute  of  frauds."     Furthermore,  the  contract 
would  be  taken  out  of  the  statute  by  reason  of  its  being  an  original 
undertaking  to  indemnify  the  insurer  against  liability,  and  not  a  col- 
lateral contract  of  guaranty. 
The  Rights  of  the  Insurer  and  the  Reinsurer, 

The  subject  of  the  contract  of  reinsurance  is  the  insurer's  risk,  and 
not  the  property  insured  under  the  original  policy."     The  Policy  />* 
reinsurance  is  necessarily  based  upon  the  original  policy,  and  the  nghts 
of  the  parties,  while  of  course  fixed  by  the  terms  of  the  policy  of  rein- 
surance, are  yet  greatly  affected  by  the  terms  and  condition^  of  the 
oricrinal  policy  upon  which  the  reinsurance  contract  is  based,     ihe  rein- 
surl'r's  agreement  thus  rests  upon  the  original  policy  as  its  basis,  though 
the  terms  of  the  original  policy  are  not  necessarily  on  that  account  in- 
corporated within  the  policy  of  reinsurance.    Therefore  the  reinsurer 
will  not  be  liable  to  the  insurer  in  case  the  latter  might  have  avoided 
payment  of  the  loss  under  any  of  the  terms  of  the  original  policy, 
though  a  bona  fide  payment  of  a  doubtful  claim  by  the  insurer,  after 
notice  to  the  reinsurer,  fixes  the  liability  of  the  latter.     But  the  condi- 
tions, representations,  and  warranties  of  the  original  policy  arc  to  be 
construed,  in  determining  the  rights  of  the  reinsurer  and  insurer,  as 
of  the  time  of  the  execution  of  the  policy.    Thus  the  fact  that  repre- 
sentations made  by  the  insured  were  untrue  at  the  time  of  the  execu- 
tion of  the  policy  of  reinsurance  will  not  affect  the  liability  of  the  rein- 
to  See  Barnes  v.  Insurance  Co.,  56  Minn.  38,  57  N.  W.  314.  45  Am.  St. 
Rep.  438.    Contra,  Wood  v.  Moriarty,  15  R.  I.  522,  9  Atl.  427. 
71  Egan  V.  Insurance  Co..  27  La.  Ann.  368.  /n  o  x  o-ia  i^ 

T2  Commercial  Mut  Ins.  Co.  v.  Union  Mut  Ins.  Co.,  19  How   (U.  S.)  318,  15 
L.  Ed.  636;   Bartlett  v.  Insurance  Co.,  77  Iowa,  158,  41  N.  W.  601;    Ciarit. 

Cent  p.  98.  ,  „    ,^ 

7  a  Jackson  v.  Insurance  Co.,  99  N.  Y.  124,  130,  1  N.  E.  p. 
7*  Eagle  Ins.  Co.  v.  Lafayette  Insurance  Co.,  9  Ind.  443,  447;   Mwchantir 

Mut  Ins.  Co.  V.  New  Orleans  Mut  Insurance  Co.,  24  La.  Ann.  305. 


:i1 


li 


64 


THE   NATURE   AND    REQUISITES   OF   THE   CONTRACT.  (Ch.  2 


§31) 


THE  CONTRACT  OP  REINSURANCE. 


65 


surer,  provided  such  representations  were  true  at  the  time  of  the  mak- 
ing of  the  original  contract^' 

As  r^rards  the  obligation  to  the  insured,  the  relation  between  the 
reinsurer  and  the  insurer  is  that  of  principal  and  surety.  It  is  the  duty 
of  the  insurer,  whenever  a  question  of  doubtful  liability  arises  under  any 
of  his  policies,  to  give  notice  to  the  reinsurer,  who  should  then  deter- 
mine whether  the  claim  will  be  resisted  or  paid.  In  case,  however,  the 
reinsurer  takes  no  action,  it  is  proper  for  the  insurer  to  make  defense  if 
he  thinks  the  claim  can  be  successfully  resisted,  and  the  expenses 
attendant  upon  such  litigation  can  be  charged  against  the  reinsurer  in 
case  the  judgment  of  the  court  is  adverse  to  the  insurer.''*  But  it 
seems  that  if  the  insurer  is  successful  in  the  prosecution  of  his  suit  he 
has  no  claim  for  costs  against  the  reinsurer,  inasmuch  as,  by  theory  at 
least,  he  is  indemnified  against  his  costs  by  having  them  taxed  against 
the  defeated  plaintiflF  in  the  suit."  This  rule,  however,  seems  to  be 
of  doubtful  correctness.  If  the  unsuccessful  insurer  may  demand  re- 
imbursement from  the  reinsurer  for  all  proper  expenses  incurred  in  his 
effort  to  avoid  payment,  including  attorney's  fees,  there  would  seem 
to  be  no  sound  reason  why  such  expenses  incurred,  above  the  taxable 
costs  in  the  suit,  for  attorney's  fees,  and  other  proper  causes  of  expendi- 
ture, should  not  also  be  charged  to  the  reinsurer  in  case  the  insurer  is 
successful  in  the  litigation. 

The  reinsurer  agrees  to  indenmify  the  insurer,  not  against  actual  pay- 
ments made,  but  against  liabilities  incurred ;  therefore  it  is  by  no  means 
necessary  that  the  insurer  shall  first  have  paid  a  loss  accruing,  as  a 
condition  precedent  to  his  demanding  payment  of  the  reinsurer.  In 
fact,  the  insolvency  of  the  insurer,  which  precludes  his  ever  meeting 
in  full  the  obligation  incurred  to  the  insured  under  the  original  policy, 
does  not  in  any  wise  affect  the  right  of  the  insurer  to  demand  payment 
in  full  under  the  policy  of  reinsurance."  A  difficult  question  arises, 
however,  when  there  has  been  an  actual  settlement  made  by  the  insur- 
er with  the  original  insured  for  a  less  sum  than  that  set  forth  on  the 
face  of  the  policy.  While  it  is  true  that  it  is  the  liability  only  of  the 
insurer  that  measures  the  liability  of  the  reinsurer,  it  is  also  to  be  kept 
in  mind  that  the  contract  of  reinsurance  is,  like  any  other  proper  con- 

T»  Cohen  v.  Insurance  Co.,  50  N.  Y.  610;  Jackson  v.  Insurance  Co..  99  N. 
Y.  124,  1  N.  E.  539. 

T«  New  York  State  Marine  Ins.  Co.  v.  Protection  Insurance  Co.,  1  Story, 
458,  Fed.  Gas.  No.  10,216.  And  a  judgment  against  the  insurer  In  a  pro- 
ceeding of  which  the  reinsurer  had  notice  is  conclusive  upon  the  reinsurer. 
Commercial  Union  Assur.  Co.  v.  American  Cent  Ins.  Co.,  68  Cal.  430,  9  Pac! 
712;  Strong  v.  Insurance  Co.,  62  Mo.  289,  21  Am.  Rep.  417. 

"  Faneuil  Hall  Ins.  Co.  v.  Liverpool  &  L.  &  G.  Ins.  Co.,  153  Mass.  63  29 
N.  B.  244.  10  L.  R.  A.  423. 

»«  Elackstone  v.  Insurance  Co.,  06  N.  Y.  104;  Joyce  on  Ins.,  §  133. 


tract  of  insurance,  a  contract  merely  of  indemnity.     Therefore  the 
proper  ruling  in  all  cases  should  be  that,  where  the  insurer  has  made  an 
actual  settlement  for  a  less  amount  than  that  stipulated  in  the  policy, 
when  such  settlement  has  already  discharged  the  liability  of  the  msurer 
to  the  original  insured,  the  reinsurer  should  never  be  liable  for  a  greater 
amount  than  the  sum  actually  paid  under  the  settlement.^ »    But  the  cases 
involving  a  final  settlement  between  the  insurer  and  the  insured,  where- 
bv  the  former  is  discharged  from  the  obligation  of  his  contract,  are  to  be 
carefully  distinguished  from  those  cases  in  which  the  receiver  of  an  in^ 
solvent  company  pays  out  to  the  creditors  of  the  company  only  a  certam 
percentage  of  their  total  claims  against  the  company.    Thus,  if  an  in- 
solvent company  setties  with  its  creditors  at  50  per  cent,  of  their  claims, 
the  reinsurer  cannot  claim  to  have  his  liability  to  the  insolvent  msurer 
scaled  down  50  per  cent.,  inasmuch  as  the  right  of  the  msolvent  com- 
pany to  enforce  its  entire  claim  against  the  reinsurer  is  a  part  of  the 
assets  of  the  insolvent's  estate,  and  the  reinsurer  is  not  m  a  position  to 
claim  the  benefits  of  a  settlement  that  may  have  been  made  solely  for 
the  creditors.^**     If,  however,  there  had  been  a  composition  between  the 
insolvent  insurer  and  those  having  claims  under  the  policies,  whereby 
the  insurer  is  discharged,  and  a  matured  obligation  by  the  reinsurer  has 
not  been  reckoned  among  the  assets  of  the  insolvent,  it  would  seem,  on 
principle   that  the  reinsurer  should  not  be  liable  under  his  policy  for 
a  sum  greater  than  that  which  was  paid  out  by  the  insurer  under  the 
policy  which  served  as  the  basis  for  the  contract  of  reinsurance.* 

The  Rights  of  the  Original  Insured, 

(1)  The  original  insured  may  stand  in  any  one  of  three  relations 
towards  the  reinsurer,  in  accordance  with  the  terms  of  the  particular 
contract  of  reinsurance:  In  case  the  contract  is  solely  between  the 
insurer  and  the  reinsurer,  contemplating  only  an  indemnity  to  the  in- 
surer against  losses  suffered  by  reason  of  the  policies  carried  by  him, 
the  original  insured  has  absolutely  no  interest  in  the  contract,  and  is  a 
total  stranger  to  it.«*  He  has  no  claim  upon  the  reinsurer,  nor  can  he 
demand  that  a  preference  shall  be  given  to  him  in  case  of  the  insolvency 
of  the  insurer  in  the  distribution  of  a  fund  received  by  the  insurer 
from  the  reinsurer  on  account  of  a  loss  suffered  under  the  original 
policy.  Money  so  paid  by  the  reinsurer  becomes  but  a  part  of  the 
general  assets  of  the  insurer,  and  all  of  his  creditors  have  an  equal 

T»  ILLINOIS  MUT.  FIRE  INS.  CO.  v.  ANDES  INS.  CO.,  67  111.  362,  16 

Am.  Rep.  620.  ^    ,  «  ^  ^  ^       ry     « 

80  Elackstone  v.  Insurance  Co.,  56  N.  Y.  104;   Mutual  Safety  Ins.  Co.  ▼. 

Hone,  2  N.  Y.  235.  ^   ^^ 

81  See  Consolidated  Fire  Ins.  Co.  v.  Cashow,  41  Md.  69. 

82  Barnes  v.  Insurance  Co.,  56  Minn.  38.  57  N.  W.  314,  46  Am.  St.  Rep. 
438 ;  GOODRICH'S  APPEAL,  109  Pa.  523,  2  Atl.  209 ;  WoodruTs  Gases  on  In- 
surance, 71. 

Yanob  Ins. — 6 


THB  NATURE  AND  REQUISITES  OP  THE  CONTRACT.     (Ch.  2 

right  with  the  original  insured  to   demand  payment  out  of  such 

fund." 

(2)  The  contract  of  reinsurance  may  contain  a  term  whereby  the 
reinsurer  binds  himself  to  pay  any  loss  that  may  fall  upon  the  insurer 
to  the  policy  holders  concerned.    Under  the  common-law  rule  as  es- 
tablished in  most  of  the  United  States,  though  not  in  England,  and 
confirmed  in  many  states  by  statutory  provisions,  a  third  party  for 
whose  benefit  a  contract  is  made  is  allowed  to  enforce  such  con- 
tract by  suit  against  the  promisor."    Therefore  the  remsurer  who 
has  promised  to  pay  the  losses  accruing  under  the  original  pohcies 
directly  to  the  holders  of  such  policies  will  be  liable  to  a  suit  by  the 
original  insured  under  the  contract  of  reinsurance.     But  the  right 
thus  given  to  the  insured  to  enforce  the  contract  of  payment  against 
the  reinsurer  does  not  at  all  release  the  insurer  from  the  liability 
assumed  under  the  original  policy.    The  remedy  of  the  insured  is 
double,  and,  while  he  may  not  have  a  double  satisfaction  of  his  claim, 
he  is  not  required  to  elect  between  his  remedies  against  the  reinsurer 
and  the  insurer,  but  may  prosecute  his  suit  against  both  until  he 
secures  a  complete  satisfaction  of  his  claim.    Thus,  in  the  case  of 
Barnes  v.  Hekla  Fire  Ins.  Co.,"  the  defendant  company  had  rein- 
sured its  risk  under  a  policy  granted  to  the  plaintiff  in  the  St.  Paul 
German  Insurance  Company.    The  reinsuring  company  had  agreed 
to  assume  and  pay  all  losses  to  policy  holders.    After  a  loss  had 
occurred  under  the  policy,  the  German  Insurance  Company  became 
insolvent,  and  the  plaintiff  filed  his  claim  under  the  contract  of  re- 
insurance  in   the   insolvency   proceedings.    While   such   proceedings 
were  still  pending,  the  plaintiff  sued  the  defendant,  the  original  in- 
surer, for  the  whole  amount  due  under  the  policy.    The  defendant 
sought  to  set  up  the  claim  made  by  the  plaintiff  against  the  Ger- 
man Insurance  Company  in  bar  of  the  suit,  but  the  court  held  that 
such  a  claim  did  not  affect  the  plaintiff's  right  of  action  against  the 
defendant,  stating  the  law  as  follows :  "A  creditor  is  put  to  an  elec- 
tion only  where  his  remedies  are  inconsistent,  and  not  when  they 
are  consistent  and  concurrent.    In  the  latter  case  a  party  may  prose- 
cute as  many  as  he  has,  as  in  the  case  of  several  debtors ;  and  so, 
if  in  this  instance  the  remedy  against  the  insolvent  company,  as 
respects  the  plaintiff,  was  merely  cumulative,  there  is  no  reason  why 

8s  GOODRICH'S  APPEAL,  109  Pa.  523,  2  Atl.  209 ;  Glen  v.  Insurance  Co  56 
N  Y  379:  Barnes  v.  Insurance  Co.,  supra;  Arnould,  Marine  Ins.  S  3^4. 
Conti^a.  Shoaf  v.  Insurance  Co.,  127  N.  C.  308,  37  S.  B.  451.  80  Am.  St  Rep. 

604 

8*4  Lawrence  v.  Pox,  20  N.  Y.  268;  Clark,  Oont.  513.  Otherwise  in  Massa- 
chusetts:  Exchange  Bank  of  St  Louis  v.  Rice,  107  Mass.  37,  d  Am.  Rep.  L 
Cf.  Code  Va.  1S87,  §  2415. 

••  56  Minn.  38,  57  N.  W.  314.  45  Am,  St  Bep.  438, 


^31) 


THE   CONTRACT  OF  REINSURANCE. 


67 


she  may  not  pursue  either  or  both.  As  between  the  two  companies, 
the  defendant  occupies  no  better  position  than  a  surety." 

Where  the  contract  of  reinsurance  contains  an  agreement  to  make 
payment  directly  to  the  policy  holder,  the  liability  of  the  reinsurer 
at  the  suit  of  the  insured  will  not  be  affected  by  the  fact  that  the 
reinsurer  would  have  a  good  defense  against  a  demand  of  payment 
by  the  insurer.  Thus,  where  the  Craftsman's  Life  Assurance  Com- 
pany had  issued  three  policies  of  five  thousand  dollars  each  upon 
the  life  of  one  Hall,  payable  to  the  plaintiffs,  and  the  defendant 
company  had  agreed  to  reinsure  the  Craftsman's  Company  on  all 
its  outstanding  risks,  and  to  pay  the  holders  of  its  policies  such  sums 
as  the  insurer  might  become  liable  to  pay,  it  was  held  that  the  de- 
fendant reinsurer  was  liable  at  the  suit  of  the  plaintiffs,  the  original 
insured,  to  pay  the  policies  in  full  upon  the  death  of  Hall,  although  the 
Craftsman's  Company  had  effected  with  two  other  companies  poli- 
cies of  reinsurance  upon  the  life  of  Hall  for  five  thousand  dollars 
each.**  As  between  the  Craftsman's  Company,  which  had  received 
ten  thousand  dollars  from  its  contracts  of  reinsurance  upon  the  poli- 
cies in  suit,  and  the  defendant  reinsurer,  the  reinsurer  would  un- 
questionably have  been  liable  only  for  the  residue  of  the  sum  due 
from  the  insurer  upon  the  three  original  policies — that  is,  five  thou- 
sand dollars — but  this  could  not  relieve  the  defendant  company  from 
its  obligation  to  make  good  its  agreement  to  pay  the  fifteen  thou- 
sand dollars  to  the  plaintiffs. 

While,  under  such  contracts  of  reinsurance  as  we  are  now  treat- 
ing, the  original  insured  has,  by  virtue  of  the  term  in  the  policy  of 
reinsurance,  a  right  to  enforce  payment  directly  from  the  reinsurer, 
it  is  yet  to  be  remarked  that  the  attempt  to  enforce  this  right  by  the 
insured  does  not  create  a  novation  which  discharges  the  original 
policy.  Instead,  the  original  contract  remains  in  full  force,  and  the 
original  insured  may  rightfully  demand  that  all  of  its  terms  and 
conditions  shall  be  complied  with  in  accordance  with  its  tenor. 
Therefore,  if  the  insurer  grants  any  permissions  or  privileges,  or 
gives  consent  to  any  change  of  conditions  in  accordance  with  his 
powers  under  the  contract,  such  action  on  his  part  will  be  binding 
upon  the  reinsurer,  even  though  the  policy  of  reinsurance  may  pro- 
vide that  such  acts  as  would  affect  or  change  the  rights  of  the  in- 
sured under  the  original  policy  should  be  done  by  the  reinsurer. 
Thus  a  clause  in  a  policy  of  reinsurance  making  the  reinsurer  the 
agent  of  the  original  insurer  for  the  purpose  of  doing,  in  regard  to 
all  outstanding  policies  covered  by  the  contract  of  reinsurance,  all 
acts  necessary  to  transfer  such  policies  in  accordance  with  their 
conditions,  does  not  prevent  the  original  insurer  from  lawfully  con- 


««  Glen  V.  Insurance  Co.,  56  N.  Y.  379. 


C8  THE   NATURli   AND    REQUISITES   OF   THE    CONTRACT.  (Ch.  2 

senting  to  the  transfer  of  a  policy,  since  the  reinsurer  by  the  clause 
n  not  made  the  sole  agent  for  such  transfer."     So   where  a  rein- 
surer had  agreed  to  indemnify  the  insurer  against  all  loss  and  dam- 
aJes  sustained  by  reason  of  certain  designated  outstandmg  pohc.es, 
it  was  held  that  the  original  insured  might  recover  from  the  rein- 
surer the  damages  sustained  by  reason  of  the  failure  of  the   "surer 
to  accept  premiums  due  and  to  continue  its  pohcies  m  force        The 
insured  was  not  obliged  to  accept  the  reinsurer  m  Pf^°;the  orig- 
inal insurer,  and,  upon  the  failure  of  the  insurer  to  continue  per 
formance  under  his  contract,  the  insured  was  of  course  en mkd  to 
damages  for  breach  of  agreement,  and,  under  the  terms  of   he  con- 
tract of  reinsurance,  such  damages  could  be  recovered  directly  from 

the  reinsurer.  .         ....  ■  ._j  ^i,. 

(3)  A  third  kind  of  relation  between  the  original  insured  and  the 
reinsurer  may  arise  in  those  cases  in  which  the  circumstances  attend- 
ine  the  making  of  the  contract  of  reinsurance  amount  to  a  novation 
of  the  original  contract,  and  hence  operate  to  discharge  that  con- 
tract and  The  original  insurer  from  all  obligation  thereunder.    Such 
a  result  can  arisf,  however,  only  when  the  insured  agrees  with  the 
insurer  and  reinsurer  that  he  will  accept  the  obligation  of  the  rein- 
surer in  consideration  of  the  discharge  of  that  of  the  insurer.    Such 
an  agreement  is  ordinarily  carried  into  effect  by  a  surrender  of  the 
oriSfpolicy,  and  the  issue  of  another  poUcy  under  the  same  terms 
^Jconditiol;  by  the  so-called  "reinsurer."    As  is  shown  above 
however,  such  a  transaction  is  not  one  of  technical  reinsurance   for 
here  the  so-called  "reinsurer"  is  but  substituted  for  the  origina   in- 
surer and  hence  becomes  the  immediate  insurer  of  the  subject  of  the 
orSal  policy,  instead  of  being  the  insurer  of  the  origmal  insurer  s 
risfby  reason  of  such  policy,  as  would  be  the  case  if  the  transaction 
were  one  of  proper  reinsurance.     In  such  cases  of  novation  the 
TriSnal  insure?  is"  of  course,  wholly  discharged  from  any  obhgation 
°h"?may  have  existed  under  the  former  policy   a«d  Je  insure^^^ 
turn  secures  the  same  rights  against  the  so-called    remsurer    as  if 
the  policy  had  been  originally  issued  by  him. 

•T  Fanetill  Hall  Ins.  Co.  v.  Uverpool  &  L.  &  G.  Ins.  Co.,  153  Mass.  63,  26 

N.  E.  244,  10  L.  R.  A.  423. 

as  Fifjhpr  V   Insurance  Co.,  69  N.  T.  161.  

..li  rohannr^  Insurance  Co..  66  Wla.  80.  27  N.  W.  414.  57  Am.  Hep. 

249;   Glen  v.  Insurance  Co.,  66  N.  Y.  379. 


§32) 


WHEN   THE  CONTRACT  IS   DIVISIBLE. 


WHEN  THE  CONTRACT  IS  DIVISIBLE. 


69 


32  Tlie  pecnUar  character  of  tlie  insurance  contract  raises  a  strong 
presumption  in  all  cases  tliat  its  terms  are  to  be  construed  as 
parts  of  an  indivisible  whole.  But  this  general  rule  may  be 
■well  supplemented  as  follows: 

(a)  Whether  the   contract  is   divisible   or  indivisible   is   a  question 

purely  of  intention,  rightly  expressed,  and  the  effort  of  the 
courts  should  be  to  give  effect  to  the  fair  intent  of  the  contract 

taken  as  a  whole.  *         i. 

(b)  When  the  contract  grants  insurance  upon  several  separate  sub- 

jects in  consideration  of  separate  premium  charges,  the  contract 
is  divisible,  and  the  invalidity  of  one  part  will  not  affect  an- 
other. ,  .     ^       -  , 

(c)  When  the  contract  covers  several  different  subjects  of  insurance 

which  are  separately  valued,  but  the  consideration  is  a  single 
gross  premium,  there  is  great  conflict  among  the  decisions  as 
to  the  character  of  the  contract,  whether  divisible  or  indivis- 
ible. On  principle,  however,  the  rulea  of  construction  obtaining 
may  be  stated  as  follows: 

(1)  If  the  terms  of  the  contract  distinctly  state  that  any  misrep- 

resentation or  breach  of  condition  with  reference  to  any 
of  the  several  subjects  of  insurance  under  the  poUcy  wiU 
defeat  all  rights  of  the  holder  under  the  poUcy,  the  con- 
tract is  then  to  be  regarded  as  indivisible. 

(2)  If  the  misrepresentation  or  breach  of  condition  with  regard 

to  one  of  the  several  subjects  is  of  such  a  character  as  ma- 
terially to  increase  the  risk  in  regard  to  the  other  subjects 
covered  by  the  policy,  then  as  to  such  condition  the  contract 
is  indivisible. 

(3)  But  if  the  misrepresentation  or  breach  of  condition  is  such 

as  to  affect  only  one  of  the  subjects,  then  the  contract  is 
deemed  divisible,  and  the  rights  of  the  insured  with  refer- 
ence to  the  other  subjects  covered  by  the  poUcy  are  not 
affected. 

One  of  the  most  difficult  questions  in  insurance  law  coming  before 
the  courts  for  decision  arises  when  there  are  embraced  under  a  sin- 
gle contract  of  insurance  several  different  and  distinct  subjects,  and 
the  defense  of  the  insurer  consists  in  some  misrepresentation  or  the 
breach  of  some  condition  with  regard  to  only  one  of  the  subjects.  It 
is  manifest  that  if  the  contract  is  indivisible,  and  there  has  been  a 
breach  of  a  single  condition,  or  any  misrepresentation  whatsoever, 
the  policy  holder  acquires  no  rights  whatever  under  it;  but,  if  the 
contract  can  be  held  divisible,  it  may  be  invalid  as  to  one  subject  and 
valid  as  to  others.  The  terms  of  the  policy  themselves  very  often 
distinctly  indicate  what  is  the  intention  of  the  parties  with  reference 
to  its  construction  in  this  respect ;  and  since  the  question  of  divisi- 
bility, like  every  other  one  of  construction,  depends  altogether  upon 


70 


THE  NATURE  AND  REQUISITES  OP  THE  CONTRACT. 


(Ch.2 


§32) 


WHEN   THE   CONTRACT  IS   DIVISIBLE. 


71 


i  I: 


the  properly  expressed  intention  of  the  parties,  in  such  cases  the 
courts  find  little  difficulty  in  determining  the  rights  of  the  parties 
under  a  policy  embracing  several  different  kinds  of  property.  But 
in  the  absence  of  such  clear  expression  of  intention  great  difficulty 
is  experienced  in  the  construction  of  those  policies  which  cover  sev- 
eral different  kinds  of  property,  each  having  a  distinct  valuation,  but 
the  premium  for  the  insurance  of  all  being  one  gross  sum.  The 
typical  case  is  where  a  single  policy  is  issued  upon  a  house  and  its 
contents,  each  being  separately  valued,  but  the  consideration  being 
a  gross  premium.  Mr.  Parsons  states  the  rule  in  these  concise 
terms :  "If  the  consideration  to  be  paid  is  single  and  entire,  the  con- 
tract must  be  held  to  be  entire,  although  the  subject  of  the  contract 
may  consist  of  several  distinct  and  wholly  independent  items."  ®® 
Or,  as  it  is  expressed  in  the  case  of  McClurg  v.  Price :  »^  "If  the  con- 
sideration is  single,  the  contract  is  entire,  whatever  the  number  or 
variety  of  the  items  embraced  in  the  subject."  The  rule  as  thus 
stated  has  received  the  approval  of,  and  been  enforced  by,  many  of 
the  courts  in  the  various  states ;  ^^^  but  it  is  submitted  that  it  is  too 
arbitrary  in  form,  and  is  not  based  upon  the  true  principles  involved 
in  the  determination  of  all  such  cases.  As  was  stated  above,  the  ques- 
tion of  the  divisibility  of  the  contract  of  insurance  is  purely  one  of 
intention,  and  any  arbitrary  rule  of  construction  is  apt  to  work  con- 
fusion in  the  law  and  hardship  upon  litigants.  It  is  true  that  the 
presumption  is  in  favor  of  the  indivisibility  of  the  contract  on  account 
of  the  singleness  of  the  consideration,  but  other  circumstances  at- 
tending the  making  of  the  contract  may  show  that  the  single  pre- 
mium received,  in  the  case  of  insurance  upon  separately  valued  sub- 
jects, is  but  for  the  mutual  convenience  of  the  parties,  and  that  it 
does  not  really  mean  that  the  parties  intend  that  the  contract  shall 
be  regarded  as  inseparable. 

The  reasonable  view  to  be  taken  of  the  apparently  conflicting  cases 
involving  this  question  would  seem  to  be  this:  If  the  several  sep- 
arately valued  subjects  of  insurance  under  the  policy  in  question  are 
so  closely  connected  that  any  representation  or  condition  that  will 
affect  the  character  of  the  risk  upon  one  subject  will  extend  also 
to  the  others,  then  the  policy  should  be  regarded  as  indivisible, 
and  the  breach  of  any  condition,  or  any  misrepresentation  with 
reference  to  one,  should  avoid  the  insurance  on  all.**     Or,  if  any 

••2  Pars.  Cont  519. 

ti  59  Pa.  420,  98  Am.  Dec.  356. 

•«  iEtna  Ins.  Co.  v.  Resb,  44  Mich.  55,  6  N.  W.  114,  38  Am.  Rep.  228;  Hln- 
man  v  Insurance  Oo.,  36  W!s.  159;  Bowman  v.  Insm-ance  Co.,  40  Md.  620; 
Gould  V.  Insurance  Co.,  47  Me.  403,  74  Am.  Dec.  494. 

»»  Agricultural  Ins.  Co.  of  Watertown  v.  Hamilton,  82  Md.  88,  33  Atl.  429, 


circumstances  of  fraud,  whether  of  misrepresentation  or  concc^l- 
nuMit,  have  attended  the  making  of  the  contract,  such  fraud  should 
be  held  to  avoid  the  whole  contract,  even  though  it  may  have  di- 
rect reference  only  to  one  of  the  several  subjects  insured,  when 
such  fraudulent  misrepresentation  or  concealment  has  clearly  at- 
fected  the  making  of  the  contract;  •*   that  is  to  say,  fraud  that  has 
procured  the  making  of  the  contract  will  avoid  the  whole  contract, 
even  though  such  fraud  may  be  limited  to  only  a  part  of  the  contract 
But,  on  the  other  hand,  where  the  different  kinds  of  property  insured 
under  the  one  policy  for  a  single  premium  are  so  entirely  dissociated 
as  that  the  risks  attaching  to  each  are  distinctly  separable,  there  is 
no  sufficient  reason  for  holding  that  a  misrepresentation  o^^  breach 
of  condition  with  reference  to  one  kind  of  property  should  have  any 
.  effect  whatever  upon  the  validity  of  insurance  upon  the  other  kinds 
in  the  absence  of  express  provisions  to  that  effect,  and  pro>nded  there 
has  been  no  fraudulent  procurement  of  the  contract."     This  prin- 
ciple is  well  illustrated  in  the  well-reasoned  case  of  Loomisv  Rock- 
ford  Insurance  Co.»«     In  this  case  the  plaintiff  had  msured  three 
houses,  situated  on  separate  farms,  under  a  single  policy,  and  for  a 
single  premium.    Subsequently  to  the  issuing  of  the  policy  the  farm 
upon  which  one  of  the  insured  houses  stood  was  sold  by  the  plaintiff 
without  the  consent  of  the  insurer.    Under  a  provision  of  the  policy 
any  change  in  the  title  to  the  property  insured  without  the  consent 
of  the  insurer,  avoided  the  policy.    After  this  alienation  without  con- 
sent,  one  of  the  houses  that  remained  under  the  ownership  of  the 
plaintiff  was  destroyed  by  fire.    In  an  action  brought  by  the  plaintiff 
under  the  policy,  the  insurer  set  up  the  breach  of  the  alienatio^^ 
clause  in  defense.     But  the  court  very  properly  held  that  the  con- 
tract was  divisible,  and  that  the  breach  of  the  condition  as  to  one 
of  the  houses  did  not  affect  the  contract  as  to  the  other  two,  and 
thus  stated  the  law  applying:   "The  general  rule,  ^  in  part  void 
in  toto,'  should  apply  to  all  cases  where  the  contract  is  affected  by 
some  all-pervading  vice,  such  as  fraud,  or  some  unlawful  act  con- 
demned by  pubUc  poUcy  or  the  common  law;  cases  where  the  con- 
tract is  entire,  and  not  divisible ;  and  all  those  cases  where  the  mat- 
ter that  renders  the  policy  void  in  part,  and  the  result  of  its  bemg  so 

qn  T    T?    A    fta^  Rl  Am   St   Rep.  457,  in  which  a  policy  on  a  house  and  per- 

'^.X^trT'^L'^m^  ^avoided  as  to  ^ \rwTsT5%l  rw  IK' 
To  the  same  effect,  see  Stevens  v.  Insurance  Co.,  81  Wis.  335.  51  N.  W.  555, 

29  Am.  St.  Rep.  905.  ^  „   „«   *       t>       oto 

94  Moore  v.  Insurance  Co.,  28  Grat  (Va.)  508,  26  Am.  Rep.  373. 

««  Havens  ;.  Insurance  Co.,  Ill  Ind.  90,  12  N.  ^^^'^J^^^^^' ^^'^^ 
Manchester  Fire  Assur.  Co.  v.  Glenn,  13  Ind.  App.  365,  40  N.  B.  926,  41  N. 
E.  847,  55  Am.  St.  Rep.  225. 

••  77  Wis.  87,  45  N.  W.  813,  8  L.  R.  A.  834.  20  Am.  St  Rep.  9«, 


P  11    il 


72 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT. 


(Ch.2 


rendered  void,  affects  the  risk  of  insurance  upon  the  other  items  in 
the  contract.  Keeping  these  rules  in  mind,  the  leading  cases  upon 
this  subject  can  all  be  reconciled.  A  recovery  should  be  had  in  all 
those  cases  where  the  contract  is  divisible,  the  different  properties 
insured  for  separate  sums,  and  the  risk  upon  the  property,  which  is 
claimed  to  be  valid,  unaffected  by  the  cause  that  renders  the  policy 
void  in  part." 

Another  phase  of  the  same  principle  is  illustrated  in  Connecticut 
Fire  Insurance  Co.  v.  Tilley,®^  in  which  the  contract  was  held  sep- 
arable for  the  benefit  of  the  insurer.  The  plaintiff  had  taken  out  a 
single  policy  on  sixteen  tenement  houses,  paying  therefor  a  single 
premium.  The  policy  contained  the  usual  provision  that  if  the  prem- 
ises remained  vacant  for  ten  days  without  the  company's  assent  the 
policy  should  be  void.  Several  of  the  houses  covered  by  the  policy 
remained  vacant  for  a  longer  period  than  ten  days,  and  without  the 
company's  assent,  and  were  vacant  at  the  time  of  the  fire,  which 
destroyed  all  of  them.  The  plaintiff  contended  that  the  contract  was 
entire,  and  that  the  premises  were  therefore  not  vacant  so  long  as 
any  one  of  the  houses  was  occupied.  The  court,  however,  declined 
to  hold  the  contract  indivisible,  notwithstanding  the  payment  of  a 
single  premium,  and  allowed  the  plaintiff  to  recover  only  for  such  of 
the  houses  as  had  not  become  vacant 


§  33)  REQUISITES  FOR  THE   VALIDITY   OF  THE   CONTRACT.  73 

in  general,  that  the  contract  of  insurance  must  possess  the  same  req- 
uisites of  validity  that  must  characterize  any  other  contract.  But 
there  are  some  special  rules  growing  out  of  the  peculiar  nature  of 
the  contract  itself,  and  the  peculiar  relation  of  the  parties  thereto 
will  require  us  to  examine  in  detail  the  application  of  principles  that 
are  already  familiar  to  the  student  of  contract  law.  The  considera- 
tions that  primarily  require  this  special  treatment  in  the  case  of  in- 
surance contracts  are:  (1)  The  quasi  public  character  of  insurance 
business,  which  has  induced  a  large  measure  of  statutory  restraint 
and  control  of  insurance  companies  and  regulation  of  insurance  con- 
tracts ;  and  (2)  because  the  relation  of  the  parties  to  the  contract  of 
insurance  is  in  a  measure  fiduciary,  and  therefore,  in  the  making  of 
all  insurance  contracts,  each  party  is  under  obligation  to  exercise  the 
highest  degree  of  good  faith  towards  the  other.  The  consequent 
special  rules  of  law  affecting  the  formation  of  the  contract  of  in- 
surance will  therefore  be  now  taken  up  and  examined  in  detail. 


REQUISITES  FOB  THE  VAIJDITY  OF  THE  OONTBACT. 

33.  In  order  that  the  oontraot  of  insuranoe  shall  be  valid,  it  miut  pos- 
■ess  all  the  essential  elements  that  are  requisite  to  the  Talidity 
of  any  other  oontraot;  that  is: 

(a)  There  mnst  be  an  asveen&ent  resulting  from  an  offer  and  acceiit- 
anoe. 

<b>  In  order  to  be  binding,  this  agreement^ 

(1)  Must  be  in  the  form  required  by  law. 

(2)  There  niust  be  two  parties  legidly  capable  of  contracting. 

(3)  It  ninst  be  supported  by  a  valuable  consideration,  unless  such 

consideration  be  dispensed  with  by  reason  of  a  seal. 

(4)  The  purpose  of  the  contract  must  be  legal,  and  not  in  contra* 

Tcntion  of  publie  policy, 
(c)   In  addition,  the  insurance  contract  n&ust  be  made  fairly,  the  con- 
sent of  each  of  the  parties  being  given  upon  a  full  hnowledge  of 
all  n&aterial  and  relevant  facts  known  to  the  other* 


u 


The  peculiar  nature  of  the  contract  of  insurance  having  now  been 
set  forth,  it  becomes  necessary  to  examine  the  rules  by  which  it  may 
be  determined  when  the  contract  is  validly  executed.    It  may  be  said, 

•7  88  Va.  1024,  14  S.  E.  851,  29  Am.  St  Rep.  770. 


1 


1 

1 

: 

H ' 

1 

u 


PARTIES. 


(Ch.3 


CHAPTER  nL 

PARTIES. 

34.  In  General. 

35.  Who  ^lay  be  Insurers. 

36.  The  Several  Kinds  of  Corporate  Imrarers. 
37-38.  The  Rights  of  Foreign  Insurers. 

89.    Contracts  Made  by  Insurers  not  Complying  with  Statn- 
tory  Requirements. 

40.  Who  May  be  Insured. 

41.  Infants  as  I*;irties  Insured. 
42-43.     Aliens  as  Parties  Insured. 

41  15.     Insane  Persons  as  Parties  Insured. 


IN  GEKERAI*. 

34.  There  mnst  be  at  least  two  parties  to  every  oontraot  of  insurance, 
the  insurer  and  the  insured,  and  there  may  be  a  third,  the  as- 
sured or  beneficiary.  At  common  law  any  person  capable  of 
making  a  valid  contract  may  become  a  party  to  a  contract  of 
insurance,  but  the  contract  is  one  affected  by  a  public  interest, 
and  is,  therefore,  a  proper  subject  for  governmental  regulation. 
Such  regrulation  niay  impose  special  qualifications  as  necessary 
for  those  who  would  become  parties  to  the  contract.  The  rela- 
tion between  insurer  and  insured  is  that  of  debtor  and  creditor, 
subject  to  the  conditions  of  the  policy,  and  not  that  of  trustee 
and  cestui  que  trust. 

As  in  the  case  of  any  other  contract,  there  must  be  at  least  two  parties 
to  a  valid  contract  of  insurance.  A  person  cannot  contract  for  insur- 
ance with  himself,  even  though,  in  so  doing,  he  may  suppose  that  he  is 
acting  for  the  insurance  company.  It  has  therefore  been  held  that 
where  an  agent  or  other  representative  of  the  insurance  company,  hav- 
ing power  to  contract  on  its  behalf,  insures  his  own  property,  or  issues 
a  life  policy  to  himself,  such  insurance  is  invalid.*  The  authority  of 
the  agent  does  not  extend  to  any  transaction  in  which  his  personal  inter- 
est is  opposed  to  that  of  his  principal. 

While  there  must  always  be  two  parties,  there  may  be  three,  or  even 
four,  parties  to  a  contract  of  insurance.  Thus,  when  one  person  takes 
out  insurance  upon  the  life  of  another,  the  consent  of  both  the  assured 

1  Pratt  V.  Insurance  Co.,  130  N.  T.  206,  29  N.  B.  117.  See,  also,  Nenendorff 
v.  Insurance  Co.,  G9  N.  Y.  389;  Wildberger  v.  Insurance  Co.,  72  Miss.  338,  17 
South.  282,  28  L.  R.  A.  220,  48  Am.  St  Rep.  558;  Greenwood  Ice  &  Coal  Oo. 
▼.  Georgia  Home  Ins.  Co.,  72  Miss.  46,  17  South.  83. 


^34) 


IN  OENERAU 


75 


and  the  insured,  and  of  the  insurer,  is  necessary  to  the  validity  of  the 
contract.  In  case  the  assured  assigns  such  a  policy  to  a  fourth  party 
with  the  consent  of  the  insurer,  the  assignee  then  becomes  properly  a 
party  to  the  contract.'  So  there  may  be  a  third  party  to  a  contract  of 
fire  insurance,  as  where  the  standard  mortgagee  clause  is  attached  to  a 
policy  of  insurance  upon  the  mortgaged  property.  The  mortgagee  in 
such  case  becomes  a  proper  party  to  the  contract,  who  may  enforce 
it  by  an  action  in  his  own  name,  and  whose  rights  under  the  contract 
will  not  be  defeated  by  the  default  of  the  party  insured." 

The  person  who  grants  the  insurance  is  termed  the  "insurer,"  and 
the  second  party  to  the  contract  is  called,  indifferently,  the  "insured" 
or  "assured."  *  There  has  been  some  effort  made  by  text-writers  and 
in  some  of  the  decisions  to  make  a  distinction  in  the  use  of  the  terms 
"insured"  and  "assured."  *  The  latter  has  been  said  to  designate  the 
person  for  whose  benefit  the  insurance  is  granted,  while  the  word  "in- 
sured" indicates  the  person  whose  life  is  the  subject  of  the  contract. 
While  such  a  distinction  has  the  sanction  of  very  respectable  authority, 
it  cannot  be  said  to  be  maintained  with  such  consistency  as  to  entitle  it 
to  the  dignity  of  a  rule  of  law. 

It  is  customary  that  the  second  party  to  the  contract  shall  be  express- 
ly designated,  but  this  is  by  no  means  necessary.  The  name  of  the 
insured  may  be  left  blank,  and  parol  testimony  is  admissible  to  show 
who  is  intended  as  the  insured.*  It  is  not  unusual  that  policies  shall 
be  issued  "for  the  benefit  of  whom  it  concerns."  This  phrase,  however, 
is  not  so  broad  in  its  legal  effect  as  its  apparent  meaning  would  seem 


I 


«  Kingsley  v.  Insurance  Co.,  8  Cush.  (Mass.)  400;  Biddeford  Sav.  Bank  v. 
Dwelling-House  Ins.  Co.,  81  Me.  571,  18  Atl.  299;  Tremblay  v.  Insurance 
Co.,  97  Me.  &i7,  55  Atl.  509,  94  Am.  St.  Rep.  521. 

8  See  Capital  City  Ins.  Co.  v.  Jones,  128  Ala.  361,  30  South.  674,  86  Am.  St 
Rep.  152;   Hastings  v.  Insurance  Co.,  73  N.  Y.  141. 

*See  Equitable  Life  Assur.  Soc.  v.  Commonwealth  (Ky.)  67  S.  W.  388, 
where  this  second  party  is  termed  the  "insurant" 

B  Ferdon  v.  Canfield,  104  N.  Y.  143,  10  N.  E.  146;  Smith  v.  Insurance  Co., 
5  Lans.  (N.  Y.)  545.  "There  are  undoubtedly  instances  where  this  distinction 
between  the  terms  'assured'  and  'insured'  is  observed,  though  we  do  not  find 
any  Judicial  consideration  of  it  The  application  of  either  term  to  the  party 
for  whose  benefit  the  insurance  is  effected,  or  to  the  party  whose  life  is 
insured,  has  generally  depended  upon  its  collocation  and  context  in  the  pol- 
icy." Per  Mr.  Justice  Field  in  Connecticut  Mut  Life  Ins.  Co.  v.  Luchs,  lOS 
U.  S.  498,  2  Sup.  Ct  949,  27  L.  Ed.  800. 

«  Burrows  v.  Turner,  24  Wend.  (N.  Y.)  276,  35  Am.  Dec.  622,  and  note. 
"The  policy  is  valid,  although  no  particular  person  was  named  therein  as  the 
assured.'*  Weed  v.  Insurance  Co.,  133  N.  Y.  401,  31  N.  El  231,  and  cases 
cited.  So,  where  the  insurance  was  effected  by  certain  brokers  named  there- 
in, "for  the  owners,  payable"  to  such  brokers,  the  owners  were  permitted  to 
sue  on  the  policy  in  their  own  names.  Farrow  v.  Insurance  Co.,  18  Pick. 
(Mass.)  53,  29  Am.  Dec.  564.  But  see  dictum  in  Newson's  Adm'r  y.  Douglass, 
7  Har.  &  J.  (Md.)  417,  16  Am.  Dec  317, 


i' 


V 

1»  1 


76 


PARTIES. 


(Ch.3 


to  imply.  It  is  merely  equivalent  to  saying  that  the  policy  is  taken  out 
on  behalf  of  some  person  not  designated ;  and,  while  the  person  con- 
templated as  beneficiary  under  such  policy  by  the  person  taking  it  out 
may  take  the  benefit  of  it  by  ratifying  the  act  of  his  agent,  even  when  it 
had  been  without  authority,^  it  has  been  held  that  the  interest  of  a 
stranger  not  in  the  contemplation  of  either  of  the  original  parties  to 
the  contract  cannot  be  protected  thereunder.* 

Statutory  Regulations. 

In  the  absence  of  statutory  provision  there  is  no  reason  whatever  why 
any  person  sui  juris  may  not  make  a  contract  of  insurance,  whether  as 
insurer  or  insured.  But  since  the  business  has  assumed  such  great  pro- 
portions, and  its  proper  conduct  has  become  of  such  vital  importance 
to  the  welfare  of  the  public,  the  contract  of  insurance  is  now  regarded  as 
a  proper  subject  for  legislative  control. 

In  the  language  of  the  Pennsylvania  court  in  a  recent  case,*  "The 
business  of  insurance  against  loss  by  fire  is,  by  reason  of  its  magnitude, 
its  importance  as  to  property  owners,  and  the  nature  of  the  business,  a 
proper  subject  for  the  exercise  of  the  police  power  of  the  state."  As 
to  how  far  the  police  power,  properly  invoked  for  the  regulation  of 
so  important  a  business,  shall  extend  in  fixing  the  qualification  of  those 
who  are  going  to  take  part  in  it,  is  a  matter  of  much  difficulty  and 
doubt.^*^  It  seems  to  be  well  settled  that  the  state  may  impose  such 
regulations  as  it  may  see  fit,  so  far  as  they  do  not  violate  the  constitu- 
tions of  the  United  States  or  of  the  state,  upon  the  conduct  of  in- 
surance within  its  boundaries,  and  may  prohibit  the  making  of  contracts 
by  either  natural  persons  or  corporations  who  have  not  complied  with 

T  Newson's  Adm*r  t.  Douglass,  snpra;  Fire  Ins.  Ass'n  ▼.  Merchants*  & 
Miners'  Transp.  Co.,  66  Md.  339,  7  Atl.  905,  59  Am.  Rep.  162;  Ballard  v.  In- 
surance Co.,  9  La.  258,  29  Am.  Dec.  444,  Where  there  has  been  no  previous 
authority  the  contract  can  only  be  ratified  by  the  person  who  was  in  the 
contemplation  of  the  party  effecting  the  insurance.  Buck  v.  Insurance  Co., 
1  Pet  (U.  S.)  151,  7  L.  Ed.  90.  The  policy  may  be  ratified  after  loss.  Hooper 
V.  Robinson,  98  U.  S.  528,  25  L.  Ed.  219.  And  it  has  been  held  that  the  gov- 
ernment may  adopt  insurance  taken  out  by  captors  having  no  insurable  in- 
terest, and  thereby  take  the  benefit  of  the  insurance,  although  it  had  not 
been  originally  effected  for  the  benefit  of  the  government.  Routh  v.  Thomp- 
son, 13  Bast,  274,  284,  285;  1  Am.  Ins.  (7th  Ed.)  370;  McLaughlin  v.  Insur- 
ance Co.  (Com.  PI.)  20  N.  Y.  Supp.  536. 

8  FARMERS*  MUT.  INS.  CO.  v.  NEW  HOLLAND  TURNPIKE  CO.,  122 
Pa.  37,  15  Atl.  563;  Mosser  v.  Donaldson  (Pa.)  10  Atl.  766. 

»  Commonwealth  v.  Vrooman,  164  Pa.  306,  80  Atl.  217,  25  L.  R.  A.  260,  44 
Am.  St  Rep.  603. 

10  «*When  and  how  far  such  power  may  be  legitimately  exercised  with 
regard  to  these  subjects  must  be  left  for  determination  to  each  case  as  it 
arises.'*  Mr.  Justice  Peckham  In  Allgeyer  T.  Louisiana,  166  U.  a  678»  17 
Sup.  Ct  427,  41  L.  Ed.  832. 


IN   GENERAL. 


77 


§34) 

the  requirements  that  have  been  imposed.^^  But  may  this  power  to 
regulate  be  extended  to  prohibit  contracts  by  natural  persons,  and  con- 
fine the  business  of  insurance  wholly  to  corporations?  Freedom  of 
contract  is  a  constitutional  right  that  should  not  be  lightly  interfered 
with,  and  it  would  seem  that  any  statute  which  takes  from  an  individual 
his  common  law  right  to  enter  into  a  contract  of  insurance  would  be  an 
unconstitutional  interference  with  the  freedom  of  contract.^*  Yet 
in  some  of  the  states  statutes  are  found  prohibiting,  and  even  penaliz- 
ing, the  granting  of  insurance  by  any  others  than  corporate  insurers ; 
and  in  a  recent  case  in  Pennsylvania  the  constitutionality  of  such  stat- 
utes has  been  upheld,  though  in  the  face  of  a  vigorous  dissent."  The 
ground  upon  which  these  statutes  are  held  valid  is  that  the  regulation 
of  insurance  business  is  a  proper  exercise  of  police  power,  and  that 
effective  control  of  the  business  is  not  possible  excepting  when  it  is 
carried  on  by  corporations  whose  compliance  with  the  requirements  of 
law  can  be  easily  compelled.^*  ^ 

Strangers  Acquire  no  Rights  Under  Contract. 

Only  those  between  whom  the  agreement  was  made  are  entitled  to 
the  rights  of  parties,"  excepting,  of  course,  that  the  beneficiary  of  the 
contract  may  be  the  real  party  in  interest,  and  may,  as  such,  enforce  the 
contract."     But  a  stranger  cannot  thrust  himself  into  the  contract,  and 

11  Hoadley  v.  Purifoy.  107  Ala.  276,  18  South.  220,  30  L.  R.  A.  351 ,  State 
V.  Eagle  Ins.  Co..  50  Ohio  St  252,  33  N.  R  1056. 

12  For  a  discussion  of  the  right  of  citizens  to  follow  the  common  occupa- 
tions of  life,  see  Butchers'  Union  Slaughter-House,  etc.,  Co.  v.  Crescent  City 
Live  Stock  Landing,  etc.,  Co.,  Ill  U.  S.  746,  4  Sup.  Ct  652,  28  L.  Ed.  585. 

18  Commonwealth  v.  Vrooman,  supra,  Sterrett,  C.  J.,  and  Dean  and  Green, 

JJ.,  dissenting.  .  - ».     ^ 

14  A  similar  question  is  raised  by  statutes  restricting  the  business  of  bank- 
ing to  corporations.  In  State  v.  Scougal,  3  S.  D.  55,  51  N.  W.  858,  15  L.  R. 
A.  477,  44  Am.  St.  Rep.  756,  such  a  statute  was  declared  unconstitutional. 
The  contrary  was  held  in  State  v.  Woodmansee,  1  N.  D.  246,  46  N.  W.  970, 

11  L.  R.  A.  420.  _      ^^^    ^ 

18  Lockwood  V.  Bishop,  51  How.  Prac.  (N.  Y.)  221;  North  America  Life  Ins. 
Co.  V.  Wilson,  111  Mass.  542;  Burns  v.  Grand  Lodge,  153  Mass.  173,  26  N. 
E.  443,  where  the  policy  was  sealed;  Stamps  v.  Insurance  Co.,  77  N.  C.  209, 
24  Am.  Rep.  443;  Martin  v.  Insurance  Co.,  38  N.  J.  Law,  140,  20  Am.  Rep. 
372.  But  a  lessor  may  sue  on  a  fire  policy  taken  out  in  her  name  by  the 
lessee's  agent  on  personal  property  belonging  to  her  and  situated  on  the 
leased  premises.    Watson  v.  Insurance  Co.  (Miss.)  31  South.  904. 

16  Munroe  v.  Association,  19  R.  I.  363,  34  Ati.  149;  Mutual  Ben.  Life  Ins. 
Co.  V.  Hillyard,  37  N.  J.  Law,  444,  18  Am.  Rep.  741.  Under  the  Codes  of 
Procedure  the  beneficiary  may  sue  as  the  real  party  in  interest  Code  Civ. 
Proc.  N.  Y.  §  111.  See  Price  v.  Insurance  Co.,  17  Minn.  497  (Gil.  473),  10  Am. 
Rep.  166;  Capital  City  Ins.  Co.  v.  Jones,  128  Ala.  361,  30  South.  674,  86  Am.  St. 
Rep.  152 ;  Lowry  v.  Insurance  Co.,  75  Miss.  43,  21  South.  664,  37  Ll  R.  A.  779.  65 
Am.  St  Rep.  587.  This  is  also  the  rule  in  Virginia.  Code  Va.  1887,  %  2415, 
construed  in  Tilley  t.  Insurance  Co.,  86  Va.  811,  11  S.  E.  120. 


-'■1 


78 


PARTIES. 


(Ch.a 


make  himself  a  party  thereto,  by  paying  premiums  or  doing  other  acts 
as  volunteer  under  the  terms  of  the  policy.  ^^  Neither  is  the  person 
whose  life  is  insured  by  another  a  party  to  the  contract,  nor  can  he,  by 
his  own  fraud  or  wrong,  affect  the  rights  of  the  real  parties  thereun- 
der,^' nor  can  he  recover  monevs  that  he  has  improperly  paid  as 
premiums  on  the  policy. 

The  Relation  between  the  Insurer  and  the  Insured. 

It  has  been  contended  that  in  the  case  of  mutual  companies,  and  espe- 
cially with  regard  to  tontine  and  life  endowment  policies,  the  relation 
of  the  insurer  to  the  insured  is  that  of  trustee.  In  accordance  with 
this  view,  efforts  have  been  made  by  the  holders  of  tontine  and  endow- 
ment policies  to  require  the  insurance  company  to  act  as  a  trustee 
for  all  sums  paid  to  it  as  premiums,  and  to  distribute  all  profits  ac- 
cruing from  premium  payments  and  investments  ratably  among  policy 
holders.^*  This  view,  however,  has  received  no  countenance  in  the 
courts,  and  it  can  now  be  regarded  as  well  settled  that  the  true  relation 
existing  between  the  parties  to  the  insurance  contract  is  that  of  condi- 
tional creditor  and  debtor,  being  more  nearly  analogous  to  that  of  bank- 
er and  depositor  than  to  any  other  that  can  be  instanced.** 


\ 


i 


WHO  MAY  BE  INSURERS. 

35.  In  the  absence  of  statntory  reg^nlation,  any  individnal,  association, 
or  corporation  with  adequate  powers  may  become  an  insurer. 
It  is  competent,  however,  for  the  state  to  impose  npon  all  per- 
sons granting  insurance  such  conditions  as  may  be  deenied 
necessary  for  the  proper  and  safe  regulation  of  the  business. 

As  has  already  been  stated,  the  legislature  has  power  to  fix  the  com- 
petency of  the  insurer,  and  to  forbid  absolutely  the  making  of  contracts 
by  any  insurer  who  does  not  comply  with  all  the  regulations  imposed, 
even  when  such  regulations  may  have  the  effect  of  prohibiting  the 
granting  of  insurance  by  natural  persons. 

Statutory  Qualifications. 

The  statutory  qualifications  required  of  those  engaged  in  the  insur- 
ance business  are  too  numerous  and  varied  to  be  set  forth,  but  it  is 

iTLockwood  v.  Bishop,  supra;  Leftwich  v.  Wells,  101  Va.  255,  43  S.  E. 
3&4. 

» 8  North  America  Life  Ins.  Oo.  v.  WilsoD,  supra. 

!»  Pierce  v.  Assurance  Soc.,  145  Mass.  56,  12  N.  E.  858,  1  Am.  St  Rep. 
433 ;  Uhlman  v.  Insurance  CJo.,  109  N.  T.  421,  17  N.  E.  363,  4  Am.  St  Rep. 
482;  Hunton  v.  Society  (C.  C.)  45  Fed.  661;  Greeff  v.  Society,  160  N.  Y.  19, 
64  N.  E.  712,  46  L.  R.  A.  288,  73  Am.  St.  Rep.  659. 

«o  Uhlman  v.  Insurance  Co.,  supra.  See  People  v.  Security  lilfe  Ins.  & 
Annuity  Co.,  78  N.  Y.  114,  34  Am.  Rep.  522. 


§36) 


THE   SEVERAL  KINDS  OP  CORPORATE   INSURERS. 


79 


well  to  call  attention  to  the  fact  that  all  such  conditions  imposed  upon 
the  business  of  insurance  are  intended  for  the  protection  of  the  public, 
and  that  it  is  perfectly  competent  for  the  state  to  refuse  license  to  do 
business  to  any  insurer  that  may  fail  to  comply  with  such  conditions,  or 
to  revoke  a  license  already  granted,  in  case  of  the  violation  of  any  such 
regulation. 

Insurers  Usually  Incorporated, 

Even  when  the  statutes  do  not  forbid  the  making  of  insurance  by 
natural  persons,  the  conditions  of  the  business  itself,  requiring  per- 
manent existence  and  certainty  of  succession  in  the  insurer,  have  prac- 
tically taken  the  business  of  insurance  out  of  the  hands  of  natural  per- 
sons and  given  it  over  almost  exclusively  to  corporations.  Yet  certain 
associations  of  underwriters,  known  as  "Lloyd's  Associations,"  organ- 
ized and  doing  business  upon  very  much  the  same  general  principle 
as  the  venerable  English  Lloyd's,  are  acquiring  considerable  popularity 
in  fire  insurance,  and  now  underwrite  a  large  amount  of  business. 


!?f 


THE  SEVEKAI*  KINDS  OF  CORPORATE  INSURERS. 


36.  Insnraaoe  oorporations  are  known  as  either  stock,  mixed,  or  mu- 
tual companies,  in  accordance  witk  the  character  of  the  organ- 
ization of  the  company. 

The  various  corporations,  in  whose  hands  most  of  the  insurance  busi- 
ness of  this  country  now  lies,  differ  very  greatly  in  the  nature  of  their 
organization  and  in  their  charter  powers.  The  different  kinds  of  insur- 
ance— fire,  life,  marine,  accident,  and  guaranty — are  usually  carried  on 
separately,  the  charter  of  insurance  corporations  generally  limiting 
their  powers  to  granting  insurance  of  one  of  these  several  kinds.  It  is 
not  unusual,  however,  for  a  company  to  be  empowered  to  grant  insur- 
ance of  more  than  one  kind.  Thus  the  same  company  may  issue  both 
fire  and  marine  policies,  or  another  may  grant  both  life  and  accident  in- 
surance. Fire  insurance  is  usually  carried  on  by  stock  companies,  as 
being  best  suited  for  the  character  of  the  risk  assumed. 

* 

Stock  Companies, 

A  stock  company  is  one  which  possesses  some  fixed  amount  oi 
capital  stock,  owned  by  shareholders,  who  constitute  the  corporation 
and  act  through  officers  selected  by  them.  In  the  contracts  made  by 
stock  companies  the  insured  sustains  no  relation  whatever  to  the  in- 
surer, excepting  that  of  contract. 

Mutual  Companies. 

Mutual  companies  possess  ordinarily  no  capital  stock,  and  are  made 
up  of  all  the  policy  holders  of  the  corporation,  who  take  the  place  of 
stockholders  in  the  ordinary  corporation,  and  act  through  agencies  se- 


80 


PARTIES. 


(Ch.3 


lected  by  themselves.*^  The  members  of  such  mutual  companies  sus- 
tain the  peculiar  double  relation  of  being  thus  insurers  and  parties  in- 
sured ;  for  it  is  the  whole  membership  of  the  mutual  company  which 
contracts  to  indemnify  each  of  the  members  with  respect  to  the  loss 
insured  against.  No  contractual  difficulty  arises  out  of  this  double 
relation,  however,  as  of  course  the  corporation  is  essentially  a  distinct 
entity  from  the  members  of  the  corporation.  The  simplest  form  of 
mutual  company  is  the  assessment  company,  in  which  losses  suffered 
by  any  member  are  paid  by  assessments  levied  upon  the  whole  member- 
ship ;  but,  as  has  heretofore  been  explained,  few  mutual  companies  rely 
wholly  upon  assessments,  but  require  fixed  premiums  to  be  paid  for 
the  purpose  of  accumulating  a  fund  to  assure  the  performance  of  their 
contracts.  Stock  companies  are  more  apt  to  be  stable,  but  mutual  com- 
panies are  better  adapted  for  procuring  cheap  insurance,  inasmuch  as 
there  is  no  stock  upon  which  dividends  are  to  be  paid.  It  is  to  be  here 
noted,  however,  that  while  each  policy  holder  in  a  mutual  company  is  a 
part  of  the  company  and  has  an  interest  in  its  assets,  yet  he  has  no  right 
to  demand  that  any  ratable  proportion  of  an  accumulated  surplus  shall 
be  paid  to  him  unless  such  dividend  has  been  declared  payable  by  the 
directorate  or  other  agency  empowered  under  the  charter.** 

Mixed  Companies, 

Mixed  companies  are  intended  to  embody  the  advantages  of  safety 
possessed  by  stock  companies  and  of  cheapness  that  characterizes  mu- 
tual companies.  A  small  amount  of  capital  stock  is  furnished  by  cer- 
tain shareholders,  who,  of  course,  are  entitled  to  have  dividends  out 
of  the  profits,  but  all  policy  holders  also  become  members  of  the  corpora- 
tion, and  are  entitled  to  a  share  in  the  profits  of  the  company  in  accord- 
ance with  the  terms  of  their  policies.  The  best  example  of  a  mixed 
insurance  company  is  the  Equitable  Life  of  New  York,  which  possesses 
a  capital  stock  of  $100,000,  but  has  assets  that  amount  to  considerably 
more  than  a  quarter  of  a  billion. 

Mutual  Benefit  Associations. 

The  various  mutual  benefit  and  benevolent  organizations  are  usually 
incorporated,  and  are  merely  varying  forms  of  the  mutual  company  de- 
scribed above.  It  should  be  observed  that  while  the  policy  holders,  or 
the  members  holding  certificates,  are  parts  of  the  insuring  organization, 
yet  until  the  contract  is  completed  the  applicant  is  as  truly  a  stranger  to 

«i  A  mutual  insurance  corporation  is  not  a  partnership  to  be  dissolved 
when  its  policy  holders  reside  in  different  states  that  become  Involved  in 
war.  Cohen  v.  Insurance  Co.,  50  N.  Y.  610,  10  Am.  Rep.  522;  Mutual  Ben. 
Life  Ins.  Co.  v.  Hillyard,  37  N.  J.  Law,  444,  18  Am.  Rep.  741.  But  see  Kruh 
V.  Insurance  Co.,  77  Pa.  15. 

22  Greeff  v.  Society,  160  N.  Y.  19,  54  N.  E.  712,  46  U  B.  A.  288,  73  Am,  St 
Rep.  659. 


1 


L 


§§  37-38) 


THE   RIGHTS  OF   FOREIGN   INSURERS. 


81 


the  mutual  organization  as  he  would  be  if  application  were  made  to 
any  other  kind  of  corporate  insurer."  He  is,  therefore,  not  charged 
with  assent  to,  or  acquiescence  in,  any  hidden  rules  or  regulations  for 
the  conduct  of  the  business,  which  are  presumptively  known  to  all  those 
who  are  actually  members.'* 

Corporate  Insurers  Act  through  Agents, 

The  principles  governing  the  rights  of  the  parties  to  the  insurance 
contract  are  much  complicated  by  reason  of  the  necessity  that  exists  for 
all  corporate  insurers  to  carry  on  their  business  by  means  of  agents. 
This  brings  into  the  law  of  insurance,  as  a  complicating  factor,  the 
whole  law  of  agency.  Furthermore,  the  questions  of  agency  that  arise 
are  of  especial  difficulty,  by  reason  of  the  peculiar  character  of  the 
insurance  contract,  and  the  efforts  made  by  insurance  companies  to  se- 
cure by  means  of  terms  written  in  their  policies  all  the  benefits  that  may 
be  derived  from  carrying  on  business  by  representatives  without  any 
of  the  usually  accompanying  burdens  of  so  doing.  This  general  sub- 
ject of  insurance  agents  and  their  powers  will,  therefore,  require  a  full 
and  careful  treatment,  which  will  be  reserved  for  a  subsequent  chap- 
ter." 

THE  BIGHTS  OF  FOREIGN  INSURERS. 


37.  Under  the  Constitution  of  the  United  States  any  citizen  or  asso- 

ciation of  citizens  of  one  state  lias  the  same  right  to  make  con- 
tracts of  insurance  in  another  state  as  have  the  citizens  of  that 
state. 

38.  But  corporate  insurers  are  not  citizens  Di^ithin  the  meaning  of  this 

clause,  and  may  therefore  exercise  their  corporate  powers  out- 
side of  the  states  by  which  they  are  chartered  only  by  license 
from  the  foreign  state.  States  may  therefore  totally  exclude 
foreign  insurance  corporations,  or  may  admit  them  on  such  con- 


H 


••  Bilenberger  v.  Insurance  Co.,  89  Pa.  464;  Supreme  Lodge  A.  O.  U.  W. 
T.  Hutchinson,  6  Ind.  App.  399,  33  N.  K  816;  See  Susquehanna  Ins.  Co.  v. 
Perrine,  7  Watts  &  S.  (Pa.)  348.  And  see  dictum  in  KANSAL.  v.  ASSOCIA- 
TION, 31  Minn.  17,  16  N.  W.  430,  47  Am.  Rep.  776,  778. 

S4  Thus,  a  provision  of  the  constitution  that  the  statements  in  the  appli- 
cation shall  be  deemed  warranties  will  not  be  effective,  since  the  applicant 
is  not  yet  a  member.  Supreme  Lodge  A.  O.  U.  W.  v.  Hutchinson,  supra; 
and  a  mle  limiting  the  agent's  authority  does  not  affect  an  applicant  without 
notice.  Lycoming  Fire  Ins.  Co.  v.  Woodworth,  83  Pa.  223.  In  Massachusetts 
the  rule  is  otherwise,  and  it  Is  held  that  officers  and  agents  have  no  power 
to  waive  by-laws  that  relate  to  the  substance  of  the  contract.  A  by-law  re- 
quiring prepayment  of  premium,  or  one  providing  that  only  persons  between 
certain  ages  may  become  members,  cannot  be  waived.  Baxter  v.  Insurance 
Co.,  1  Allen,  294,  79  Am.  Dec.  730.  See,  also,  Muhrey  v.  Insurance  Co.,  4 
Allen,  116,  81  Am.  Dec.  689;  McCoy  v.  Insurance  Co.,  152  Mass.  272,  25  N. 
BL  289. 

SB  See  post  chap.  IX. 

Vance  Ins. — 6 


I 


f 


I 


It 


82 


PARTIES. 


(Ch.S 


§g  37-38) 


THE   RIGHTS  OF  FOREIGN   INSURERS. 


83 


ditions  as  tkey  may  see  fit  to  impose,  whether  such  eonditions  ■ 
bo  reasonable  or  unreasonable.     A  license  to  do  business  once 
granted  may  be  revoked  with  or  without  cause.     And  the  reason 
for  such  revocation  of  license  is  not  a  proper  subject  for  judi- 
cial inquiry. 

In  order  to  promote  commercial  relations  between  the  several  states 
and  the  citizens  thereof,  the  constitution  of  the  United  States  makes 
provision  that  "the  citizens  of  each  state  shall  be  entitled  to  all  privileg- 
es and  immunities  of  citizens  in  the  several  states."  *«  Under  this  pro- 
vision no  state  may  impose  upon  the  citizens  of  another  state  engaged 
in  insurance  any  conditions  or  restrictions  to  which  its  own  citizens  are 
not  subject.  Of  course,  however,  the  citizens  of  each  state  are  re- 
quired to  comply  as  fully  with  all  the  statutory  requirements  of  other 
states  in  which  they  desire  to  do  business  as  insurers  as  are  the  citizens 
of  those  states. 

Lloyd's  Associations, 

Under  the  general  doctrine  just  stated,  much  difficulty  has  been 
experienced  in  determining  what  is  the  status  of  the  unincorporated 
associations  known  as  "Lloyd's  Associations,"  which  appear  to  be  grow- 
ing in  popular  favor,  and  write  a  very  considerable  amount  of  insurance 
throughout  the  Union.  These  are  associations  of  a  large  number  of 
insurance  brokers,  who  enter  into  a  joint  agreement  for  the  more  ef- 
ficient and  extensive  conduct  of  insurance  business.  There  is  a  com- 
mon guarantee  -fund  to  which  each  member  contributes,  a  single  form  of 
policy  running  in  the  name  of  the  association,  and  a  central  managing 
body  to  which  all  premiums  are  paid,  and  by  whom  losses  are  settled. 
The  members,  however,  have  none  of  the  restricted  liability  of  stock- 
holders of  a  corporation,  but  are  individually  liable  for  the  debts  of  the 
association.  These  associations  have  a  central  office  in  some  large 
city,  and  send  their  agents  into  many  different  states  to  solicit  business. 
The  effort  has  been  made  in  some  states  to  subject  the  business  of  these 
associations  to  the  same  conditions  and  restrictions  that  are  imposed 
upon  the  business  of  foreign  insurance  corporations.  The  statute  of 
Ohio  particularly  specifies  that  any  partnership  or  association  "acting 
as  a  corporation"  shall  be  required  to  comply  with  all  the  requirements 
that  are  made  for  insurance  corporations.  This  statute  has  been 
declared  constitutional  by  the  Court  of  Appeals  of  Ohio  in  the  recent 
case  of  State  v.  Ackerman.*^  In  other  states,  however,  it  has  been 
lately  decided  that  such  associations  cannot  be  required  to  comply  with 
any  other  conditions  than  such  as  are  imposed  upon  domestic  insurers.** 

«•  Article  IV,  S  2,  c.  1. 

«T  STATE  T.  ACKERMAN.  81  Ohio  St.  163,  37  N.  B.  828,  24  L.  R.  A.  298. 
See.  also,  Greene  v.  People  (111.  Sup.)  21  N.  E.  605. 
>•  State  T.  Board  of  Insurance  Com'rt,  37  Fla.  564,  20  South.  772,  33  Lb 


This  latter  view  would  seem  to  be  manifestly  correct.  While  it  is 
true  that  such  an  association  does,  in  a  sense,  act  as  a  corporation,  yet 
it  is  plain  that  it  is  not  a  corporation,  but  merely  a  number  of  citizens 
of  another  state  associated  for  the  purpose  of  conducting  a  certain  joint 
enterprise.  Although  associated,  they  do  not,  in  any  sense,  lose  their 
characters  as  citizens  by  reason  of  being  engaged  in  a  joint  enterprise ; 
and  it  would  seem,  therefore,  a  denial  to  them  of  the  privileges  and 
immunities  of  citizenship  to  place  upon  them  the  same  restrictions  as 
are  imposed  upon  corporations. 

Foreign  Insurance  Corporations. 

It  is  now  settled  beyond  controversy  that  a  corporation  is  not  a  citi- 
zen of  the  state  by  the  laws  of  which  it  is  chartered,  within  the  meaning 
of  that  clause  of  the  Constitution  of  the  United  States  which  has  been 
quoted  above,^^  although  it  is  recognized  as  a  citizen  for  jurisdictional 
purposes.'®  Therefore,  not  being  a  citizen  entitled  to  all  the  privileges 
and  immunities  of  a  citizen  in  the  several  states,  the  corporation  has  no 
right  whatsoever  to  do  business  in  a  foreign  state,  except  by  the  per- 
mission of  that  state.**  It  has  been  laid  down  in  the  leading  case  of 
Paul  V.  Virginia,"  and  repeatedly  reaffirmed,  that  insurance  is  not  com- 
merce, within  the  meaning  of  that  clause  of  the  Constitution  of  the 
United  States  which  protects  interstate  commerce  from  state  interven- 
tion."    It  therefore  follows  that  any  state  may,  at  its  option,  totally 

R.  A,  288;  Barnes  v.  People,  168  111.  425,  48  N.  E.  91.  The  Missouri  statute 
makes  no  discriminations  against  foreign  insurers,  and  was  held  valid  in 
State  v.  Stone,  118  Mo.  388,  24  S.  W.  164,  25  L.  R.  A.  243,  40  Am.  St.  Rep. 
388.  In  Noble  v.  Mitchell,  164  U.  S.  367,  17  Sup.  Ct.  110,  41  L.  Ed.  472, 
affirming  same  case.  100  Ala.  519,  14  South.  581,  25  L.  R.  A.  238,  it  was  stated 
obiter  that  such  a  statutory  prohibition  applying  to  "every  company,  cor- 
poration, association,  or  partnership  organized  for  the  purpose  of  transact- 
ing the  business  of  insurance"  was  void. 

2»  Paul  V.  Virginia,  8  Wall.  (U.  S.)  168,  19  L.  Ed.  357;  Hooper  v.  California, 
155  U.  S.  648,  15  Sup.  Ct.  207,  39  L.  Ed.  297. 

80  Shaw  V.  Mining  Co.,  145  U.  S.  444,  12  Sup.  Ct  935,  36  L.  Ed.  768;  Bal- 
timore &  O.  R.  Co.  V.  Harris,  12  Wall.  (U.  S.)  65,  20  L.  Ed.  354;  Clark, 
Corp.  75. 

81  Bank  of  Augusta  v.  Earle,  13  Pet  (U.  S.)  519,  10  L.  Ed.  274;  16  Am.  & 
Bug.  Enc.  Law,  897;  Daggs  v.  Insurance  Co.,  136  Mo.  382,  38  S.  W.  85,  35 
L.  R.  A.  227,  58  Am.  St  Rep.  638,  affirmed  Orient  Ins.  Co.  v.  Daggs,  172  U.  S 
557,  19  Sup.  Ct  281,  43  L.  Ed.  552;  Clark,  Corp.  615.  A  state  may  prohibit 
and  punish  the  soliciting,  within  the  state,  of  contracts  of  insurance  in  un- 
Ucensed  foreign  companies.  Nutting  v.  Massachusetts,  183  U.  S.  553,  22  Sup. 
Ct  238,  46  L.  Ed.  324,  affirming  Commonwealth  v.  Nutting,  175  Mass.  154,  55 
N.  E.  895,  78  Am.  St  Rep.  483;  Hooper  v.  California,  155  U.  S.  648,  15  Sup.'  Ct. 
207,  39  L.  Ed.  297.  But  a  state  cannot  punish  its  citizens  for  making  a  con- 
tract outside  the  state.  Allgeyer  v.  Louisiana,  165  U.  S.  578.  17  Sud  Ct  427 
41  L.  Ed.  832.  .  h-       .       •, 

82  8  Wall  (U.  S.)  168,  19  L.  Ed.  357. 

88  Hooper  v.  California,  155  U.  S.  648,  16  Sup.  Ct  207,  39  L.  Bd.  297,  In 
which  the  previous  cases  are  cited.    This  was  a  case  of  marine  insurance. 


I  r 


OS 


PARTIES. 


(Ch.3 


g3ii) 


CONTRACTS   NOT   COMPLYING  WITH   STATUTES. 


85 


fc 


! 

T 

11 


exclude  any  or  aU  foreign  insurance  corporations  from  doing  business 
within  its  borders,  or  it  may  admit  them  upon  such  conditions  as  it  sees 
fit  to  impose.  These  conditions  may  be  reasonable  or  unreasonable, 
just  or  unjust;  all  are  equally  conclusive  upon  a  foreign  corporation. 
It  is  in  its  option  either  to  decline  to  enter  the  state,  or,  upon  entering, 
to  comply  with  all  the  conditions  imposed  upon  its  admission.  Accord- 
ingly the  character  of  these  conditions  is  not  a  subject  of  legal  con- 
cern to  such  foreign  corporations,  or  of  judicial  investigation  by  the 

courts.  t  «_       •  u 

It  follows,  therefore,  from  what  has  been  said  above,  that,  inasmuch 
as  the  granting  of  license  to  do  business  to  foreign  corporations  is  plain- 
ly at  the  option  of  the  state,  the  license  once  granted  may  be  revoked 
at  the-  pleasure  of  the  state,  with  or  without  cause."  This  right  of  the 
state  to  revoke  a  license  once  granted  extends  so  far  that,  although  a 
condition  imposed  upon  foreign  insurers  as  precedent  to  their  admission 
into  the  state  is  unconstitutional,  yet  upon  the  breach  of  such  a  condi- 
tion by  the  foreign  insurer  the  state  is  at  perfect  liberty  to  revoke  the 
license  granted.*' 
Removal  of  Causes  by  Foreign  Insurance  Corporations. 

The  most  striking  illustration  of  this  last  principle  is  found  in  the 
condition  imposed  by  many  of  the  states  in  the  American  Umon  uporv 
foreign  corporate  insurers,  that  before  engaging  in  business  in  such 
states  the  insurer  shall  enter  into  an  agreement  that  it  will  not  remove 
causes  to  which  it  may  be  a  party  to  the  federal  courts.^*  Such  an 
agreement  is  manifestly  unconstitutional  and  void,  inasmuch  as  it  de- 
prives the  insurer  of  a  right  guarantied  to  it  under  the  Constitution  of 
the  United  States."  The  insurer,  therefore,  is  in  no  respect  bound  by 
his  agreement  to  refrain  from  resorting  to  a  federal  court  whenever  that 
court  has  jurisdiction;  but  in  case  this  illegal  agreement  is  broken  by 
the  insurer  the  state  cannot  be  prevented  from  promptly  revoking  the 
license,  which  was  conditioned  upon  the  faithful  performance  of  that 
agreement.  This  conclusion  follows  necessarily  from  the  revocable 
character  of  the  license,  and  has  been  laid  down  in  unmistakable  terms 

•4  Clark,  Corp.  618,  citing  Doyle  ▼.  Insurance  Co.,  94  U.  S.  535,  24  L.  Ed. 

85  Doyle  v.  Insurance  Co.,  94  U.  S.  535,  24  L.  Ed.  148. 

88  Home  Ins.  Co.  v.  Davis,  29  Mich.  238;  Morse  v.  Insurance  Co.,  30  Wis, 
496,  11  Am.  Rep.  580,  reversed  Home  Ins.  Co.  of  New  York  v.  Morse,  20 
Wall.  (U.  S.)  445,  22  L.  Ed.  365.  ^  ^    _ , 

ST  Home  Ins.  Co.  of  New  York  v.  Morse.  20  Wall.  (U.  S.)  445,  22  L.  Ed. 
865  wherein  it  was  held  that  the  corporation  could,  notwithstanding  the 
statute  remove  a  suit  to  the  federal  courts.  Barron  v.  Burnside,  121  U.  S. 
186,  7  Sup.  Ct.  931,  30  L.  Ed.  915,  which  holds  that  the  agent  of  the  cor- 
poration cannot  be  punished  for  violating  such  statute. 


by  the  Supreme  Court  of  the  United  States  in  the  case  of  Doyle  v.  Con- 
tinental Ins.  Co.  of  New  York.^® 

A  closely  related  doctrine,  which  is  apparently  repugnant  to  that 
which  has  just  been  stated,  should  here  be  noted.  When  a  statute  re- 
quires foreign  corporations  to  relinquish  their  constitutional  right  to  re- 
sort to  the  federal  courts  as  a  condition  to  obtaining  a  license  to  do 
business,  such  statute  is  unconstitutional,  and  it  therefore  follows  that 
a  penalty  imposed  in  that  state  upon  persons  doing  business  on  behalf 
of  such  foreign  corporations  without  license  is  void  and  unenforceable. 
This  principle,  however,  is  declared  by  the  Supreme  Court  of  the  Unit- 
ed States  in  Barron  v.  Burnside  ^®  not  to  be  in  conflict  with  the  previous 
holding  of  that  court  in  Doyle  v.  Continental  Ins.  Co.  of  New  York.*** 
The  latter  case  involved  merely  the  right  of  the  state  to  revoke  a  license 
by  reason  of  the  breach  of  an  agreement  which  was  illegal,  while  the 
former  involved  a  prosecution  under  the  statute  imposing  such  illegal 
condition. 


CONTRACTS  MADE  BY  INSURERS  NOT  COMPLTING  "WITH 

STATUTORY  REQUIREMENTS. 

Wliether  oontraots  of  unlicensed  foreign  insnranoe  oorporations, 
which  by  statute  are  prohibited  or  declared  unlawful,  are  valid, 
void,  or  voidable,  depends  upon  the  intention  of  the  legislature 
as  expressed  in  each  particular  statute.  The  following  rules, 
however,  are  useful  in  determining  the  proper  construction  of 
any  statute  in  question: 
<a>  When  the  contract  is  expressly  declared  void,  neither  party  can 
take  any  rights  thereunder. 

(b)  When  the  statute  expressly  validates  the  contract  despite  the 

noncompliance  of  the  insurer,  it  is  enforceable  as  to  both  par- 
ties. 

(c)  Wken  the  contract  is  merely  prohibited  by  the  statute,  such  con- 

tract is  void,  but  may  nevertheless  be  enforced  against  the  de- 
linquent insurer,  who  is  estopped  to  plead  in  defense  his  oivn 
infraction  of  law^. 
<d)  When  a  penalty  is  imposed  upon  the  insurer  for  doing  business 
in  violation  of  the  statute,  such  penalty  should  be  deemed  ex- 
clusive, and  the  contracts  held  valid.  But  by  many  authorities 
such  policies  are  held  unenforceable  against  the  insured. 

Much  confusion  exists  in  the  authorities,  both  text-books  and  judi- 
cial decisions,  as  to  the  validity  of  contracts  made  by  a  foreign  insurer 
who  has  not  complied  with  the  statutory  requirements  of  the  state  in 
which  the  contract  is  made.     Much  of  the  conflict  is  only  apparent,  on 

««  94  U.  S.  535,  24  L.  Bd.  148. 

«»  121  U.  S.  186,  7  Sup.  Ct  931,  30  L.  Ed.  915. 

40  Supra. 


t  t  j 


I 


I 


86 


PARTIES. 


(Ch.  3 


I 


B 


account  of  the  great  variation  that  exists  between  the  statutes  of  the 
several  states  under  which  the  cases  have  arisen.  Whether  a  contract 
made  in  violation  of  any  of  these  statutes  is  valid,  void,  or  voidable, 
will,  of  course,  depend  altogether  upon  the  intention  of  the  legislature 
in  enacting  the  statute.  This  intention  must  be  discovered  from  the  act 
itself,  construed  with  reference  to  the  circumstance  of  its  enactment. 
Where  the  expression  makes  the  intention  doubtful,  the  court  may  look 
to  the  purposes  of  the  enactment  and  to  other  circumstances  connected 
with  it  that  will  tend  to  show  what  is  the  real  intent  of  the  legislature. 
But  if  the  statute  is  clear  in  its  expressed  meaning,  the  intent  must  be 
conclusively  deemed  that  which  is  expressed  by  the  words  of  the  act, 
and  no  other  intent  repugnant  to  the  one  set  forth  in  the  words  of  the 
statute  can  be  shown.  Therefore,  the  determination  of  the  question 
whether  the  contract  is  valid  or  not  is  merely  a  matter  of  construction. 
In  determining,  however,  the  proper  construction  to  be  given  to  these 
statutes,  certain  general  rules  may  be  laid  down  to  serve  as  guiding  prin- 
ciples. 

In  many  states  **  it  is  expressly  enacted  that  contracts  made  with- 
out compliance  with  the  statutory  requirements  by  the  insurer  shall 
nevertheless  be  valid  and  enforceable.  Under  such  statutes  there  can, 
of  course,  be  no  question  as  to  the  right  of  either  of  the  parties  to  en- 
force the  contract  against  the  other.  In  still  other  states  *^  it  is  ex- 
pressly declared  that  the  contracts  made  in  violation  of  the  statutes  shall 
be  void.  These  statutes  are  equally  clear  in  meaning,  and  neither  party 
can  take  any  rights  under  the  contract. 

When,  however,  the  statutes  imposing  conditions  upon  doing  busi- 
ness by  the  foreign  insurer  merely  prohibit  the  making  of  the  contract 
without  compliance  with  their  terms,  the  question  as  to  the  rights  of  the 
parties  becomes  of  much  greater  difficulty.  In  accordance  with  the 
general  rule  **  that  a  contract  that  is  prohibited  is  illegal,  and  therefore 
void,  it  would  follow  that  neither  one  of  the  parties  would  take  any 
rights  under  the  contract,  or  could  enforce  the  agreement  against  the 
other.  Yet  to  apply  this  general  doctrine  to  a  contract  made  under  such 
circumstances  as  usually  attend  the  making  of  a  contract  of  insurance 
would  work  great  hardship,  and  be  manifestly  unjust.  The  party 
insured  cannot  without  great  difficulty  discover  whether  the  insurer  has 
complied  with  all  the  statutory  requirements  or  not;  and  while  it  is 
true  that  the  statutes  imposing  these  conditions  upon  the  insurer  are 

*i  Where  a  statute  declares  policy  valid  notwithstanding  noncompliance 
with  law,  premium  notes  and  assessments  thereon  are  collectible.  Common- 
wealth Mut.  Fire  Ins.  Co.  v.  Place,  21  R.  I.  248,  43  Atl.  68.  See  Code  Va. 
1887,  §  1269. 

4  a  Where  a  statute  declares  policy  void  It  Is  unenforceable  by  either  party. 
Wood  V.  Insurance  Co.,  8  Wash.  427,  36  Pac.  267,  40  Am.  St.  Rep.  917. 

«s  See  Clark,  Cont.  (2d  Ekl.)  p.  255  et  seq. 


.^  39) 


CONTRACTS   NOT   COMPLYING   WITH   STATUTES. 


87 


public  acts,  and  therefore  presumed  to  be  known  to  all,  yet  it  would  be 
unreasonable  to  require  that  every  person  to  whom  a  corporate  insurer 
offers  a  contract  of  insurance  should  make  an  exhaustive  investigation 
in  order  to  discover  whether  his  co-contractor  has  been  fully  qualified 
to  make  the  agreement  that  is  proposed,  which  is  a  question  of  fact.  It 
would  seem  that  the  insured  has  a  right  to  presume  that  the  insurer  has 
complied  with  all  the  requirements  of  law.  Accordingly,  it  is  held  by 
the  great  weight  of  authority  that  when  the  insured  attempts  to  en- 
force such  a  contract,  made  in  good  faith,  against  the  unlicensed  in- 
surer, the  latter  will  be  estopped  to  escape  liability  under  the  contract 
by  pleading  his  own  infraction  of  law.** 

The  same  principle  of  estoppel,  however,  does  not  apply  when  the  in- 
surer is  endeavoring  to  enforce  some  right  under  the  contract  against 
the  insured.*'^  The  plaintiff,  not  having  legally  qualified  himself  to 
make  the  contract  under  which  he  sues,  has  no  standing  in  law  or  equity 
when  he  attem.pts  to  enforce  it. 

A  fourth  class  of  cases  is  found  to  arise  when  the  act  setting  forth  the 
requirements  of  foreign  corporations  for  doing  business  within  a  state 


*4  Clark,  Corp.  628.  See  opinion  of  Caldwell,  J.,  in  Berry  v.  Indemnity 
Co.  (C.  C.)  46  Fed.  439;  Watertown  Fire  Ins.  Co.  v.  Rust,  141  111.  85,  30  N.  E. 
772 ;  State  Mut  Fire  Ins.  Ass'n  v.  Brinkley  Stave  &  Heading  Co.,  61  Ark.  1,  31 
S.  W.  157,  29  L.  R.  A.  712,  54  Am.  St  Rep.  191;  Swan  v.  Insurance  Co.,  96 
Pa.  37;   Hartford  Live  Stock  Ins.  Co.  v.  Matthews,  102  Mass.  221. 

45  Where  a  statute  prohibits  the  transaction  of  business  by  foreign  insur- 
ance companies  in  a  state  unless  certain  prescribed  conditions  have  been 
complied  with,  contracts  made  in  violation  of  such  statute  are  unenforce- 
able by  the  insurer.  Cincinnati  Mut.  Health  Assur.  Co.  v.  Rosenthal,  55  111. 
85,  8  Am.  Rep.  626;  Seamans  v.  Temple  Co.,  105  Mich.  400,  63  N.  W.  408, 
28  li.  R.  A.  430,  55  Am.  St  Rep.  457;  Cowan  v.  Assurance  Corp.,  73  Miss. 
321,  19  South.  298,  55  Am.  St.  Rep.  535;  Rose  v.  Clark  Co.,  89  Wis.  545,  62 
N  W.  526,  27  L.  R.  A.  556,  46  Am.  St  Rep.  855  (to  recover  an  assessment); 
Haverhill  Ins.  Co.  v.  Prescott  42  N.  H.  547,  80  Am.  Dec.  123  (on  the  ground 
that  the  policy  was  invalid,  and  hence  no  consideration  for  the  premium 
note.  The  next  year  (1862)  a  statute  was  passed  making  policies  issued  by 
foreign  companies  that  had  not  complied  with  the  statutes  valid  against  the 
insurer,  and  in  Union  Ins.  Co.  v.  Smart,  60  N.  H.  460,  it  was  held  that  the 
premium  note  was  also  valid,  for  the  reason  that  "otherwise  there  would  be 
no  consideration  for  the  policy").  Williams  v.  Cheney,  8  Gray  (Mass.)  20(i: 
Phoenix  Ins.  Co.  v.  Pennsylvania  R.  Co.  (Ind.)  33  N.  E.  970,  20  L.  R.  A.  405 
(dictum  to  the  effect  that  the  right  of  the  insurer  to  enforce  the  contract  is 
suspended  until  compliance  with  the  statute,  and  citing  the  conflicting  In- 
diana cases.  This  dictum  is  supported  by  Walter  A.  Wood  Mowing  &  Reap- 
ing Mach.  Co.  V.  Caldwell,  54  Ind.  270,  23  Am.  Rep.  641;  Singer  Mfg.  Co. 
V.  Brown,  64  Ind.  548);  Stewart  v.  Insurance  Co.,  38  N.  J.  Law,  436;  JEtna 
Ins.  Co.  V.  Harvey,  11  Wis.  394;  Buell  v.  Grain  Co.,  65  111.  App.  271;  Beeber 
V.  Walton  (Del.  Super.)  32  Atl.  777;  Commonwealth  Mut  Fire  Ins.  Co.  v. 
Hayden,  60  Neb.  636,  83  N.  W.  922,  83  Am.  St  Rep.  545;  People's  Mut  Ben. 
Soc.  V.  Lester,  105  Mich.  n6,  63  N.  W.  977;  Swing  v.  Munson,  191  Pa.  582, 
43  All.  342,  £8  L.  B.  A.  223,  71  Am.  St.  Rep.  772. 


88 


PARTIES. 


(Ch.3 


•■       ! 


merely  imposes  a  penalty  upon  the  insurer,  or  upon  his  agent  acting  in 
his  behalf,  in  case  he  carries  on  insurance  business  in  violation  of 
the  terms  of  the  statute.  Many  of  the  authorities  *•  hold  that  the 
same  rule  of  law  applies  in  this  case  as  in  the  preceding;  that  is,  that 
such  a  contract  cannot  be  enforced  against  the  insured,  but  is  binding 
upon  the  insurer.  But  on  principle  and  the  better  reasoned  authority, 
it  would  seem  that  the  imposing  of  a  penalty  without  direct  prohibition 
would  show  an  intent  on  the  part  of  the  legislature  to  enforce  the  law 
by  means  of  the  penalty  designated.  The  court  ordinarily  holds  void 
a  prohibited  contract,  because  otherwise  the  law  that  forbids  such  con- 
tracts could  not  be  enforced.  But  where  a  provision  is  made  for  en- 
forcing the  law  by  a  distinct  penalty  imposed,  such  penalty  would  seem 
to  be  exclusive,  and  to  rebut  the  presumption  that  the  additional  penalty 
of  declaring  the  contract  void  was  intended  to  be  laid.  Therefore  it 
has  been  held,  and  properly  so,  that  such  contracts  of  insurance  as  are 
merely  penalized,  and  not  prohibited,  are  valid  and  enforceable  by  both 
parties.*^ 

WHO  MAY  BE  INSURED. 


'i 


40.  In  order  tl&at  a  person  ntay  be  tl&e  party  insured  in  an  Insnraneo 
contract,  t-wo  essential  requisites  ninst  exist: 

(a)  Tlie  person  mnst  be  competent  to  make  a  contract; 

(b)  He  mnst  possess  an  insurable  interest  in  tbe  subject  of  the  in* 

■urance. 

Ordinarily  no  restrictions  are  placed  upon  the  right  of  any  natural 
person  sui  juris,  or  any  corporation  possessing  adequate  powers,  to 
protect  any  valuable  interest  he  may  have  from  loss  or  injury  by  reason 
of  any  peril  to  which  it  may  be  exposed.  Indeed  it  may  be  safely  said 
that  the  right  of  a  citizen  thus  to  protect  himself  against  loss  falls  with- 
in that  class  of  inherent  and  inalienable  rights  which  are  guarantied 
under  the  federal  Constitution.**    Accordingly,  any  statute  unreason- 

«•  Where  the  statute  prohibits  and  penalizes,  the  policy  is  void  as  against 
the  insured.  Thome  v.  Insurance  Co.,  80  Pa.  15,  21  Am.  Rep.  89 ;  Cincinnati 
Mut.  Health  Assnr.  Co.  v.  Rosenthal,  supra;   Seamans  v.  Temple  Co.,  supra. 

*7  The  mere  imposition  of  a  penalty  for  the  transaction  of  business  with- 
out compliance  with  the  statutory  requirements  will  not  render  the  con- 
tract of  insurance  invalid.  Pennypacker  v.  Insurance  Co.,  80  Iowa,  56,  45 
N.  W.  408,  8  L.  R.  A.  236,  20  Am.  St  Rep.  395;  Toledo  Tie  &  Lumber  Co. 
V.  Thomas,  38  W.  Va.  566,  11  S.  E.  37,  25  Am.  St.  Rep.  925  (on  the  ground 
that  the  penalty  imposed  included  all  others);  Union  Mut.  Life  Ins.  Co.  v. 
McMillen,  24  Ohio  St  67;  State  Mut.  Fire  Ins.  Ass'n  v.  Brinkly  Stave  & 
Heading  Co.,  61  Ark.  1,  31  S.  W.  157,  29  L.  R.  A.  712,  54  Am.  St  Rep.  191. 
See  Fritts  v.  Pahner,  132  U.  S.  282,  10  Sup.  Ct  93,  33  L.  Ed.  317;  Clark,  Corp. 
627. 

*8  Butchers*  Union  Slaughter-House,  etc.,  Co.  v.  Orescent  City  Live  Stock 
Landing,  etc.,  Co.,  Ill  U.  S.  746,  4  Sup.  Ct  652,  28  L.  Ed.  585. 


J 


Ml) 


INFANTS  AS   PARTIES   INSURED 


Si> 


ably  restricting  this  right,  or  interfering  with  its  enjoyment,  is  uncon- 
stitutional and  void.*® 

It  is  necessarily  true  that  a  person  whom  the  law  deems  incapable 
of  binding  himself  by  the  contractual  bond  cannot  become  a  party  to  a 
contract  of  insurance.  Therefore  a  married  woman  at  common  law, 
an  alien  enemy,  and  an  adjudged  lunatic,  are  wholly  incapable  of  be- 
coming parties  insured.''^  But  other  incompetent  persons,  such  as  in- 
fants, persons  non  compotes  mentis,  but  not  judicially  declared  insane, 
and  drunken  persons,  are  not  prohibited  by  the  law  from  entering  into 
contracts,  but  merely  protected  from  the  evil  consequences  of  any  un- 
wise agreements  they  may  have  made,  and  left  free  to  enjoy  any  benefit 
that  may  be  derived  from  the  enforcement  of  the  contract  against  the 
adult  party.  The  rights  arising  under  a  contract  to  which  the  party  in- 
sured is  incompetent  at  the  time  of  making  the  contract,  or  becomes  so 
thereafter,  require,  therefore,  especial  examination. 

Insured  Must  Possess  an  Insurable  Interest 

As  has  been  shown  heretofore,  the  presence  of  an  insurable  interest 
in  the  party  insured  changes  the  spirit  of  the  contract  from  one  that 
courts  chance  to  one  that  defies  chance ;  it  transforms  a  gambling  con- 
tract peculiarly  injurious  to  the  public  morals  and  safety  into  a  ben- 
eficent arrangement  for  sharing  misfortune,  and  a  common  bearing  of 
burdens  that  averts  individual  disaster  and  encourages  industry  and 
enterprise.  The  doctrine  of  insurable  interest  is  seen,  therefore,  to  lie 
deep  at  the  basis  of  public  policy,  and  is  maintained  by  the  courts  with 
that  jealous  care  which  its  importance  justifies.  The  subject  is  treated 
fully  in  the  next  succeeding  chapter. 

INFANTS  AS  PARTIES  INSURED. 

41*  While  not  a  contract  for  necessaries,  the  insurance  contract  is  one 
that  may  properly  be  made  by  an  infant,  and,  wben  made,  is 
Talid  nntil  disaffirmed  by  the  infant.  By  the  weight  of  au- 
thority and  the  better  reason  the  infant,  npon  disaffirmance, 
cannot  recover  the  premiums  paid,  provided  the  contract  has 
been  fairly  made. 

There  are  many  conditions  under  which  it  is  provident  and  wise  for 
an  infant  to  insure  his  property  or  his  life,  and  any  rule  of  law  which 
would  prevent  his  doing  so  would  be  hurtful  in  its  effect  and  a  grave 
discouragement  to  the  enterprise  of  infants.  Accordingly,  it  is  uni- 
formly held  that  an  infant's  contract  of  insurance  is  perfectly  valid  until 
disaffirmed  by  the  infant  or  his  representative.*^     This  right  of  disaf- 

49  Allgeyer  v.  Louisiana,  165  U.  S.  578,  17  Sup.  Ot.  427,  41  L.  Ed.  832. 

80  Clark,  Cont.  212  et  seq. 

»i  Monaghan  v.  Insurance  Co.,  53  Mich.  238,  18  N.  W.  797;    JOHNSON 


^ 


90 


PARTIES. 


(Ch.3 


8  41) 


INFANTS   AS   FAUTIES   INSURED. 


91 


n 
I 


ii  I 


\  i 


i  t 


firmance,  however,  is  personal  to  the  infant,  and  cannot  be  exerdsed  by 
the  adult  insurer.  The  latter  cannot  escape  liability  under  the  policy 
by  pleading  the  infancy  of  the  insured,  on  the  ground  that  the  contract 
lacks  mutuality."* 

An  interesting  phase  of  this  same  doctrine  arises  in  connection  with 
contracts  made  between  an  infant  member  of  a  mutual  benefit  associa- 
tion and  the  association.  The  purposes  for  which  these  associations 
are  chartered  require  entire  mutuality  in  the  relations  between  the 
members,  both  as  to  benefits  and  to  burdens,  and  in  a  case  recently  de- 
cided in  New  York  it  was  held  that  inasmuch  as  the  infant  could  not 
make  a  contract  that  was  mutually  binding,  since  it  could  be  avoided  by 
the  infant  at  will,  such  a  contract  was  not  within  the  contemplation 
of  the  charter  of  the  association,  and  was,  therefore,  void."  This 
holding,  however,  cannot  be  regarded  as  correct,  since  an  infant's  con- 
tract is  binding  until  disaffirmed.  And  in  any  event  the  contract  of  the 
mutual  benefit  association  with  its  member  is  to  a  certain  extent  un- 
ilateral, since  the  agreement  of  the  member  to  pay  assessments  levied 
can  usually  be  enforced  only  by  his  expulsion  from  the  association  and 
his  forfeiture  of  any  rights  that  may  have  attached  to  his  membership. 
Therefore  the  association  has  exactly  the  same  remedy  against  the  in- 
fant member  as  against  the  adult,  and  it  has  accordingly  been  properly 
held  by  other  courts  that  such  a  contract  with  an  infant  is  merely  void- 
able, as  other  infants'  contracts,  and  may  properly  be  made  by  such  an 
association.'* 

It  would  seem  to  be  a  principle  too  manifestly  true  to  need  the  sup- 
port of  authority  or  argument,  that  an  infant  party  insured  must  either 
affirm  or  disaffirm  his  contract  in  toto.  Every  consideration  of  reason 
and  justice  would  be  disregarded  if  he  were  allowed  to  affirm  such  terms 
of  the  policy  as  are  beneficial  and  disaffirm  those  that  are  found  burden- 
some. Yet  it  has  been  held  in  O'Rourke  v.  John  Hancock  Mut.  Life 
Ins.  Co.,"  recently  decided  by  the  Supreme  Court  of  Rhode  Island, 
that  breach  of  warranty  affords  no  defense  in  a  suit  brought  upon  a 
policy  of  insurance  granted  to  an  infant,  on  the  ground  that  to  allow 
such  defense  would,  in  effect,  be  permitting  the  insurer  by  a  sort  of 
cross-action  to  enforce  the  warranty  against  the  infant,  which,  as  the 

V  INSURANCE  CO.,  56  Minn.  365,  57  N.  W.  934,  26  L.  R.  A.  187,  45  Am.  St. 
Rep.  473;  Union  Cent.  L.  Ins.  Co.  v.  Hilliard,  63  Ohio  St.  478,  59  N.  E.  230, 
53  L.  R.  A.  402,  81  AnL  St.  Rep.  644.  This  case  also  holds  that  the  infant's 
assignment  of  the  policy  is  only  voidable. 

5  2  Monaghan  v.  Insurance  Co.,  supra. 

83  In  re  GLOBE  MUT.  BEN.  ASS'N,  135  N.  T.  280,  32  N.  E.  122,  17  L. 
R.  A.  547,  reported  below  in  63  Hun,  263,  17  N.  Y.  Supp.  852.  See,  also, 
Commonwealth  v.  People's  Mut  Life  &  Relief  Ass'n,  6  Pa.  Dist.  R.  561. 

64  Chicago  Mut  Life  Indemnity  Ass'n  v.  Hunt,  127  111.  257.  20  N.  B.  55, 
2  L.  R.  A.  549.     See  Nibl.  Ben.  Soc.  &  Ace.  Ins.  pp.  74,  228,  290. 

»5  23  R.  I.  457,  50  Atl.  834.  57  L.  R.  A.  496,  91  Am.  St.  Rep.  643. 


court  shows,  cannot  be  done.  The  fallacy  in  the  reasoning  of  the  court 
consists  in  confusing  the  cases  in  which  the  adult  is  attempting  affirm- 
atively to  enforce  the  contract  against  the  infant  defendant,  and  those  in 
which  the  adult  defendant  sets  up  in  defense  a  condition  that  forms 
an  integral  part  of  the  contract  which  the  infant,  or  his  representative, 
is  endeavoring  to  enforce.  Stiness,  C.  J.,  in  the  course  of  his  opinion 
in  the  case,  says:  "The  question,  therefore,  is  whether  an  infant  is 
bound  by  his  warranties  in  a  contract  of  insurance.  In  considering  it 
we  have  not  the  advantage  of  weighing  the  reasons  given  in  previous 
decisions,  for  we  have  been  unable  to  find  a  case  like  this  reported." 
It  is  to  be  regretted  that  a  case  of  first  impression  involving  a  matter 
so  important  in  the  commercial  world  should  have  been  so  decided,  and 
it  is  to  be  hoped  that  it  will  not  be  followed.  If  it  is  the  law  that  an 
infant  or  his  representative  may  repudiate  such  of  the  conditions  of  a 
policy  as  the  insurer  inserts  for  his  protection,  and  enforce  only  those 
that  are  beneficial  to  him,  the  effect  will  be  to  preclude  insurers  from 
contracting  with  infants,  and  thus  work  a  great  hardship  upon  the  lat- 
ter in  depriving  them  of  the  protection  of  insurance. 

However  beneficial  insurance  may  be  to  the  infant's  estate,  or  how- 
ever needful  it  may  be  to  the  successful  conduct  of  his  business,  the  con- 
tract of  insurance  is  not  a  contract  for  necessaries  "  in  the  technical 
sense  in  which  the  term  is  used  in  the  law  of  infants*  contracts.  The 
infant  may  accordingly,  upon  repudiating  the  contract,  recover  the  con- 
sideration given,  in  accordance  with  the  general  rule  of  law  applying 
in  such  cases. 

There  is  one  phase,  however,  of  the  general  doctrine  touching  the 
infant's  rights  upon  disaffirmance  which  is  of  peculiar  interest  and  im- 
portance in  the  case  of  insurance  contracts.  Has  the  infant  insured  the 
right,  after  enjoying  for  several  years  the  protection  afforded  under  his 
policy,  upon  attaining  his  majority,  to  repudiate  his  contract  and  re- 
cover from  the  insurer  the  premiums  he  has  paid?     Here  the  infant 

has  received  for  the  premiums  a  valuable  consideration— protection 

which,  in  the  nature  of  things,  he  cannot  restore.  The  question  thus 
reduces  itself  to  the  more  general  inquiry  whether  an  infant,  upon  dis- 
affirming an  executed  contract,  can  recover  the  cash  consideration  giv- 
en when  restitution  of  that  received  has  become  impossible.  The 
English  cases  hold  that  he  cannot,"  but  it  seems  that  the  weight  of 
American  authority  is  opposed  to  the  English  view."  It  has  recently 
been  held  in  Minnesota  "  that  when  a  life  insurance  contract  had  been 
fairly  made  by  a  solvent  insurer  with  an  infant,  the  latter  could  not 

8«  New  Hampshire  Mut.  Fire  Ins.  Co.  v.  Noyes,  32  N.  H.  345. 
»7  Holmes  v.  Blogg,  8  Taunt.  508.    See  1  Pars.  Oont  322. 
•8  Clark,  Cont.  (2d  Ed.)  171  et  seq. 

»»  JOHNSON  V.  INSURANCE  CO.,  56  Minn.  365,  59  N.  W.  992    '>G  L    R 
A.  187,  45  Am.  St.  Rep.  473. 


92 


PARTIES. 


(Ch.3 


§§  42-43) 


ALIENS   AS   PARTIES   INSURED. 


93 


upon  disaffirmance  recover  the  premiums  paid.  It  was  further  held 
that  the  burden  of  proving  the  fairness  of  the  contract  lay  upon  the 
insurer.  This  decision  seems  eminently  sound,  though  it  is  doubtful 
if  it  is  in  accord  with  the  weight  of  authority,  to  be  derived  from  analo- 
gous cases  in  the  United  States. 

It  is  clear,  however,  that  the  premiums  required  in  ordinary  level 
premium  life  insurance  more  than  pay  for  the  current  protection  af- 
forded.*® They  go  to  swell  the  reserve  fund  that  must  be  accumulat- 
ed for  each  policy.  Therefore  so  much  of  the  infant's  premiums  as 
have  been  carried  to  the  reserve  fund,  or,  in  other  words,  the  reserve 
value  of  the  infant's  policy,  should  be  returned  to  him  upon  disaffirm- 
ance. In  Johnson  v.  Insurance  Co.,'^  referred  to  above,  this  principle 
was  recognized,  although  the  decision  is  erroneous  in  allowing  the  re- 
recovery  of  the  "surrender"  value  only.  The  surrender  value,  which  is 
always  fixed  at  a  smaller  sum  than  the  true  or  reserve  value,  can  be  re- 
covered by  an  adult,  in  accordance  with  the  terms  of  the  contract  The 
infant  should  have  the  higher  privilege  of  recovering  the  real,  rather 
than  the  contract,  value  of  his  policy, 

ALIENS  AS  PARTIES  INSURED. 

42.  In  all  ciTilized  conii.«,rie8  the  right  of  alien  friends  to  oontraot  for 

insurance  is  unrestricted.  The  contract  niade  with  an  alien 
enemy  is  Toid. 

43.  WAR  INTERVENING — ^There  is  much  conflict  of  authority  as  to 

the  effect  of  the  intervention  of  x^ar,  causing  the  parties  to  a 
valid  insurance  contract  to  become  alien  enemies;  but,  by  the 
better  rule,  the  policy  is  avoided,  and  not  merely  suspended. 

The  liberal  rules  of  law  now  prevailing  in  all  civilized  countries 
with  regard  to  the  rights  and  privileges  accorded  alien  friends  have 
resulted  in  the  frequent  making  of  contracts  of  insurance  between 
citizens  of  different  countries.  One  of  the  large  American  life  com- 
panies advertises  that  it  docs  business  in  some  eighty-four  different 
countries.  These  international  contracts  are  vaHd  and  enforceable.®* 
The  existence  of  war  between  two  countries,  however,  necessarily  in- 
terdicts all  commercial  intercourse  between  the  citizens  of  the  bel- 
ligerent states,  and  renders  void  any  contracts  of  insurance,  as  well 
as  other  contracts,  that  may  be  made  between  subjects  of  the  war- 
ring governments. 

•0  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24,  23  L.  Ed.  789; 
Cohen  v.  Insurance  Co.,  50  N.  Y.  610,  10  Am.  Rep.  522. 

81  56  Minn.  365,  59  N.  W.  992,  26  L.  R.  A.  189,  45  Am.  St.  Rep.  473.  See 
original  opinion,  56  Minn.  365,  57  N.  W.  934,  26  L.  R.  A.  187. 

•a  Clark,  Cont  (2d  Ed.)  146. 


A  difficult  question  arises,  however,  when  it  becomes  necessary  to 
determine  the  rights  of  parties  under  a  policy  issued  in  time  of  peace 
by  a  citizen  of  one  state  to  a  citizen  of  another  when  a  war  inter- 
venes. All  intercourse  between  the  parties  necessarily  ceases,  and 
the  payment  of  premiums  and  the  performance  of  other  conditions 
of  the  policy  become  impossible.®*  In  the  case  of  an  ordinary  fire 
policy,  which  grants  insurance  only  from  year  to  year,  or  for  some 
other  specified  term,  it  is  plain  that  when  the  parties  become  alien 
enemies  the  contractual  tie  is  broken,  and  the  contractual  rights  of 
the  parties,  so  far  as  not  vested,  lost  But  the  contract  of  life  insur- 
ance is  peculiar,  and  involves  other  than  the  simple  principles  just 
stated  as  governing  in  fire  insurance.  Annual  premiums  paid  in  Ufe 
insurance  represent  something  more  than  the  consideration  for  the 
insurance  for  each  successive  year.  They  are  partly  set  aside  to  form 
a  fund,  known  as  the  policy  reserve,  which  is  held  in  quasi  trust  by 
the  insurer  until  such  time  as  the  policy  matures,  and  the  sum  speci- 
fied therein  becomes  payable.  This  reserve  value  fixes  the  liability 
of  the  insolvent  insurer  upon  an  outstanding  policy  at  any  given 
time,®*  and  is  in  the  nature  of  a  vested  right,  which  may  be  defeated 
by  nonperformance  of  a  condition  subsequent,  such  as  the  nonpayment 
of  premiums  when  due.®*^ 

In  determining  the  effect  of  war  upon  the  rights  of  parties  to  exist- 
ing contracts,  the  courts  have  fallen  into  great  confusion  and  con- 
flict. The  cases,  however,  fall  into  three  groups,  according  as  they 
support  what,  for  the  sake  of  convenience,  will  be  called  the  Connect- 
icut, the  New  York,  and  the  United  States  Rules. 

The  Connecticut  Rule, 

In  Connecticut  and  a  few  other  states  it  has  been  held  that  the 
intervention  of  war  absolutely  terminates  all  rights  under  the  con- 
tract.®'  These  courts  base  their  decisions  upon  the  view  that  there 
are  two  elements  in  the  consideration  for  which  the  annual  premium 
is  paid — First,  the  mere  protection  for  the  year,  and,  second,  the 
privilege  of  renewing  the  contract  for  each  succeeding  year  by  pay- 
ing the  premium  for  that  year  at  the  time  agreed  upon.  According 
to  this  view  of  the  contract,  the  payment  of  premiums  is  a  condition 
precedent,  the  nonperformance  of  which,  even  when  performance 
would  be  illegal,  necessarily  defeats  the  right  to  renew  the  contract. 


«s  Kershaw  v.  Kelsey,  100  Mass.  561,  97  Am.  Dec.  124,  1  Am.  Rep.  142; 
Wheat.  Int.  Law  (Lawr.  Ed.)  551. 

«*  Universal  Life  Ins.  Co.  v.  Binford,  76  Va.  103. 

•»  Sands  v.  Insurance  Co.,  50  N.  Y.  626,  JO  Am.  Rep.  535. 

••  Worthington  v.  Insurance  Co.,  41  Conn.  372,  19  Am.  Rep.  496 ;  Dlllard 
T.  Insurance  Co.,  44  6a.  119,  9  Am.  Rep.  167;  Tait  v.  Insurance  Go.  (U.  S. 
dr.  Ot)  4  Bigelow,  Gas.  479,  note.  Fed.  Cas.  No.  13,728. 


II 


94 


PARTIES. 


(Ch.3 


The  New  York  Rule. 

By  far  the  greater  number  of  decisions  hold  that  war  between 
states  in  which  the  parties  reside  merely  suspends  the  contract  cf 
life  insurance,  and  that,  upon  tender  of  all  premiums  due  by  the  in- 
sured or  his  representative  after  the  war  has  terminated,  the  con- 
tract revives  and  becomes  fully  operative.'^  Thus,  one  Atwood,  at 
the  time  of  the  outbreak  of  the  Civil  War  a  resident  of  Virginia,  had 
paid  all  premiums  due  on  a  policy  issued  by  a  New  Jersey  insur- 
ance company  down  to  December,  1861,  when  a  premium  falling  due 
could  not  be  paid  on  account  of  the  war.  Atwood  died  in  1862.  The 
policy  contained  the  usual  conditions  of  forfeiture  upon  nonpayment 
of  any  premium  when  due.  Upon  the  restoration  of  peace,  Atwood^s 
administratrix  tendered  the  unpaid  premium,  and  demanded  pay- 
ment under  the  policy.  The  Virginia  court  held  that  the  policy  had 
been  revived,  and  compelled  the  insurer  to  make  payment  in  accord- 
ance with  its  terms.  •• 

The  reasons  given  for  this  doctrine  of  resuscitation  are  divers,  but 
the  general  theory  of  the  holding  is  that  life  insurance  is  not  such 
a  continuous  contract  as  is  terminated  ipso  facto  by  war,«»  but  is  an 
entire  contract,  in  which  the  insured  has  certain  vested  rights ;  that 
the  condition  avoiding  the  contract  upon  nonpayment  of  premiums 
is  not  a  condition  precedent,  but  a  condition  subsequent,  defeating 
rights  already  vested ;  and  when  such  condition  becomes  impossible 
of  performance,  nonperformance  will  be  excused,  since  the  law  does 
not  favor  forfeiture. 

The  United  States  Rule. 

The  question  came  before  the  Supreme  Court  of  the  United 
States  in  18?6,  in  New  York  Life  Ins.  Co.  v.  StathamJ*^  and  several 
companion  cases,  and  was  decided  by  a  divided  court.  The  rather  un- 
satisfactory opinion  by  Mr.  Justice  Bradley  accords  with  the  New 
York  doctrine  in  holding  that  the  contract  is  entire,  and  not  from 
year  to  year,  and  that  the  condition  as  to  payment  of  premiums  is 
subsequent,  and  not  precedent.     It  denies,  however,  that  the  contract 

« 

6T  Cohen  v.  Insurance  Co.,  50  N.  T.  610,  10  Am.  Rep.  522 ;  Sands  v.  Insur 
ance  Co.,  50  N.  Y.  626,  10  Am.  Rep.  535;  Manhattan  Life  Ins.  Co.  v.  War- 
wick. 20  Grat  (Va.)  614,  3  Am.  Rep.  218;  Mutual  Ben.  Life  Ins.  Co.  v.  At- 
wood's  Adm'x,  24  Grat.  (Va.)  497,  18  Am.  Rep.  652;  New  York  Life  Ins.  Oo. 
V  Hendren,  24  Grat.  (Va.)  536;  Clemmitt  v.  Insurance  Co.,  76  Va.  355;  Mu- 
tual Ben.  Life  Ins.  Co.  v.  Hillyard,  37  N.  J.  Law,  444,  18  Am.  Rep.  741;  Ne\9 
York  Life  Ins.  Co.  v.  Clopton,  7  Bush  (Ky.)  179,  3  Am.  Rep.  290;  Statham 
V.  Insurance  Co.,  45  Miss.  581,  7  Am.  Rep.  737. 

««  Mutual  Ben.  Life  Ins.  Co.  v.  J^twood's  Adm'x,  24  Grat  497,  18  Am.  Rep. 
652. 

«•  See  Sands  v.  In^^urance  Co.,  supra. 

T«  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM.  98  U.  S.  24,  23  L.  Ed.  789. 


g^  :t2-43> 


ALIENS  AS  PARTIES   INSURED. 


95 


is  merely  suspended,  and  declares  it  abrogated  by  reason  of  the  non- 
payment of  premiums,  since  the  time  of  the  payments  is  peculiarly 
of  the  essence  of  the  contract.  Nor  will  equity  relieve  from  the  for- 
feiture due  to  the  nonperformance  of  the  impossible  condition  subse- 
quent, since  to  do  so  would  work  injustice  to  the  insurer,  inasmuch 
as  the  insurer  and  insured  are  not  on  an  equal  footing  in  the  prem- 
ises. The  payment  of  the  past  due  premiums  and  the  revival  of  the 
policy  is  wholly  at  the  option  of  the  insured.  The  insurer  has  abso- 
lutely no  means  of  compelling  the  revival  of  all  suspended  policies, 
and  it  is  reasonable  to  suppose  that  the  option  to  revive,  by  pay- 
ment of  the  premiums  due,  will  be  exercised  only  in  those  cases 
where  the  insured  is  already  dead,  or  in  such  bad  health  as  will  pre- 
clude his  securing  a  new  policy. 

Accordingly  it  was  held  that  the  policy  was  extinguished  by  the 
nonpayment  of  the  premiums,  and  that  no  action  would  lie  for  the 
amount  of  insurance  specified  therein.  But  it  was  further  decided 
that  it  would  be  also  unjust  to  allow  the  insurer  to  retain  the  re- 
serve value  of  the  policy,  which  is  the  excess  of  the  premiums  paid 
over  the  actual  risk  carried  during  the  years  when  the  policy  had 
been  in  force.  "To  forfeit  this  excess,  which  fairly  belongs  to  the  as- 
sured, and  is  fairly  due  from  the  company,  and  which  the  latter  actu- 
ally has  in  its  coffers,  and  to  do  this  for  a  cause  beyond  individual 
control,  would  be  rank  injustice.  It  would  be  taking  away  from  the 
assured  that  which  had  already  become  substantially  his  property." 
Therefore  the  insured  was  held  entitled  to  recover  the  "equitable 
value"  of  his  policy  at  the  time  of  the  forfeiture.  This  equitable 
value  is  defined  as  the  difference  between  the  cost  of  a  new  policy 
and  the  present  value  of  the  premiums  yet  to  be  paid  on  the  forfeited 
policy  at  the  time  when  the  forfeiture  occurred.  This  is  approximately 
the  reserve  value  of  the  policy.''^ 

The  holding  of  the  federal  Supreme  Court  in  the  Statham  Case 
would  seem  to  be  correct.  So  far  as  the  contract  is  executory  it  is 
thoroughly  inequitable,  and  opposed  to  right  reason,  to  hold  that  it 
is  not  discharged  in  accordance  with  its  terms  by  reason  of  the  non- 
performance of  the  insured,  even  though  performance  would  be  il- 
legal because  of  the  existence  of  war.  But  in  so  far  as  it  is  executed 
and  the  insured  has  acquired  vested  rights  in  the  reserve  fund  of  the 
insurer,  subject  to  be  defeated  by  nonperformance  of  a  condition 
subsequent,  the  relation  between  insurer  and  insured  is  practically 


Ti  The  West  Virginia  role  Is  stated  somewhat  differently,  but  is  similar  In 
effect  It  is  there  held  that  the  insured  may  recover  the  difference  between 
what  he  paid  in  premiums  and  the  actual  cost  of  sustaining  the  risk,  inter- 
est being  allowed  on  each  balance  from  the  time  of  payment.  See  Abell  y. 
Insurance  Co.,  18  W.  Va.  400. 


I 

I 


' 


96 


PARTIB8, 


(Ch.3 


that  of  debtor  and  creditor,  and  the  same  rule  should  be  apphed  as 
in  the  case  of  debts  due  at  the  outbreak  of  war,  in  which  the  rights 
of  the  creditor  are  universally  held  to  be  merely  suspended. 

INSANE  PERSONS  AS  PABTIES  INSURED. 

44.  In  accordance  with  tlie  general  law  of  contracts,  insurance  con- 

tracts  made  with  Insane  person,  are  void  when  such  Persons 
have  been  judicially  declared  Insane;  otherwise  merely  voidable 
at  the  option  of  the  Insane  party,  unless  such  Insanity  was  un- 
known to  the  other  party.  In  which  caso  *  contract  fairly  made 
is  enforceable. 

45.  The  intervening  insanity  of  the  insured,  whereby  it  becomes  im- 

possible for  him  to  perform  the  conditions  of  the  poUcy,  does 
not  prevent  such  nonperformance  from  discharging  the  insurer 
in  accordance  with  the  terms  of  the  contract,  where  such  condi- 
tions are  precedent  to  the  continuance  of  the  contract.  But 
where  the  conditions  not  performed  are  subsequent  in  their 
nature,  and  operate  to  defeat  the  right  to  demand  payment  for 
m,  loss  already  suffered,  insanity  will  excuse  nonperformance 
and  avoid  a  forfeiture. 

A  contract  of  insurance  made  with  an  insane  person  is  subject  to 
the  same  rules  as  to  validity  as  apply  to  ordinary  contracts,  which 
have  been  stated  above,  and  which  are  too  well  settled  to  require 
discussion  '^  But  the  peculiar  nature  of  the  insurance  contract  gives 
rise  to  an  interesting  and  difficult  question  as  to  the  effect  upon  an 
existing  contract  of  the  supervening  insanity  of  the  insured,  when 
such  affliction  renders  him  incapable  of  complying  with  the  condi- 
tions of  the  policy. 

Intervening  Insanity  or  Mental  Incapacity. 

While  it  is  scarcely  accurate  to  say  that  the  conditions  of  a  policy 
are  strictly  either  precedent  or  subsequent,  yet  they  can  be  readily 
distinguished  as  falling  into  two  classes.  First  are  those  whose  per- 
formance at  the  time  agreed  upon  is  necessary  to  the  continued  lia- 
bility of  the  insurer  to  perform  in  case  of  loss,  such  as  payment  of 
premiums,  and  notice  of  change  of  interest  or  of  other  msurance. 
Such  conditions  are  so  essentially  parts  of  the  contract  that  noncom- 
pliance by  the  insurer  amounts  to  a  breach  of  the  agreement,  which 
discharges  the  insurer  from  further  liability.  Thus,  while  not  strict  y 
conditions  precedent,  they  are  yet  of  that  nature.  It  is  consequently 
immaterial  what  may  be  the  cause  of  the  breach  of  such  conditions 

T2  Lawr.  Wheat  541  et  seq. ;   Sands  v.  Insurance  Co.,  50  N.  Y.  626^  10  Am. 

Rep.  535. 
Ti  Clark,  Cont  (2d  Ed.)  178, 


§.4  44-45) 


INSANE  PERSONS  AS  PARTIES   INSURED. 


97 


by  the  insured.  ^  The  insurer  is  discharged,  even  though  the  insanity 
or  other  disability  of  the  insured  made  performance  wholly  impossi- 
ble.^* Therefore  if  the  insured  fails  to  pay  a  premium  when  due  be- 
cause  of  insanity  or  other  disabling  disease,  all  his  rights  under  the 
policy  are,  nevertheless,  forfeited,  in  accordance  with  the  terms  of 
the  contract* 

But  a  second  class  of  conditions  are  those  that  stipulate  for  the 
doing  of  some  act  by  the  insured  after  the  loss  insured  against  has 
taken  place,  such  as  giving  notice  and  proofs  of  loss.  Such  terms 
are  in  the  nature  of  conditions  subsequent,  and  the  forfeiture  of  a 
right  that  became  vested  upon  the  occurrence  of  the  loss  by  reason 
of  nonperformance  of  such  conditions  is  in  the  nature  of  a  penalty. 
An  estate  so  granted  that  it  can  vest  only  upon  the  fulfillment  of  a 
condition  precedent  will  wholly  fail  if  the  condition  becomes  impos- 
sible, but  a  vested  estate  is  never  defeated  because  of  an  impossible 
condition  subsequent.  ^«  By  a  reasonable  analogy,  if,  on  account  of 
insanity  or  other  disabling  disease,  it  becomes  impossible  for  the  in- 
sured under  all  the  circumstances  to  give  notice  of  a  loss  suffered,  or 
proofs  of  such  loss,  or  to  perform  any  other  such  condition  subse- 
quent, the  right  to  demand  indemnity  that  became  fixed  upon  the 
happening  of  the  loss  ought  not  to  be  defeated." 

T*  Worthington  v.  Insurance  Co..  41  Conn.  372,  19  Am.  Rep.  495;    Dillard 
V.  Insurance  Co.,  44  Ga.  119,  9  Am.  Rep.  167  (wherein  the  distinction  be- 
tween conditions  precedent  and  conditions  subsequent  is  stated).  See    also 
EVANS  V.  INSURANCE  CO.,  64  N.  Y.  304.  ' 

7  6  KLEIN  V.  INSURANCE  CO.,  104  U.  S.  88,  26  L.  Ed.  662;  WHEELER 
V.  INSURANCE  CO.,  82  N.  Y.  543,  37  Am.  Rep.  594;  Carpenter  v.  Associa- 
tion,  68  Iowa,  453,  27  N.  W.  456,  56  Am.  Rep.  855;  Smith  v.  Insurance  Co  11 
Wkly.  Notes  Cas.  (Pa.)  295;  Thompson  v.  Insurance  Co.,  104  U.  S.  252*  26 
L.  Ed.  765.  * 

7«  2  Washb.  Real  Prop.  §  2  et  seq. 

77  stout  V.  Insurance  Co.,  12  Iowa,  371,  79  Am.  Dec.  539;  Woodmen  Ace 
Ass  n  V.  Byers  (Neb.)  87  N.  W.  546,  55  L.  R.  A.  291,  89  Am.  St.  Rep  777* 
TYippe  V.  Society,  140  N.  Y.  23,  35  N.  B.  316,  22  L.  R.  A.  432,  37  Am.  St.'  Rep' 
^lr^\Y^^^  ^'  S^^ciety*  147  Ind.  543,  44  N.  E.  661;  Mandell  v.  Casualty  Co* 
ooVf^^ty^^'  ^^  ^-  ^'  ^^^'  ^  ^™-  S^  ^^P-  291;  McBlroy  v.  Insurance  Co.,' 
^  ^?«^I^  *^.^?-  ^^^'  "^^  ^™-  ®*-  ^^P-  ^'  See  further  statements  as  to 
the  distinction  between  conditions  operating  on  the  contract  prior  to  the  loss 
XT^  X.   ™  ^®^**^°S  to  matters  after  the  loss.    McNally  v.  Insurance  Co..  137 

f;,  M^^^f  o^-xfi"^^'  "^"^  *^  ^^^^  P^*°*  *^  Paltrovitch  V.  Insurance  Co., 
143  N  Y.  73.  37  N.  B.  639.  25  L.  R.  A.  198;  Trippe  v.  Society,  supra;  Wood- 
men Ace.  Ass'n  V.  Byers,  gupra;  McFarland  v.  Association.  124  Mo  204  ^7 
S.  W.  436.  Cf.  NEW  YORK  LIFE  INS.  CO.  r.  STATHAM,  98  U.  S.  24  23  L. 
Ed.  789.  *      * 

Vanck  Ins.— 7 


u» 


INSUBABLB   INTEREST. 


(Ch.4 


lis 


I 


11 
! 


CHAPTER  IV. 

INSURABLE  INTEREST. 

46.  The  General  Theory  of  Insurable  Interest 

47.  Insurable  Interest  in  Property— What  Constitute* 

48.  Duration  of  Interest. 
49-52.     Insurable  Interest  in  Lives. 

53.  Interest  of  Creditor  in  Life  of  Debtor. 

64.  Interest  of  the  Assignee  of  a  Life  Policy. 

65.  Consent  of  the  Life  Insured. 


THE  GENERAI.  THEORY  OF  INSURABLE  INTEREST. 

46.  The  term  insurable  interest  is  nsed  to  denote  that  interest  apper- 
taining to  the  insured  which  is  exposed  to  injury  or  destruction 
by  reason  of  the  peril  insured  against.  Such  interest  need  not 
rise  to  the  level  of  a  legal  right,  and  in  general  it  may  be  said 
to  exist  whenever  the  insurer  stands  in  such  a  relation  to  prop- 
erty or  a  person  as  to  justify  a  reasonable  expectation  of  finan- 
cial benefit  to  be  derived  from  the  continued  existence  of  such 
property  or  person. 

The  requirement  of  an  insurable  interest  to  support  a  contract  of 
insurance  is  based  upon  considerations  of  public  policy,  which  con- 
demn as  wagers  all  agreements  for  insurance  of  any  subject  in 
which  the  contracting  parties  have  no  such  interest.  The  general 
theory  of  what  constitutes  an  insurable  interest  rests  upon  the  broad 
principle  of  indemnity,  that  lies  at  the  very  foundation  of  insurance 
law.  Thus,  in  broad  terms,  one  may  insure  property  or  life,  when 
he  stands  in  such  relation  to  it  that  he  will  be  benefited  by  its  con- 
tinued existence  and  damnified  by  its  destruction.^  But  what  must 
be  the  character  of  the  expected  benefit,  or  of  the  loss  that  is  feared? 
Must  the  expected  benefit  have  such  a  legal  basis  that  its  conferring 
could  be  compelled  by  law,  or  the  loss  be  such  as  would  entitle  the 
insured  to  damages  against  a  tort  feasor  causing  it? 

An  examination  of  the  authorities  shows  conclusively  that  in  an- 
swering this  question  a  sharp  distinction  must  be  made  between  cases 
of  property  insurance  and  those  of  life  insurance.*  While  it  is  not 
necessary  that  the  person  insured  shall  have  any  title  to  the  property 
insured,  either  legal  or  equitable,  yet  an  expectation  of  benefit,  to  be 

1  CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  SCHAEFER,  94  U.  S.  457,  24 

r     cvi    251 

»  See  Crosswel  v.  Association,  51  S.  C.  103,  28  S.  E.  200,  203. 


Ht>) 


THE   GENERAL  THEORY  OF  INSURABLE   INTEREST. 


99 


derived  from  its  continued  existence,  however  lively  and  morally 
certain  of  realization  it  may  be,  will  not  afiford  a  sufficient  insurable 
interest  unless  that  expectation  has  a  basis  of  legal  right.'  If  such 
legal  basis  exists,  an  expected  benefit,  however  remote,  constitutes 
an  insurable  interest.  This  is  well  illustrated  by  Lord  Eldon  in  his 
opinion  in  the  great  leading  case  of  Lucena  v.  Craufurd :  *  "Suppose 
A.  to  be  possessed  of  a  ship  limited  to  B.  in  case  A.  dies  without  is- 
sue ;  that  A.  has  20  children,  the  eldest  of  whom  is  20  years  of  age ; 
and  B.  90  years  of  age;  it  is  a  moral  certainty  that  B.  will  never 
come  into  possession,  yet  this  is  a  clear  interest.  On  the  other  hand, 
suppose  the  case  of  the  heir  at  law  of  a  man  who  has  an  estate 
worth  i20,000  a  year,  who  is  90  years  of  age,  upon  his  death-bed, 
intestate,  and  incapable  from  incurable  lunacy  of  making  a  will; 
there  is  no  man  who  will  deny  that  such  an  heir  at  law  has  a  moral 
certainty  of  succeeding  to  the  estate ;  yet  the  law  will  not  allow  that 
he  has  any  interest,  or  anything  more  than  a  mere  expectation." 

The  facts  in  Lucena  v.  Craufurd  well  illustrate  what  is  meant  by 
an  expectation  supported  by  a  legal  basis.  In  that  case  certain  com- 
missioners were  appointed  under  act  of  Parliament,  with  power  to 
take  possession  and  dispose  of  such  vessels  of  the  United  Provinces 
as  might  be  brought  into  English  ports.  These  commissioners  in- 
sured certain  captured  Dutch  vessels  then  at  St.  Helena,  which  were 
to  be  brought  into  English  ports.  Before  reaching  England  the 
insured  vessels  encountered  a  storm,  and  were  all  lost  or  seriously 
damaged.  The  underwriters  sought  to  escape  liability  on  the  ground 
that  the  insuring  commissioners  had  no  right  or  interest  in  the  ves- 
sels until  brought  to  an  English  port,  and  that  the  insurances  were 
therefore  void.  But  the  Court  of  Exchequer  Chamber »  held  that 
the  commissioners  had  an  insurable  interest  at  the  time  the  policies 
were  taken  out;  that  while  they  had  no  present  legal  right  in  the 
vessels  themselves,  yet  they  might  expect  to  acquire  such  right  in 
case  the  vessels  made  the  voyage  in  safety.  And  this  expectation 
was  based  upon  an  act  of  Parliament,  which  must  operate  if  the  ves- 
sels came  to  port.  Hence,  by  the  destruction  of  the  vessels  at  sea, 
they  were  prevented  from  acquiring  a  legal  right  in  them,  and  were[ 
therefore,  damnified.* 

«  Baldwin  v.  Insurance  Co.,  60  Iowa,  497,  15  N.  W.  300.  "A  man  has  no 
right  to  an  indemnity  because  he  has  lost  the  chance  to  receive  a  gift"  Lord 
Ellenborough,  in  Routh  v.  Thompson,  11  East,  42a 

*  2  Bos.  &  P.  N.  S.  269,  at  page  324. 
»  3  Bos.  &  P.  99. 

•  From  the  Judgment  of  the  Exchequer  Chamber  an  appeal  was  taken  to 
the  House  of  Lords,  which,  however,  did  not  finally  pass  upon  the  question 
of  whether  an  insurable  interest  was  present,  but  awarded  a  venire  de  novo 
on  collateral  grounds.    2  Bos.  &  P.  N.  R.  269.    Lord  Eldon.  Lord  BUenbor- 


100 


INSURABLE    INTEREST. 


(Ch.4 


So  it  has  been  held  that  a  stockholder  may  insure  the  property  of 
the  corporation,  although  he  has  no  legal  interest  whatsoever  in  such 
property.^  His  expectation  of  benefit  to  be  derived  from  the  con- 
tinued existence  of  such  property,  however,  is  based  upon  his  legal 
right  as  stockholder  to  demand  participation  in  the  profits  of  the 
corporation,  or  in  its  assets  upon  dissolution.  But  the  employe  of  a 
railway  corporation  could  not  insure  the  engine  he  drove  on  the 
ground  that  its  destruction  would  prevent  the  expected  continuation 
of  his  employment ;  nor  could  a  surety  insure  the  property  of  his 
principal  merely  because  he  would  look  to  such  property  for  indem- 
nification in  case  he  should  be  obliged  to  pay  his  principal's  debt. 
But  it  would  be  otherwise  if  the  surety  were  secured  against  loss 
by  a  mortgage  upon  the  principal's  property,  or  if  the  creditor  held 
a  mortgage  upon  such  property  to  which  the  surety,  upon  payment 
of  the  debt,  might  be  subrogated.*  . 

Turning  to  the  cases  on  life  insurance  we  find  that  no  such  limita- 
tion upoil  the  character  of  the  expectation  exists.  While  the  doc- 
trine of  insurable  interest  jn  lives,  like  that  in  property,  seems  from 
the  authorities  to  be  based  on  the  theory  of  indemnity  for  actual 
loss  yet  the  expectation  of  benefit  to  be  derived  from  the  continued 
existence  of  a  life  need  have  no  legal  basis  whatever.^<>  A  reasonable 
probability  is  sufficient,  without  more.  Thus  a  brother  is  under  no 
leeal  obHgation  to  support  his  sister,  and  the  mere  relationship  does 
not  give  her  an  insurable  interest  in  his  life.  Yet  if  he  has  been 
accustomed  to  contribute  to  her  support,  she  may  insure  his  life,  on 
the  theory  that  by  his  death  she  will  lose  expected  future  contribu- 
tions although  such  contributions  would  be  essentially  voluntary.^^ 
Again  a  ^marked  distinction  between  the  rules  affecting  insurable 
interest  in  property  and  life,  respectively,  is  seen  in  the  relation  re- 

ouffh  and  Lord  Erskine.  however,  opposed  the  decision  of  the  Exchequer 
Chamber,  and  the  weighty  influence  of  their  opinions  is  apparent  in  subse- 
quenVEAglish  cases,  which  seem  to  have  settled  tJ^e  law  contrary  ^ot^e 
decision  of  this  celebrated  case.  See  Routh  v.  Thompson,  11  East  426, 
l3SWorth  y.  Insurance  Co.,  L.  R.  8  C.  P.  596.  See,  also,  opinion  of  Story, 
J  .in  The  Joseph,  1  Gall.  558.  Fed.  Cas.  No.  7,533;    1  Arnould,  Mar.  Ins.  §§ 

^^RIGGS  y.  INSURANCE  CO.,  125  N.  Y.  7.  25  N.  B.  1058,  10  U  R.  A.  684. 
21  Am.  St  Rep.  716;   WARREN  y.  INSURANCE  CO.,  31  Iowa,  464,  7  Am. 

^^8^'se^e  Grevemeyer  v.  Insurance  Co.,  62  Pa.  340,  1  Am.  Rep.  420 

•  Hanovr  Fire  Ins.  Co.  v.  Bohn.  48  Neb.  743,  67  N.  W.  774.  58  Am.  St 

^?o  WARNOCK  y.  DAVIS.  104  U.  S.  775,  26  L.  Ed.  924;   LOOMIS  v.  IN- 
SURANCE  CO..  6  Gray  (Mass.)  399;    Equitable  Life  Ins.  Co   y.  Hazelwood. 
^  Tex  338  12  S.  W.  621.  7  L.  R.  A.  217.  16  Am.  St.  Rep.  893;    Carpenter  v. 
L^ancVco^^^iei  Pa.  9,  28  Atl.  943.  23  L.  R.  A.  571.  41  Am.  St  Rep.  880. 
11  LORD  T.  DALL,  12  Mass.  115,  7  Am.  Dec.  38. 


46) 


THE  GENERAL  THEORY  OF  INSURABLE  INTEREST. 


101 


quired  between  the  extent  of  the  interest  insured  and  the  amount 
of  the  insurance  granted  thereon.  In  property  insurance  the  actual 
value  of  the  interest  exposed  to  loss  is  the  limit  of  the  insurance  that 
can  validly  be  placed  thereon.  That  is  to  say,  the  actual  pecuniary 
loss  that  will  be  suffered  through  the  destruction  of  the  property 
insured  is  the  limit  of  valid  insurance  on  such  property.  But  this 
rule  has  no  place  in  life  insurance.  Granted  that  an  insurable  inter- 
est exists,  there  is  no  limit  to  the  amount  of  insurance  that  may  be 
validly  contracted  for,  save  such  as  may  be  imposed  by  the  discretion 
of  the  parties,  unless  that  interest  has  its  origin  in  commercial  rela- 
tion. The  insurable  interest  possessed  by  a  father  in  the  life  of  his 
minor  child  is  said  to  rest  upon  the  father's  right  to  the  child's  serv- 
ices.^' The  pecuniary  advantage  to  be  derived  by  the  father  from 
the  continued  existence  of  the  child  until  majority  could  not,  under 
the  most  favorable  circumstances,  amount  to  more  than  a  few  thou- 
sand dollars.  Indeed,  it  is  a  matter  of  experience  that  ordinarily 
the  continued  existence  of  the  child  is  pecuniarily  a  detriment,  on 
account  of  the  expense  of  support  and  education.  Yet  there  is  no 
rule  of  law  that  would  prevent  the  father  from  insuring  the  life  of  his 
child  in  the  sum  of  one  million  dollars,  or  any  other  large  sum  which 
might  be  agreed  upon.  A  wife  has  a  legal  right  to  support  from  her 
husband,  and  may  therefore  insure  his  life.^*  But  in  an  action  upon 
such  a  policy,  evidence  of  the  husband's  incapacity  to  support  his 
wife,  either  at  the  time  of  the  issuance  of  the  policy  or  at  the  time 
of  his  death,  would  be  wholly  irrelevant* 

Still  another  striking  difference  is  seen  to  exist,  in  regard  to  in- 
surable interest,  between  property  and  life  insurance.  In  order  that 
a  contract  of  insurance  on  property  shall  be  enforceable,  an  insurable 
interest  must  exist  in  the  insured  at  the  time  of  loss,  but  not,  it 
scems,^*  at  the  time  of  issue.  But  in  life  insurance  the  rule  is  re- 
versed. A  policy  of  Hfe  insurance  is  wholly  invalid  unless  the  as- 
sured possesses  an  insurable  interest  at  the  time  when  the  contract 
is  made,  while  the  presence  of  such  an  interest  at  the  time  of  loss  is 
immaterial.^* 

These  radical  differences  in  regard  to  the  doctrine  of  insurable 
interest  found  to  exist  between  life  and  property  insurance  point  to 

1*  Mitchell  y.  Insurance  Co.,  45  Me.  104,  71  Am.  Dec.  529. 

i»  CONNECTICUT  MUT.  LIFE  INS.  00.  v.  SCHAEFER,  94  U.  S.  457,  24 
L.  Ed.  251. 

♦  But  see  CURRIER  y.  INSURANCE  CO.,  57  Vt  496,  52  Am.  Rep.  134,  in 
wlii<±  a  contrary  rule  is  suggested. 

1*  Sun  Fire  Ins.  Co.  v.  Merz,  64  N.  J.  Law,  301,  45  Atl.  785,  52  L.  R.  A. 
830;  Dayis  v.  Insurance  Co.,  70  Vt.  217,  39  Atl.  1095. 

15  CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  SCHAEB'Eai,  94  U.  &  457,  2-J 
L.  Ed.  261;   DALBY  y.  ASSURANCE  CO.,  15  a  B.  365. 


P 


71__ 
'        1) 


102 


INSURABLE   INTEREST. 


(Ch.4 


46) 


THE  GENERAL  THEORY  OF  INSURABLE  INTEREST. 


103 


.' 


\ 


some  fundamental  distinction  between  the  principles  applicable.  It 
is  to  be  regretted  that  the  courts  have  not  worked  out  this  distinc- 
tion ^*  and  based  their  decisions  consistently  upon  the  differing  prin- 
ciples obtaining  in  the  determination  of  what  is  just  between  the  par- 
ties and  consonant  with  the  public  welfare.  Not  being  guided  by 
any  such  clearly  defined  principles,  and  assuming  that  the  same 
theory  of  insurable  interest  is  applicable  in  both  property  and  life 
insurance,  they  have  heaped  up  a  body  of  case  law  on  insurable 
interest,  in  regard  to  life  insurance  particularly,  that  is  singularly 
confusing  and  unsatisfactory,  and  conducive  to  uncertainty  in  the 
law.  It  is  believed  that  the  true  theory  upon  which  this  unfortunate 
conflict  of  authority  could  be  done  away  with,  and  the  law  on  this 
particular  topic  reduced  to  harmony  and  unity,  can  be  discovered  by 
recognizing  the  essential  difference  between  property  insurance  and 
life  insurance,  and  the  consequent  difference  in  the  character  of  the 
insurable  interest  required  in  each. 

Property  insurance  is  essentially  and  entirely  a  contract  of  indem- 
nity. Hence  an  interest  for  the  loss  of  which  the  contract  provides 
indemnity  is  an  absolute  essential  to  the  valid  existence  of  the  con- 
tract. Nor  is  it  difficult  to  determine  when  such  an  interest  is  pres- 
ent, the  authorities  being  well  agreed  as  to  what  constitutes  an  in- 
surable interest  in  property.  But  life  insurance  is  not  essentially  or 
principally  a  contract  of  indemnity.  While  possessing  an  element 
of  pure  insurance  based  upon  indemnity,  it  is  yet  principally  a  con- 
tract of  imestment.  It  has  been  more  aptly  likened  to  a  contract 
for  an  annuity,  whereby  the  insured  agrees  to  pay  a  fixed  annuity 
during  his  life,  in  consideration  of  which  the  insurer  agrees  to  pay  a 
certain  sum  upon  the  death  of  the  insured.^^  But  this  contract  is 
speculative  by  reason  of  the  uncertainty  of  life ;  and  the  subject  of 
the  contract  is  human  life,  which  the  law  has  always  protected  with 
most  jealous  care.  Therefore  the  law  will  not  tolerate  such  con- 
tracts made  for  the  mere  purpose  of  speculation,  since  to  do  so  would 
be  to  encourage  the  perpetration  of  murder  and  such  other  horrid 
crimes  as  tend  to  destroy  the  very  foundations  of  society.  But  when 
made  in  good  faith,  for  the  purpose  of  accumulating  a  fund  for  the 
support,  after  the  death  of  the  insured,  of  those  dependent  upon  him, 
the  contract  is  one  that  encourages  industry  and  thrift,  and  tends 
to  relieve  society  of  the  burden  of  caring  for  its  helpless  members. 

i«See  remarks  of  Hoar,  J.,  In  Forbes  ▼.  Insurance  Co.,  15  Gray  (Mass.) 

249,  77  Am.  Dec.  360.  „  ..no  tt    o 

iTDALBY  V.  ASSURANCE  CO.,  snpra;  Central  Bank  v.  Hume.  128  U.  S. 
195  205  9  Sup.  Ct.  41,  32  L.  Ed.  370,  per  Fuller,  C.  J.;  NEW  YOKK  LIFE 
INS.  CO.  ▼.  STATHAM.  93  U.  S.  24,  23  L.  Ed.  789. 


The  Theoretical  Basis  of  Valid  Life  Insurance. 

The  policy  of  the  law,  therefore,  requires  that  iniquitous  specula 
tion  in  human  life  should  be  prohibited,  while  bona  fide  efforts  t<^.  v 
provide  for  the  support  of  dependents  after  death  should  be  encour-  ^ 
aged.  Thus  it  is  clear  that  bona  fides  is  the  logical  test  of  the  pro- 
priety, and  hence  of  the  validity,  of  the  contract.^®  Accordingly  it 
would  seem  that  whenever  the  circumstances  of  the  case  are  such  as 
to  afford  satisfactory  evidence  that  a  policy  has  been  taken  out  in 
good  faith,  and  for  the  legitimate  purpose  of  life  insurance,  it  should 
be  held  valid,  irrespective  of  the  question  of  pecuniary  loss  to  be  suf- 
fered by  the  beneficiaries  by  reason  of  the  death  of  the  insured.  This 
theory  of  insurable  interest  would  justify  the  statement  that  a  person 
has  a  sufficient  interest  in  a  life  when  his  relation  to  that  life  is  such 
by  reason  of  blood,  marriage,  or  commerce,  that  he  may  reasonably 
be  supposed  to  be  desirous  of  protecting  and  prolonging  it,  rather 
than  of  destroying  it.  A  more  accurate  statement  of  the  principle, 
though  one  further  removed  from  the  language  of  the  adjudged 
cases,  is  as  follows :  A  contract  of  life  insurance  will  be  presumed  to 
be  made  in  good  faith,  and  therefore  to  be  valid,  when  the  assured 
bears  such  a  relation  to  the  insured  that  it  is  reasonable  to  suppose 
that  the  assured  desires  the  continued  existence  of  the  insured ;  but 
this  presumption  is  in  every  case  rebuttable  by  evidence  of  actual 
bad  faith.^* 

Under  this  rule  those  closely  related  by  blood  or  marriage,  as 
parent  and  child,  brother  and  sister,  and  husband  and  wife,  could 
be  consistently  allowed  to  insure  each  other*s  lives  without  reference 
to  the  probability  of  pecuniary  benefit  to  be  derived.  It  would  be 
sufficient  that  the  relation  was  so  intimate  that  the  ties  of  affection 
would  induce  the  assured  to  protect  and  prolong  the  life  of  the  in- 
sured rather  than  to  endeavor  wrongfully  to  shorten  it.  On  the  oth- 
er hand,  more  remote  relationship,  such  as  that  of  uncle  and  nephew, 
would  not  be  sufficient,  without  more,  to  raise  a  presumption  of  such 

18  See  Appeal  of  Corson,  113  Fa.  438,  6  Atl.  213,  218,  57  Am.  Rep.  479; 
Crosswel  v.  Association,  51  S.  C.  103,  28  S.  E.  200.  It  may  be  objected  that 
the  difficulty  of  determining  the  existence  of  good  faith  in  any  given  case  is  a 
serious  practical  obstacle  in  the  way  of  the  adoption  of  the  suggested  rule. 
Yet  the  existence  of  good  faith  is  a  necessary  element  in  many  well-settled 
rules  of  law;  for  example,  the  rules  determining  priority  of  liens,  and  the 
rights  of  holders  of  negotiable  paper.  So,  in  insurance  law,  as  stated  later 
in  the  text,  the  good  faith  of  a  creditor  in  taking  out  insurance  on  the  life 
of  his  debtor  in  excess  of  the  amount  of  the  debt  is  the  generally  accepted 
test  of  the  validity  of  such  insurance.  See  Cammack  v.  Lewis,  15  Wall.  (U. 
S.)  643,  21  L.  Ed.  244.  It  is  certainly  no  more  difficult  to  determine  whether 
a  contract  of  insurance  has  been  made  in  good  faith  than  whether  land  has 
been  so  purchased. 

19  See  Appeal  of  Corson.  113  Pa.  438,  6  Atl.  213,  57  Am.  Rep.  479. 


104 


INSURABLE   INTEREST. 


(Ch.4 


good  faith  as  would  validate  the  policy  taken  out  by  one  on  the  life 
of  another.  2**  But  if  it  is  shown  that  in  any  particular  case  there  is 
some  special  reason  why  one  should  desire  the  long  life  of  the  other, 
as  where  the  uncle  provides  for  the  support  and  education  of  the 
nephew,  or  is  indebted  to  him,*^  it  might  be  properly  held  that  the 
circumstances  were  sufficient  to  establish  the  good  faith  necessary  to 
validate  a  contract  of  life  insurance  made  by  one  upon  the  life  of  an- 
other. 

No  decided  case  has  gone  so  far  as  to  lay  down  in  terms  the  rule 
stated  above,  but  it  is  submitted  that  the  theory  of  the  best  consid- 
ered decisions,  as  well  as  sound  reason,  would  justify  its  enuncia- 
tion.*' Indeed,  the  requirement  that  the  relation  between  assured 
and  insured  shall  be  such  as  to  show  the  good  faith  and  lawful  pur- 
pose of  the  contract  is  but  a  general  statement  of  a  principle  of  which 
the  rule  as  ordinarily  laid  down  by  the  courts,  viz.,  that  the  relation 
between  the  parties  shall  be  such  as  to  justify  a  reasonable  expecta- 
tion of  benefit  from  the  continuance  of  the  life  insured,  is  but  a 
phase;  for  expectation  of  pecuniary  benefit  to  be  received  from  the 
insured  affords  the  best  evidence  that  the  assured  desires  the  con- 
tinuance of  his  life.  But  such  expectation  ought  not  to  be  the  sole 
evidence  of  that  desire."  And  that  the  tendency  of  the  courts  is 
to  adopt  the  broader  rule  may  be  seen  from  statements  made  by 
judges  of  the  highest  authority,  even  though  such  statements  are 
usually  obiter  dicta.  Thus  in  Warnock  v.  Davis  "  the  court  said : 
"It  is  not  necessary  that  the  expectation  of  advantage  or  benefit 
should  be  always  capable  of  pecuniary  estimation,  for  a  parent  has 
an  insurable  interest  in  the  life  of  his  child,  and  a  child  in  the  life  of 
his  parent,  a  husband  in  the  life  of  his  wife,  and  a  wife  in  the  life  of 
her  husband.  The  natural  affection  in  cases  of  this  kind  is  consid- 
ered as  more  powerful,  as  operating  more  efficaciously,  to  protect 
the  life  of  the  insured,  than  any  other  consideration.  But  in  all  cases 
there  must  be  a  reasonable  ground,  founded  upon  the  relation  of  the 
parties  to  each  other,  either  pecuniary  or  of  blood  or  affinity,  to  ex- 
pect some  benefit  or  advantage  from  the  continuance  of  the  life." 
In  Loomis  v.  Eagle  Life  &  Health  Ins.  Co.,"  Chief  Justice  Shaw 

«o  SINGLETON  v.  INSURANCE  CO.,  66  Mo.  63.  27  Am.  Rep.  321;  Appeal 
of  Corson,  snpra. 

«i  Union  Mut  Life  Ins.  Co.  ▼.  Mowry,  96  U.  S  544,  24  L.  Ed.  674. 

t«Cro8Swel  v.  Association,  51  S.  C.  103,  28  S.  B.  200;  WARNOOK  ▼. 
DAVIS,  104  U.  S.  775.  26  L.  Ed.  924 ;  CONNECTICUT  MUT.  LIFE  INS.  CO.  v. 
SCHAEFER,  94  U.  S.  457.  24  L.  Ed.  251;  ^TNA  LIFE  INS.  CO.  v.  FRANCE, 
94  U.  S.  561,  24  L.  Ed.  287.  And  see  EVjuitable  Life  Ins.  Co.  V,  Hazelwood, 
75  Tex.  338,  12  S.  W.  621. 

«»  WARNOCK  v.  DAVIS,  104  U.  S.  775,  26  L.  Ed.  024. 

«*Id. 

a»  LOOMIS  v.  BEAGLE  LIFE  &  HEALTH  INS.  CO.,  6  Gray  (Mass.)  399. 


§46) 


THE  GENERAL  THEORY   OF  INSURABLE  INTEREST. 


105 


said :  "We  cannot  doubt  that  a  parent  has  an  interest  in  the  life  of 
a  child,  and,  vice  versa,  a  child  in  the  life  of  a  parent;  not  merely 
on  the  ground  of  a  provision  of  law  that  parents  and  grandparents 
are  bound  to  support  their  lineal  kindred  when  they  may  stand  in 
need  of  relief,  but  upon  considerations  of  strong  morals,  and  the 
force  of  natural  affection  between  near  kindred,  operating  often 
more  efficaciously  than  those  of  positive  law."  In  Crosswel  v.  Con- 
necticut Indemnity  Ass'n,**  a  soundly  decided  and  well-reasoned 
case,  it  is  said:  "But  with  respect  to  life  insurance,  except  when 
purposely  based  on  some  contractual  relation  as  to  which  death 
might  entail  loss  of  a  pecuniary  nature,  the  matter  of  'insurable  in- 
terest* is  important  only  in  ascertaining  whether  the  contract  is  ob- 
noxious to  the  public  policy  which  condemns  gambling  on  the  con- 
tinuance of  human  life,  because  such  speculative  contracts  are  sup- 
posed to  tend  to  bring  about  the  death  of  the  insured  by  creating  an 
interest  in  his  death.  *The  essential  thing  (in  life  insurance)  is  that 
the  policy  shall  be  obtained  in  good  faith,  and  not  for  the  purpose 
of  speculating  upon  the  hazard  of  a  life  in  which  the  insured  has  no 
interest.*    Connecticut  Mut.  Life  Ins.  Co.  v.  Schaefer,  supra.*^ 

"To  meet  the  charge  that  the  contract  is  a  mere  wager,  it  becomes 
important  to  show  that  the  person  procuring  the  insurance  has  an 
interest  also  to  preserve  the  life  of  the  insured.  This  prevents  the 
contract  from  being  a  mere  wager,  although  all  contracts  based  on 
the  happening  of  an  uncertain  event,  or  on  the  uncertain  time  when 
a  sure  event  will  happen,  are  in  their  nature  speculative.  All  agree 
that  2  pecuniary  interest  will  save  the  policy,  at  least  to  the  extent  of 
the  mterest;  but  does  a  mere  pecuniary  interest  afford  the  best  or 
strongest  guaranty  to  society  that  the  insured's  life  will  not  be  de- 
stroyed by  the  holder  of  the  policy  ?  What,  then,  is  to  protect  soci- 
ety against  the  danger  that,  from  that  standpoint,  lurks  in  a  con- 
tract of  insurance  by  a  creditor  on  the  life  of  a  hopelessly  bankrupt 
debtor?  In  that  case,  how  does  the  hopeless  prospect  of  payment 
by  the  debtor  protect  society  against  the  keen  interest  which  the 
creditor  would  have  in  the  death  of  the  debtor  ?  Yet  we  find  no  case 
holding  such  a  policy  void.  So,  what  pecuniary  interest  has  the  wife 
in  the  life  of  a  husband  incapable  of  supporting  her,  or  the  husband 
in  the  life  of  a  wife  incapable  of  rendering  service?  Yet  we  find  no 
case  holding  such  a  policy  void.  Indeed,  there  is  much  fiction  in  ref- 
erence to  the  supposed  necessity  of  a  pecuniary  insurable  interest  to 
support  a  life  insurance  policy,  when  a  near  relative  insures  for  the 
benefit  of  another.    Close  ties  of  blood  or  affinity,  as  parent,  child, 

«•  61  S.  C.  103,  28  S.  E.  200. 

«7  CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  SCHAEFER,  94  U.  S.  457,  24 
L.  EO.  251. 


<il 

m 

™ 

1 

iiill 

li 

lil 


106 


INSURABLB    INTEREST. 


(Ch.4 


brother,  sister,  husband,  wife,  with  the  natural  affection  and  moral 
forces  which  generally  prompt  one  such  to  serve  and  protect  the 
other,  rendering  it  highly  improbable  that  for  money  one  would  take 
the  life  of  the  other,  afford  a  surer  guaranty  to  society  against  the 
dangers  of  betting  on  the  duration  of  human  life  than  any  mere  pe- 
cuniary interest  in  the  life  insured,  often  more  imaginary  than  real." 

Summary. 

The  results  of  the  above  discussion  of  the  general  theory  of  insur- 
able interest  may  be  summarized  thus: 

(1)  The  requirement  of  insurable  interest  is  based  on  public  pol- 
icy, which  prohibits  wagers. 

(2)  The  doctrine  of  insurable  interest  in  property  insurance  is  es- 
sentially different  from  that  in  Hfe  insurance,  the  two  kinds  of  in- 
surance contracts  being  themselves  essentially  different. 

(3)  Property  insurance,  being  solely  for  indemnity,  is  valid  only 
when  the  insured  sustains  such  a  legal  relation  to  the  property  in- 
sured as  that  its  destruction  will  entail  upon  him  a  pecuniary  loss  or 
liability. 

(4)  Life  insurance,  not  being  for  indemnity,  is  valid  only  when 
contracted  for  in  good  faith.  As  evidence  of  such  good  faith  the 
law  requires  the  presence  of  an  insurable  interest,  which  exists  when 
the  assured  is  so  related  to  the  insured  that  he  may  reasonably  be 
supposed  to  desire  the  continuance  of  the  life.  It  is  not  necessary 
that  the  death  of  the  insured  shall  cause  a  pecuniary  loss  to  the  as- 
sured. 

(5)  It  is  necessary,  therefore,  to  discuss  separately  the  doctrines 
of  insurable  interest  in  property  and  life. 

INSURABLE  INTEBEST  IN  PBOFERTY— WHAT  CONSTITUTES. 

47*  A  person  lias  an  insurable  interest  in  property  wHen  he  is  so  situ- 
ated with  reference  to  it  that  by  its  destruction  lie  will  suffer 
an  actual  loss  of  n&oney  or  legal  right,  or  incur  a  liability. 
More  specifically,  an  insurable  interest  exists  in  the  following 
cases: 

(a)  When  the  insurer  possesses  a  legal  title  in  the  property  insured, 

whether  Tested  or  contingent,  defeasible  or  indefeasible. 

(b)  When  he  has  an  equitable  title,  of  whatexer  character,  and  in 

urhatever  manner  acquired. 

(o)  Where  he  possesses  a  qualified  property  in  the  subject  of  the  in- 
surance. 

<d)  Where  he  has  merely  possession  or  right  of  possession  without 
title  or  claim  of  title. 

<•>  Where  he  has  neither  title  nor  right  in  the  property,  but  stands 
in  such  relation  to  it  that  he  has  legal  ground  for  expecting 
benefit  from  its  continued  existence,  or  loss  from  its  destruc- 
tion* 


§47) 


INSUBABLE  INTEREST — WHAT  CONSTITUTES. 


107 


I  i 


It  is  difficult  to  give  a  definition  of  insurable  interest  in  property 
that  is  at  once  broad  enough  to  embrace  accurately  all  of  the  almost 
innumerable  cases   that   should  properly   be   included,    and  precise 
enough  to  be  of  value.     Probably  the  definition  laid  down  in  the 
California  Civil  Code"  is  in  as  satisfactory  a  form  as  can  be  de- 
vised :    "Every  interest  in  property,  or  any  relation  thereto,  or  lia- 
bility in  respect  thereof,  of  such  a  nature  that  a  contemplated  peril 
might  directly  damnify  the  insurer,  is  an  insurable  interest."     Of 
course,  as  is  the  case  with  all  definitions,  the  uncertainty  as  to  the 
precise  meaning  of  some  of  the  words  and  phrases  used,  such  as  "in- 
terest in  property,"  "relation,"  and  "directly  damnify,"  prevents  this 
definition  from  being  of  any  considerable  value  in  determining  diffi- 
cult cases.    The  real  nature  of  insurable  interest  in  property  is  well 
set  forth  in  the  admirable  opinion  of  Lawrence,  J.,  in  the  leading 
case  of  Lucena  v.  Craufurd,^*  which  not  only  is  characterized  by  emi- 
nent good  sense,  but  also  has  the  sanction  both  of  antiquity  and  of 
the  enthusiastic  approval  of  subsequent  judges  and  text  writers.*® 
"A  man  is  interested  in  a  thing,"  says  that  great  judge,  "to  whom 
advantage  may  arise  or  prejudice  happen  from  the  circumstances 
which  may  attend  it,  and  whom  it  importeth  that  its  condition  as 
to  safety  or  other  quality  should  continue.    Interest  does  not  neces- 
sarily imply  a  right  to  a  whole  or  part  of  the  thing,  nor  necessarily 
and  exclusively  that  which  may  be  the  subject  of  privation,  but  the 
having  some  relation  to,  or  concern  in,  the  subject  of  the  insurance ; 
which  relation  or  concern,  by  the  happening  of  the  perils  insured 
against,  may  be  so  affected  as  to  produce  a  damage,  detriment,  or 
prejudice  to  the  party  insuring.     And  where  a  man  is  so  circum- 
stanced with  respect  to  matters  exposed  to  certain  risks  and  dangers 
as  to  have  a  moral  certainty  of  advantage  or  benefit  but  for  those 
risks  and  dangers,  he  may  be  said  to  be  interested  in  the  safety  of  the 
thing.    To  be  interested  in  the  preservation  of  a  thing  is  to  be  so  cir- 
cumstanced in  respect  to  it  as  to  have  benefit  from  its    existence 
prejudice  from  its  destruction.    The  property  of  a  thing,  and  the  in- 
terest derivable  from  it,  may  be  different.    Of  the  first,  the  price  is 
generally  the  measure ;  but  by  interest  in  a  thing,  every  benefit  and 
advantage  arising  out  of  or  depending  on  such  thing  may  be  consid- 
ered as  being  comprehended." 

Justice  Lawrence's  statement,  however,  is  too  broad.  It  is  neces- 
sary that  the  benefit  expected,  or  detriment  that  is  feared,  shall  have 
a  legal  basis,  as  is  made  clear  in  the  opinion  of  Andrews,  J.,  in  Riggs 

«8  See  Civ.  Code.  §  2546. 

«»  2  Bos.  &  P.  N.  R.  2C9,  at  page  302. 

«o  1  Arnould,  Mar.  Ins.  (7th  Ed.)  §  254. 


I 


ill 


I 


II 


i 


108 


INSURABLE    INTEREST. 


(Ch.4 


r.t 


I 


▼.  Commercial  Mut.  Ins.  Co.,"  where  the  following  language  is 
used :  "It  would  seem,  therefore,  that  whenever  there  is  a  real  in- 
terest to  protect  and  a  person  is  so  situated  with  respect  to  the  sub- 
ject of  insurance  that  its  destruction  would  or  might  reasonably  be 
expected  to  impair  the  value  of  that  interest,  an  insurance  on  such 
interest  would  not  be  a  wager  within  the  statute,  whether  the  inter- 
est was  an  ownership  in,  or  a  right  to  the  possession  of,  the  prop- 
erty, or  simply  an  advantage  of  a  pecuniary  character  having  a  legal 
basis,  but  dependent  upon  the  continued  existence  of  the  subject.  It 
I  is  well  settled  that  a  mere  hope  or  expectation,  which  may  be  frus- 
\trated  by  the  happening  of  some  event,  is  not  an  insurable  inter- 
est." "  It  is  certain  that  a  mere  naked  expectation  of  benefit,  un- 
coupled with  any  present  legal  right,  will  not  support  a  contract  of 
insurance.  An  expectant  heir  cannot  insure ;  **  nor  can  a  general 
creditor  •*  insure  the  property  of  his  debtor,  even  though  destruction 
of  such  property  would  render  worthless  any  judgment  he  might 
obtain.  In  Pennsylvania  it  has  been  held  that  even  a  judgment  cred- 
itor, having  thereby  a  general  lien  on  the  property,  cannot  legally 
insure  it  until  his  lien  becomes  specific.*^  But  this  is  contrary  to  the 
weight  of  authority.**    In  case  the  debtor  is  dead,  and  without  sulR- 

■1  RIGGS  v.  COMMERCIAL  MUT.  INS.  CO.,  125  N.  Y.  7,  25  N.  E.  1058,  10 
L.  R.  A.  684,  21  Am.  St.  Rep.  716. 

82  "An  interest,  to  be  insurable,  does  not  depend  necessarily  upon  the 
ownership  of  the  property.  It  may  be  a  special  or  limited  interest,  discon- 
nected from  any  title,  lien,  or  possession.  If  the  holder  of  an  interest  in 
property  will  suffer  loss  by  its  destruction,  he  may  indemnify  himself  there- 
from by  a  contract  of  insurance.  If,  by  the  loss,  the  holder  of  the  interest 
is  deprived  of  the  possession,  enjoyment,  or  profit  of  the  property,  or  a  secur- 
ity or  lien  arising  thereon,  or  other  certain  benefits  growing  out  of  or  de- 
pending upon  it,  he  has  an  insurable  interest"  Post,  J.,  in  German  Ins.  Co. 
v.  Hyman,  34  Neb.  704,  52  N.  W.  401. 

•8  Baldwin  v.  Insurance  Co.,  60  Iowa,  497,  15  N.  W.  300.  And  see  the 
dictum  of  Lord  Eldon  in  Lucena  v.  Craufurd,  2  Bos.  &  P.  N.  R.  269,  at  page 
324.  It  has  been  held  that  an  heir  expectant.  In  possession  of  property,  had 
an  insurable  Interest  therein,  but  the  decision  is  of  doubtful  authority.  Home 
Ins.  Co.  V.  Mendenhall,  164  111.  458,  45  N.  E.  1078,  36  L.  R  A.  374.  It  seems 
that  the  heirs  of  a  decedent  have  an  insurable  interest  in  the  property  of 
the  estate.    Herkimer  v.  Rice,  27  N.  Y.  163. 

34  Foster  v.  Van  Reed,  5  Hun  (N.  Y.)  321 ;  Phillips,  Ins.  8  201 ;  1  Amould, 
Mar.  Ins.  (7th  Ed.)  §  310. 

88  Grevemeyer  v.  Insurance  Co.,  62  Pa.  340,  1  Am.  Rep.  420;  Light  v.  In- 
surance Co..  169  Pa.  310,  32  Atl.  439,  47  Am.  St  Rep.  904. 

8«  Spare  v.  Insurance  Co.,  15  Fed.  707.  And  see  ROHRBACH  v.  INSUR- 
ANCE CO.,  62  N.  Y.  47,  20  Am.  Rep.  451.  In  the  first  case  it  was  also  held 
that  the  creditor  could  not  recover  without  showing  that  the  judgment  debtor 
had  not  suflacient  property  left  out  of  which  the  judgment  could  be  satis- 
fied. The  statute  required  the  creditor  to  proceed  against  the  debtor's  per- 
sonalty first  But  it  was  clearly  incorrect  to  base  the  insured's  right  of  re- 
covery upon  the  insufficiency  of  the  remaining  realty  of  the  debtor  to  sat- 


§47) 


INSURABLE   INTEREST — WHAT   CONSTITUTES. 


109 


cient  personalty  to  pay  his  debts,  it  is  held  that  a  general  creditor 
may  insure  his  real  estate,  on  the  ground  that  the  right  of  such  cred- 
itor to  subject  the  realty  to  the  payment  of  his  debt  is  in  the  nature 
of  a  proceeding  in  rem,  since  all  personal  liability  ceased  with  the 
death  of  the  debtor,**^  and  no  personal  judgment  may  be  had  against 
his  personal  representative. 

The  nature  of  insurable  interest,  which  has  been  seen  to  be  so  diffi- 
cult of  precise  definition  or  adequate  description,  can  best  be  shown 
by  setting  forth  some  of  the  numerous  relations  to  property  which 
have  been  held  by  the  courts  to  afford  interest  sufficient  to  validate 
insurance  on  such  property;  and  these  will  best  serve  our  purpose 
as  illustrations  if  roughly  classified. 

Where  the  Insured  Has  Legal  Title, 

Any  legal  title  in  property,  of  whatever  character,  constitutes  an 
insurable  interest  therein.  The  interest  may  be  contingent  and  re- 
mote, but  is  yet  insurable.  Thus  a  contingent  remainderman  **  may 
protect  his  interest,  but  the  expectant  heir  cannot.  He  has  merely 
an  expectation,  but  no  estate  or  interest.  Likewise,  dower  inchoate, 
not  being  an  estate  in  land,  cannot  be  insured.^®  But  curtesy  ini- 
tiate *°  affords  sufficient  interest,  as  do  curtesy  and  dower  consum- 
mate, and  any  other  life  estate.*^  So  any  chattel  real  is  insurable, 
however  brief  the  term,*^  and  not  only  the  lessee,  but  the  sublessee,** 

isfy  the  debt.  He  insured,  not  his  debt,  but  his  Interest  in  the  property, 
and  his  ability  to  satisfy  his  claim  by  the  sale  of  other  realty  of  the  debtor 
should  not  have  released  the  iusurer.    See  notes  56,  57,  infra. 

37  CREED  V.  FIRE  OFFICE,  101  Ala.  522,  14  South.  323,  23  L.  R.  A.  1T7, 
46  Am.  St  Rep.  134;  ROHRBACH  v.  INSURANCE  CO.,  62  N.  Y.  47,  20  Am. 
Rep.  451;    Sheppard  v.  Insurance  Co.,  21  W.  Va.  368. 

8  8  See  the  dictum  of  Lord  Eldon  In  Lucena  v.  Craufurd,  supra. 

89  See  the  argument  of  Berkshire,  J.,  In  Traders'  Ins.  Co.  v.  Newman,  120 
Ind.  554,  22  N.  E.  428;  and  see  Flynn  v.  Flynn,  171  Mass.  312,  50  N.  E.  650, 
42  L.  R.  A.  98,  68  Am.  St  Rep.  427. 

*o  Franklin  Marine  &  Fire  Ins.  Co.  v.  Drake,  2  B.  Mon.  (Ky.)  47;  KYTB 
v.  ASSURANCE  CO.,  144  Mass.  43,  10  N.  E.  518.  A  husband,  being  entitled 
to  curtesy  in  the  equitable  estates  of  his  wife,  has,  after  the  birth  of  issue, 
an  insurable  Interest  in  such  property.    Harris  v.  Insurance  Co.,  50  Pa.  341. 

41  Hartford  Fire  Ins.  Co.  v.  Haas,  87  Ky.  531,  9  S.  W.  720,  2  L.  R.  A.  64; 
Home  Ins.  Co.  v.  Field,  42  111.  App.  392;  Redfield  v.  Insurance  Co.,  56  N. 
Y.  354,  15  Am.  Rep.  424.  See,  also,  Curry  v.  Insurance  Co.,  10  Pick.  (Mass.) 
535,  20  Am.  Dec.  547. 

42  Philadelphia  Tool  Co.  v.  British-American  Assur.  Co.,  132  Pa.  236,  19 
Atl.  77,  19  Am.  St.  Rep.  596;  Home  Ins.  Co.  of  New  York  v.  Gibson,  72  Miss. 
58,  17  South.  13;  Mitchell  v.  Insurance  Co.,  32  Iowa,  422.  If  the  lessee  has 
erected  buildings  upon  the  leased  land,  and  has  the  right  to  remove  them, 
he  has  an  insurable  interest  in  them  to  their  full  value,  although  they  would 
be  worth  only  one-fourth  as  much  if  removed.    LAURENT  v.  INSURANCE 

«•  Fowle  V.  Insurance  Co.,  122  Mass.  191,  23  Am.  Rep.  308;  May,  Ins.  |  84. 


'i 


)i 


Ml 


110 


INSURABLE   INTEREST. 


(Ch.4 


may  insure.  The  lessor  also  might  insure  the  same  property.**  The 
title  of  the  insured  may  be  defeasible  upon  condition  subsequent,** 
or  voidable,  or  even  void,  if  claimed  in  good  faith.**  And  in  the  ab- 
sence of  a  misrepresentation  as  to  title  or  ownership,  the  insurer 
may  not  question  such  bona  fide  claim  of  title. *^  So  it  was  held 
that  a  grantor,  after  the  delivery  of  a  deed  in  escrow,  had  an  insur- 
able interest  in  the  property  conveyed  until  the  conditions  were  per- 
formed.*® 

Even  when  the  owner  has  parted  with  the  beneficial  title,  and  re- 

•   tains  only  a  legal  title  as  trustee,  he  may  insure;    as  in  the  case  of 

the  seller  of  property  not  yet  conveyed,**  or  of  a  mortgagor.*^®    So 


00.,  1  Hall  (N.  Y.)  45.  So,  where  the  lessee  has  agreed  to  redeliver  the 
property  in  good  condition,  this  liability  gives  him  an  insurable  interest  in 
it  to  its  full  value.  Imperial  Fire  Ins.  Co.  v.  Murray,  73  Pa.  13.  A  tenant 
at  will,  being  entitled  under  statute  to  30  days'  notice  before  he  can  be  dis- 
possessed, has  an  insurable  interest  in  the  premises.  Schaefifer  v.  Insurance 
Co.,  113  Iowa,  652,  85  N.  W.  985.  A  tenant  at  sufferance  has  no  insurable 
interest  in  the  property  so  held.  Birmingham  v.  Insurance  Co.,  42  Barb.  (N. 
Y.)  457. 

4*  Lycoming  Fire  Ins.  Co.  v.  Haven,  95  U.  S.  242,  24  L.  Ed.  473;  Columbia 
Ins.  Co.  v.  Cooper,  50  Pa.  331. 

48  McCutcheon  v.  Ingraham,  32  W.  Va.  378,  9  S.  E.  260;  Biddeford  Sav. 
Bank  v.  Dwelling-House  Ins.  Co.,  81  Me.  566,  18  Atl.  298. 

4«  The  insured,  being  in  possession  of  property  under  a  reasonable  and 
honest  belief  that  he  is  the  owner,  is  not  deprived  of  his  insurable  interest 
by  the  fact  that  his  title  is  in  dispute.  Monroe  County  Mut.  Ins.  Co.  v.  Rob- 
inson, 5  Wkly.  Notes  Cas.  389.  Possession  under  an  unauthorized  convey- 
ance from  an  executor  constitutes  an  insurable  interest.  Home  Ins.  Co.  v. 
Oilman,  112  Ind.  7,  13  N.  E.  118.  It  is  immaterial,  as  between  the  insured 
and  the  insurer,  that  the  former  bought  the  insured  property  at  a  judicial 
sale  fraudulently  brought  about  by  him.  Frierson  v.  Brenham,  5  La.  Ann. 
540,  52  Am.  Dec.  603.  It  Is  of  no  consequence  to  the  Insurer  that  the  in- 
sured's deed  Is  Improperly  acknowledged.  Sanford  v.  Insurance  Co.,  174 
Mass.  416,  54  N.  E.  883,  75  Am.  St  Rep.  358.  The  grantee  in  a  fraudulent 
conveyance  has  an  insurable  interest  in  the  property  conveyed.  Phoenix 
Ins.  Co.  V.  Mitchell,  67  111.  43;  Home  Ins.  Co.  v.  Allen,  93  Ky.  270,  19  S.  W. 
743.  Possession  under  claim  of  ownership  is  prima  facie  evidence  of  title 
and  of  an  insurable  interest.  Franklin  Fire  Ins.  Co.  v.  Chicago  Ice  Co.,  36 
Md.  102,  11  Am.  Rep.  469;  Kansas  Ins.  Co.  v.  Berry,  8  Kan.  159.  See,  fur- 
ther, Helvetia  Swiss  Fire  Ins.  Co.  v.  Allis  Co.,  11  Colo.  App.  264,  53  Pac. 
242;  City  of  New  York  v.  Brooklyn  Fire  Ins.  Co.,  41  Barb.  (N.  Y.)  231;  David 
T.  Insurance  Co.,  83  N.  Y.  265,  38  Am.  Rep.  418. 

4T  Home  Ins.  Co.  v.  Gihnan,  112  Ind.  7,  13  N.  B.  118. 

48  Merchants'  Ins.  Co.  v.  Nowlin  (Tex.  Civ.  App.)  66  S.  W.  198. 

4»  Boston  &  S.  Ice  Co.  v.  Royal  Ins.  Co.,  12  Allen  (Mass.)  381,  90  Am.  Dec. 
151;  Hill  V.  Insurance  Co.,  59  Pa.  474;  Wheeling  Ins.  Co.  v.  Morrison,  11 
Leigh  (Va.)  354,  36  Am.  Dec.  385.  A  conditional  contract  of  sale  does  not 
divest  the  vendor  of  his  Insurable  interest  Wood  v.  Insurance  Co.,  46  N. 
Y.  421.    A  vendor  of  goods,  who  holds  them  to  secure  the  payment  of  the 

60^  See  note  50  on  following  page. 


§47) 


INSURABLE  INTEREST — WHAT  CONSTITUTES. 


Ill 


an  assignee  for  the  benefit  of  creditors  may  insure  the  assigned  prop- 
erty,'^^  or  an  executor  the  property  devised  to  him  for  trust  pur- 
poses designated  in  the  will.'*  Even  a  naked  trustee  may  procure 
in  his  own  name  insurance  on  the  trust  property. •**  Of  course,  how- 
ever, he  would  take  the  proceeds  of  such  insurance  impressed  with 
the  conditions  of  the  original  trust. 

The  mere  fact  that  the  owner  of  property  may  possess  other  means 
of  protecting  himself  against  the  loss  covered  by  the  insurance  does 
not  deprive  him  of  his  insurable  interest  in  such  property.  Thus  a 
manufacturer  of  tobacco  has  an  insurable  interest  in  uncanceled 
revenue  stamps,  although  by  statute  he  is  entitled  to  be  reimbursed 
for  such  stamps  as  may  have  been  destroyed  or  become  useless.** 
So  the  owner  of  land  upon  which  buildings  are  in  course  of  construc- 
tion has  an  insurable  interest  in  them  even  though  he  is  under  no 
obligation  to  pay  the  contractor,  who  has  furnished  all  material  and 
labor  used,  until  the  completion  of  the  structures.''*  Neither  will  the 
right  of  the  insurer  to  resort  to  the  contract  liability  of  a  third  per- 
son in  order  to  make  good  his  loss  in  any  wise  affect  his  insurable 
interest ;  as  where  the  vendor  may  enforce  full  payment  of  purchase 


V! 


,i: 


$ 


r 


purchase  money,  retains  an  insurable  Interest.  Norcross  v.  Ins.  Cos.,  17  Pa. 
429,  55  Am.  Dec.  571.  See,  further,  Clinton  v.  Insurance  Co.,  45  N.  Y.  454; 
^tna  Ins.  Co.  v.  Jackson,  16  B.  Mon.  (Ky.)  242. 

50  Carpenter  v.  Insurance  Co.,  16  Pet  (U.  S.)  495,  10  L.  Bd.  1044;  Mc- 
Donald V.  Black's  Adm'r,  20  Ohio,  185,  55  Am.  Dec.  448;  Lycoming  Fire  Ins. 
Co.  V.  Jackson,  83  111.  302,  25  Am.  Rep.  386;  Guest  v.  Insurance  Co.,  66  Mich. 
98,  33  N.  W.  31;  Jackson  v.  Insurance  Co.,  23  Pick.  (Mass.)  418,  34  Am. 
Dec.  69;  Washington  Fire  Ins.  Co.  v.  Kelly,  32  Md.  421,  3  Am.  Rep.  149. 
Mortgagors  and  pledgors  of  chattels  have  an  insurable  Interest  in  them. 
Manson  v.  Insurance  Co.,  64  Wis.  26,  24  N.  W.  407,  54  Am.  Rep.  573;  Nuss- 
baum  r.  Insurance  Co.  (0.  C.)  37  Fed.  524,  1  L.  R.  A.  704;  Kronk  v.  Insur- 
ance Co.,  91  Pa.  300;  Jones,  Chat.  Mortg.  §  100.  The  mortgagor  has  an  in- 
surable Interest  equal  to  the  value  of  the  mortgaged  property:  Carpenter 
V.  Insurance  Co.,  supra;  Jones,  Mortg.  §  397.  "The  owner  of  an  equity  of 
redemption  has  an  Insurable  interest  equal  to  the  value  of  the  insurable 
property  embraced  therein,  whether  he  is  personally  liable  for  the  mort- 
gage debt  or  not."  Mr.  Justice  Bradley,  in  ROYAL  INS.  CO.  v.  STINSON, 
103  U.  S.  25,  26  L.  Ed.  473. 

81  Even  though  he  has  not  filed  his  bond  (Sibley  v.  Insurance  Co.,  57  Mich. 
14,  23  N.  W.  473),  and  though  the  deed  of  assignment  has  not  been  approved 
by  the  creditors  (Phcenix  Ins.  Co.  v.  Adams'  Trustee,  8  Ky.  Law  Rep.  532). 

B2  Savage  v.  Insurance  Co.,  52  N.  Y.  502,  11  Am.  Rep.  741. 

»»  Howard  Fire  Ins.  Co.  v.  Chase,  5  Wall.  (U.  S.)  509,  18  L.  Ed.  524; 
Young  V.  Insurance  Oo.  (D.  a)  24  Fed.  279;  Dick  v.  Instance  Co.,  81  Mo. 
103. 

8*  United  States  r.  American  Tobacco  Co.,  166  U.  S.  468,  17  Sup.  Ct.  619 
41  L.  Ed.  1081. 

88  FOLEY  v.  INSURANCE  CO.,  152  N.  Y.  131,  46  N.  B.  318,  43  L.  R.  A, 
664;    Santa  Clara  Female  Academy  v.  Northwestern  Nat  Ins.  Co.,  98  Wis 
257,  73  N.  W.  767,  67  Am.  St  Rep.  805. 


112 


INSURABLE    INTEREST. 


(Ch.4 


§47) 


INSURABLE   INTEREST — WHAT  CONSTITUTES. 


113 


price  under  an  executory  contract  of  sale,  despite  destruction  of 
buildings  before  conveyance/®  or  where  an  insured  mortgagee's  se- 
curity is  ample  despite  the  loss  of  the  insured  property.*' 

When  Insured  Has  an  Equitable  Title, 

It  is  well  settled  that  possession  of  an  equitable  title,  however  ob- 
tained, gives  an  insurable  interest  in  the  property  in  which  such  title 
inheres.**®  Thus  a  vendee  before  conveyance, '^^  a  mortgagee,*®  a  mort- 
gagoi  after  foreclosure  and  before  the  expiration  of  the  period  within 

56  KAYNER  V.  PRESTON,  18  Ch.  Div.  1.  See,  also,  FOLEY  y.  INSUR- 
ANCE CO.,  supra. 

67  Stetson  V.  Insurance  Co.,  4  Mass.  330,  3  Am.  Dec.  217.  And  see  Wheel- 
ing Ins.  Co.  V.  Morrison,  11  Leigh  (Va.)  367,  36  Am.  Dec.  385;  EXCELSIOR 
FIRE  INS.  CO.  V.  ROYAL  INS.  CO.,  55  N.  Y.  343,  14  Am.  Rep.  271. 

88  Oilman  v.  Insurance  Co.,  81  Me.  488,  17  Atl.  544;  STRONG  v.  INSUR- 
ANCE CO.,  10  Pick.  (Mass.)  40,  20  Am.  Dec.  507;  Redfield  v.  Insurance  Co., 
56  N.  Y.  354,  15  Am.  Rep.  424. 

B»  FRANKLIN  FIRE  INS.  CO.  v.  MARTIN,  40  N.  J.  Law,  568,  29  Am. 
Rep.  271;  Hough  v.  Insurance  Co.,  29  Conn.  10,  76  Am.  Dec.  581;  ^TNA 
FIRE  INS.  CO.  V.  TYLER,  16  Wend.  (N.  Y.)  385,  30  Am.  Dec.  90;  Carpenter 
v.  Insurance  Co.,  135  N.  Y.  298,  31  N.  E.  1015;  IMPERIAL  FIRE  INS.  CO. 
r.  DUNHAM,  117  Pa.  460,  12  Atl.  668,  2  Am.  St.  Rep.  686.  Even  though 
the  agreement  is  by  parol  and  unenforceable  under  the  statute  of  frauds, 
yet,  if  it  is  saved  in  equity  by  the  doctrine  of  part  performance,  it  consti- 
tutes an  insurable  interest.  Redfield  v.  Insurance  Co.,  56  N.  Y.  354,  15  Am. 
Rep.  424. 

•0  KING  T.  INSURANCE  CO.,  7  Cush.  (Mass.)  54  Am.  Dec.  683;  Foster  v. 
Van  Reed,  70  N.  Y.  19,  26  Am.  Rep.  544.  Successive  mortgagees  may  each 
insure.  Fox  v.  Insurance  Co.,  52  Me.  333.  The  insurance  by  a  mortgagee 
is  not  an  insurance  of  the  mortgage  debt,  as  was  said  by  Mr.  Justice  Story 
in  Carpenter  v.  Insurance  Co.,  16  Pet.  (U.  S.)  495,  501,  10  L.  Ed.  1044;  nor  is 
it  an  insurance  of  the  capacity  of  the  insured  property  to  pay  the  debt 
which  was  the  view  taken  by  Gibson,  J.,  in  Smith  v.  Insurance  Co.,  17  Pa. 
253,  55  Am.  Dec.  546.  Against  these  dicta  is  the  decision  of  Folger,  J.,  in 
EXCELSIOR  FIRE  INS.  CO.  v.  ROYAL  INS.  CO.,  55  N.  Y.  343,  14  Am.  Rep. 
271.  After  reviewing  the  cases,  Mr.  Justice  Folger  says:  **To  say  that  it  is 
the  debt  which  is  insured  against  loss  is  to  give  to  most,  if  not  all,  fire  in- 
surance companies  a  power  to  do  a  kind  of  business  which  the  law  and  their 
charter  do  not  confer.  They  are  privileged  to  insure  property  against  loss  or 
damage  by  fire.  They  are  not  privileged  to  guaranty  the  collection  of  debts. 
If  they  are,  they  may  insure  against  the  solvency  of  the  debtor.  No  one 
will  contend  this,  and  it  will  be  said  it  is  not  by  a  guaranty  of  the  debt, 
but  an  indemnity  is  given  against  the  loss  of  the  debt  by  an  insurance  against 
the  perils  to  the  property  by  fire.  This  is  but  coming  to  our  position:  that 
it  is  the  property  which  is  insured  against  the  loss  by  fire,  and  the  protec- 
tion to  the  debt  is  the  sequence  thereof.  As  the  property  it  is  which  is  in- 
sured against  loss,  it  is  the  loss  which  occurs  to  it  which  the  insurer  con- 
tracts to  pay,  and  for  such  loss  he  is  to  pay  within  the  limit  of  his  liability, 
irrespective  of  the  value  of  the  property  undestroyed."  See,  also,  Jones, 
Morts.  I  41A. 


which  redemption  is  allowed,"  the  beneficiary  under  a  deed  of  trust," 
the  creditors  under  a  deed  of  assignment,^^  and  even  the  vendee  of 
goods  when  title  is  to  remain  in  the  vendor  until  delivery,^*  have  all  an 
interest  that  may  be  validly  protected  by  insurance.  So  in  Columbian 
Ins.  Co.  V.  Lawrence  ««  it  was  held,  in  an  opinion  by  Chief  Justice 
Marshall,  that  an  interest  taken  under  a  voidable  executory  contract 
of  sale  was  insurable.  One  in  possession  of  land  with  bond  for  title 
unquestionably  has  an  insurable  interest  in  the  buildings  on  the  land.«« 
When  the  Insured  Possesses  a  Qualified  Property. 

A  person  having  a  qualified  property  in  chattels,  entitling  him  to 
possession  and  the  right  of  using  or  dealing  with  them  in  accordance 
with  the  terms  of  the  bailment,  has  such  an  interest  in  the  chattels  as 
may  be  the  subject  of  a  valid  contract  of  insurance.  Such  bailee  may 
insure  merely  his  interest  in  the  chattel,  to  protect  himself  against  loss 
of  the  benefits  to  which  he  is  entitled,«^  or  he  may,  and  does  more  fre- 
quently, insure  himself  against  the  liability  which  he  may  incur  upon 
the  destruction  of  the  chattels."'  In  case  of  loss,  the  bailee,  who  has 
insured  in  his  own  name,  may  recover  the  full  value  of  the  property, 

•1  Mechler  v.  Insurance  Co.,  38  Wis.  665;    STRONG  v.  INSURANCE  CO 
10  Pick.  (Mass.)  40,  20  Am.  Dec.  507.     But  after  the  time  allowed  for  re^ 
demption   has  elapsed,  the   mortgagor's  interest  ceases,   notwithstanding   a 
promise,  without  consideration,  to  extend  such  time.     Essex  Sav    Bank  v 
Meriden  Fire  Ins.  Co.,  57  Conn.  335,  17  Atl.  930,  4  L.  R.  A   759 

62  HILL  V.  SECRETAN,  1  Bos.  &  P.  315;  Gordon  v.  Insurance  Co.  2 
Kck  (Mass.)  249;  Harvey  v.  Cherry,  76  N.  Y.  436;  Tilley  v.  Insurance  Co., 
86  Va.  811,  11  S.  Ei.  120. 

«8  See  Columbian  Ins.  Co.  v.  Lawrence,  2  Pet.  (U.  S.)  25,  7  L.  Ed  335 
•*  Bohn  Mfg.  Co.  v.  Sawyer,  169  Mass.  477,  48  N.  E.  620 

Me'lsS^  n  Atl  ^'^  ^^'  "^  ^'  ^^'  ^^'    ^^^'  ^^^'''  ^'^'°^''  ""•  ^^^"^^ce  ^^  81 
66  ciapp  V.  Insurance  Ass'n,  126  N.  O.  388,  35  S.  B.  617.     So  an  assignee 
of  a  title  bond  has  an  insurable  interest  In  the  property.    Ayres  v.  Insurance 
Co.,  17  Iowa,  176,  85  Am.  Dec.  553. 

•7  "A  distinction  is  to  be  kept  in  mind  between  the  agent's  insurable  inter- 
est and  his  authority  to  insure  for  his  consignor  or  other  principal."     1  Phill 
Ins.  §  309.    A  commission  merchant  to  whom  goods  are  consigned  has  an  in- 
surable interest  in  them  to  the  extent  of  the  commissions  he  would  receive 
on  the  sales.     PUTNAM   v.   INSURANCE  CO.,   5   Mete.    (Mass.)   386.     So 
where  a  general  agent  has  a  lien  on  a  cargo  for  advancements,  this  gives  him 
an  Insurable  interest  therein.    Wolff  v.  Homcastle,  1  Bos.  &  P   316     See 
also,  Russel  v.  Insurance  Co.,  1  Wash.  C.  0.  409,  Fed.  Cas.  No   12  146* 

«•  Crowley  v.  Cohen,  8  Bam.  &  Adol.  478.  A  common  carrier  which  has 
insured  goods  for  which  it  is  liable  may  recover  on  the  policy,  notwithstand- 
ing  other  carriers  are  bound  by  contract  to  indemnify  it  Commonwealth 
V.  Hide  &  Leather  Ins.  Co.,  112  Mass.  136,  17  Am.  Rep.  72.  See  also 
PHCENIX  INS.  CO.  V.  ERIE  &  W.  TRANSP.  CO.,  117  U.  S.  312,  6  Sup  Ct' 
750,  29  L.  Ed.  873;  Pelzer  Mfg.  Co.  v.  Sun  Fire  Office,  36  S.  C  213  15  a  n* 
662;  SHAW  v.  INSURANCE  CO.,  49  Mo.  578,  8  Am.  Rep.  150.* 
Vance  Ins. — 8 


■» 

In 


'    ♦! 


114 


INSURABLE    INTEREST. 


(Ch.4 


holding  the  excess  above  his  interest  in  trust  for  the  owners.* •  Thus 
where  the  plaintiffs  had  taken  in  their  own  names  insurance  on  cer- 
tain specified  articles  constituting  the  stock  of  their  pork-packing 
house,  the  larger  part  of  which  stock  belonged  to  other  persons  as  bail- 
ors, it  was  held  that  the  plaintiffs  might  recover  the  whole  amount  of 
loss,  in  their  own  right  for  their  property  destroyed,  and  as  trustees 
of  that  belonging  to  others,  whether  the  policies  read  "for  the  benefit 
of  whom  it  may  concern"  or  not.^®  So  in  California  Ins.  Co.  v.  Un- 
ion Compress  Co.,^^  a  cotton  compress  company  had  procured  insur-  . 
ance  upon  cotton  situated  in  specified  places,  and  held  by  it  "in  trust 
or  on  commission."  The  receipts  of  the  compress  company  to  de- 
positors stipulated  that  it  should  not  be  responsible  for  loss  by  fire. 
These  receipts  were  exchanged  for  railway  bills  of  lading,  which  also 
exempted  the  railway  companies  from  liability  for  loss  by  fire.  Cot- 
ton embraced  under  the  terms  of  the  policy  was  burned  through  the 
negligence  of  the  railway  companies.  Under  these  facts  the  Supreme 
Court  of  the  United  States  held  that  it  was  competent  for  the  insured 
compress  company  to  show  that  the  insurance  was  taken  out  for  the 
benefit  of  the  railway  companies,  and  that  "it  was  lawful  for  the  plain- 
tiff to  insure  in  its  own  name  goods  held  in  trust  by  it,  and  it  can  re- 
cover for  their  entire  value,  holding  the  excess  over  its  own  interest 
in  them  for  the  benefit  of  those  who  have  intrusted  the  goods  to  it," 
in  this  case  the  railway  companies.''* 

It  was  also  held  that  the  railway  companies  would  be  liable  to  the 
owners  of  the  cotton  for  the  loss  due  to  their  negligence,  despite  the 
stipulations  for  exemption  in  the  bills  of  lading,  and  therefore  had 
such  an  insurable  interest  in  the  cotton  as  would  enable  them  to  claim 
the  benefit  of  the  insurance  taken  out  in  their  behalf ;  and,  further,  the 
court  reaffirmed  the  doctrine  laid  down  in  Phoenix  Ins.  Co.  v.  Erie  & 
W.  Transp.  Co.,"  that  "no  rule  of  law  or  public  policy  is  violated  by 
allowing  a  common  carrier,  like  any  other  person  having  either  the 

••  WATERS  V.  ASSURANCE  CO.,  5  El.  &  Bl.  870;  Waring  v.  Insurance 
Co.,  45  N.  Y.  606,  6  Am.  Rep.  146;  Home  Ins.  Co.  v.  Baltimore  Warehouse 
Co.,  93  U.  S.  527,  23  L.  Bd.  868;  Murdock  v.  Insurance  Co.,  33  W.  Va.  407, 
10  S.  E.  777,  7  L.  R.  A.  572.  Where  insurance  is  effected  by  a  bailee  or 
agent  upon  his  own  authority,  he  may  abandon  or  cancel  it  before  his  prin- 
cipal has  in  any  manner  ratified  it    Still  well  v.  Staples,  19  N.  Y.  401. 

TO  MtnR  Ins.  Co.  v.  Jackson,  16  B.  Mon.  (Ky.)  242. 

Ti  133  U.  S.  387,  10  Sup.  Ct  365,  33  L.  Ed.  730.  See,  also,  Roberts  ▼.  In- 
surance Co.,  165  Pa.  55,  30  Ati.  450,  44  Am.  St.  Rep.  642. 

7  a  See,  also,  Roberts  v.  Insurance  Co.,  165  Pa.  56,  30  Atl.  450,  44  Am.  St 

Rep.  642. 

T»  PHCENIX  INS.  CO.  V.  ERIE  &  W.  TRANSP.  CO.,  117  U.  S.  312,  6  Sup. 
Ct  750,  29  L.  Ed.  873.  Approved  also  in  Orient  Ins.  Co.  v.  Adams,  123  U.  S. 
67,  8  Sup.  Ct.  68,  31  L.  Bd.  63;  Liverpool  &  G.  W.  Steam  Co.  v.  Phoenix  Ins. 
Co.,  129  U.  S.  438,  9  Sup.  Ct  469,  32  Li.  Ed.  788. 


§47) 


INSURABLE   INTEREST — WHAT   CONSTITUTES. 


115 


general  property  or  a  peculiar  interest  in  the  goods,  to  have  them  in- 
sured against  the  usual  perils,  and  to  recover  for  any  loss  from  such 
penis,  though  occasioned  by  the  negligence  of  his  own  servants." 

The  same  rules  as  to  possession  of  insurable  interest  and  the  meas- 
ure of  recovery  in  case  of  loss  applies  to  all  other  classes  of  bailees, 
such  as  innkeepers,  warehousemen,^*  commission  merchants  or  fac- 
tors," and  hirers  of  chattels,*^®  as  well  as  to  receivers."  In  case  a 
receiver  improperly  applies  funds  in  his  hands  to  the  payment  of  pre- 
mmms  on  insurances  effected  on  property  intrusted  to  him,  the  in- 
surer may  not  set  up  such  fact  in  defense  as  making  the  insurance 
void.  Such  transgression  by  the  receiver  is  a  matter  between  him  and 
the  appointing  court  with  which  the  insurer  has  no  concern.^* 
Insurable  Interest  in  Liens. 

Any  person  having  a  specific  Hen  upon  property  has  an  insurable  in- 
terest in  such  property  to  the  extent  of  his  lien.^»  Thus  an  agent  may 
msure  goods  of  his  principal  to  protect  his  lien  for  commissions, «»  or 
the  carrier  the  goods  of  the  shipper  to  protect  his  lien  for  freight.*^ 
So  the  judgment  creditor  may  insure  goods  seized  under  execution," 

T4  WATERS  V.  ASSURANCE  CO.,  5  Bl.  &  Bl.  870;  Home  Ins.  Co.  v.  Bal- 
timore  Warehouse  Co.,  93  U.  S.  527,  23  L.  Ed.  868;  Fire  Ins.  Ass'n  v.  Mer- 
chants' &  Miners'  Transp.  Co.,  66  Md.  339,  7  Atl.  905,  59  Am.  Rep.  162  The 
language  used  in  describing  the  property  covered  Is  important  Thus  in 
Lockhart  v.  Cooper,  87  N.  O.  149,  42  Am.  Rep.  514,  the  phrases  used  were 
owned,  or  "held  in  trust  or  on  commission,"  or  "sold  and  not  delivered  " 
and  it  was  held  that  the  policy  did  not  cover  goods  which  had  been  sold, 
and  of  which  a  technical  delivery  had  been  made,  though  not  removed  from 
the  warehouse.  But  in  Waring  v.  Insurance  Co.,  45  N.  Y.  606,  6  Am  Rep 
146,  the  phrase  "sold  but  not  removed"  was  employed,  and  it  was  held  that 
the  policy  covered  goods  sold,  and  to  which  the  legal  title  had  passed,  but 
which  had  been  left  in  the  warehouse. 

"Phoenix  Ins.  Co.  v.  Hamilton,  14  Wall.  (U.  S.)  504,  20  L.  Ed.  729-    De 
Forest  v.  Insurance  Co.,  1  Hall  (N.  Y.)  84;  Siter  v.  Morrs,  13  Pa  218 

T«  Where  the  hirer  covenants  to  pay  the  value  in  case  of  loss,  this*  Uabilitv 
gives  him  an  insurable  interest.  Oliver  v.  Greene,  3  Mass.  133  3  Am  Dec 
96.  So  a  charterer  who  has  agreed  to  insure  may  insure  the  vessel.  Bartlet 
V  Walter,  13  Mass.  267,  7  Am.  Dec.  143.  And  the  charterer  may  insure  for 
the  owners.  Murdock  v.  Insurance  Co.,  33  W.  Va.  407,  10  S.  B.  777,  7  L.  R. 
A.  o72. 

7T  Thompson  v  Insurance  Co.,  136  U.  S.  287.  10  Sup.  Ct  1019,  34  L.  Ed 
408;   In  re  Hamilton  (D.  C.)  102  Fed.  683.  ^  ^  ^  r^a. 

78  Thompson  v.  Insurance  Co.,  supra. 

T»  Sun  Mut.  Ins.  Co.  v.  Tufts,  20  Tex.  Civ.  App.  147,  50  S.  W.  180.  The 
holder  of  a  lien  on  a  homestead,  voidable  under  the  statute,  has  an  insurable 
interest.    Parks  v.  Insurance  Co.,  100  Mo.  373,  12  S.  W   1058 

«o  See  SHAW  v.  INSURANCE  00.,  49  Mo.  578,  8  Am.  Rep    150 

N  'y^655^°''^^  ^'  ^''^"'^''''®  ^''•'  ^^  ^^'  3^'    Sa^a«®  V-  Insurance  Co.,  86 
««  Hancox  v.  Insurance  Co..  8  Sum^.  132,  Fed.  Cas.  No.  6,018.    And  see 


1 


il 


i 


.'I 


116 


INSURABLE    INTEREST. 


(Ch.4 


§47) 


INSURABLE   INTEREST — WHAT  CONSTITUTES. 


117 


I 


and  the  mechanic  or  material  man  the  building  upon  which  he  holds 
a  statutory  lien.®'  It  has  even  been  held  that  a  mechanic,  who  has  an 
inchoate  lien  which  binds  a  mere  equity  of  redemption  in  the  buildings 
erected,  may  insure  such  buildings.®*  So  the  holder  of  a  mere  equita- 
ble lien  on  a  vessel  may  insure  her.*'  In  like  manner  one  who  sailed 
a  vessel  for  commissions  to  be  received,  with  authority  to  hold  her  as 
security  for  his  claims,  was  held  to  have  an  insurable  interest  in  her.®' 
In  Mutual  Fire  Ins.  Co.  v.  Ward  '^  a  landlord  procured  insurance  upon 
the  furniture  of  his  tenant  while  situated  on  the  leased  premises.  It 
was  held  that  the  right  to  levy  distress  upon  the  furniture  for  the  rent 
that  was  due  and  unpaid  constituted  a  sufficient  insurable  interest 

Mere  Right  of  Possession  in  Insured. 

A  person  having  the  mere  right  of  possession  of  property  may  in- 
sure it  to  its  full  value  and  in  his  own  name,  even  when  he  is  not  re- 
sponsible for  its  safe-keeping.®*  Thus  a  bailee  may  recover  under  a 
policy  insuring  goods  gratuitously  kept  in  store  for  another.  Of 
course,  the  proceeds  of  such  insurance  are  held  in  trust  for  the  owner  of 
the  goods ;  and  the  recovery  is  on  the  ground  that  the  policy  is  procured 
on  behalf  of  an  undisclosed  principal,  especially  when  it  is  taken  out 
*'for  the  benefit  of  whom  it  may  concern."  ®»  So  a  sheriff  having  in  his 
custody  goods  seized  under  execution  may  validly  secure  insurance 
upon  them.'* 

When  Insured  Has  no  Title  or  Interest  in  the  Property. 

As  has  been  stated  heretofore,  a  person  may  possess  no  title  or  legal 
interest  in  property,  and  yet  be  so  circumstanced  with  respect  to  it  that 
he  will  be  directly  damnified  by  its  destruction.  But  the  damnifica- 
tion must  have  a  legal  basis ;  the  loss  must  be  of  a  legal  right  The 
shattering  of  expectations,  however  bright,  or  the  disappointing  of 
hopes  however  strong,  does  not  constitute  such  a  loss  as  may  be  in- 
demnified by  insurance.    Thus  a  general  creditor,  as  has  been  before 

Donoell  v.  Donnell,  86  Me.  518,  30  Atl.  67;  International  Trust  Co.  v.  Board- 
man,  149  Mass.  158,  21  N.  E.  239. 

88  stout  V.  Insurance  Co.,  12  Iowa,  371,  79  Am.  Dec.  539;  Protection  Ins. 
Co.  V.  Hall,  15  B.  Mon.  (Ky.)  411.    See  Harvey  v.  Cherry,  76  N.  Y.  436. 

84  ROYAL  INS.  CO.  V.  STINSON,  103  U.  S.  25,  26  L.  Ed.  473. 

8  6  Bowring  v.  Insurance  Co.  (D.  C.)  46  Fed.  119. 

8«  The  Gulnare  (C.  C.)  42  Fed.  861. 

«T  95  Va.  231,  28  S.  E.  209.    See,  also,  Columbia  Ins.  Co.  v.  Cooper,  50  Pa, 

331. 

88  Fire  Ina.  Ass'n  v.  Merchants*  &  Miners*  Transp.  Co.,  66  Md.  339,  7  Atl. 
905,  59  Am.  Rep.  162;  PHCENIX  INS.  CO.  v.  ERIE  &  W.  TRANSP.  CO.,  117 
U.  S.  312,  6  Sup.  Ct  750,  29  L.  Bd.  873. 

8»  Hooper  v.  Robinson,  98  U.  S.  528,  25  L.  Ed.  219;  Snow  v.  Carr,  61  Ala. 
363,  32  Am.  Rep.  3. 

•0  White  T.  Madison,  26  N.  Y.  117;  Smith  v.  Huddleston,  103  Ala.  223,  15 
South.  521. 


shown,  cannot  insure  the  property  of  his  debtor  by  means  of  which  he 
hopes  to  receive  payment  of  his  claim.  Nor  could  one  named  as  devi- 
see in  a  will  insure  the  property  designated  before  the  testator's  death, 
however  reasonable  his  expectation  of  benefit  to  be  derived  from  the 
continued  existence  of  the  property.  His  expectation  has  no  legal 
basis,  since  a  will  has  no  legal  eflfect  before  the  death  of  the  testator. 
But  when  the  expectation  of  benefit  or  advantage  is  founded  upon  a 
legal  right,  an  insurable  interest  exists,  even  though  the  probability 
of  injury  to  the  insurer  by  the  happening  of  the  peril  insured  against 
is  very  remote.  Thus  stockholders  of  a  corporation  have  an  insurable 
interest  in  the  property  of  the  corporation;*^  for  though  they  have 
no  title  whatever  to  such  property,  they  have  a  right  to  share  in  the 
profits  of  the  corporation,  and  this  right,  in  a  proper  case,  will  be  pro- 
tected by  a  court  of  equity.  Likewise  it  has  been  held  that  where  a 
mortgagor  had  sold  the  mortgaged  premises  to  a  vendee  who  assumed 
the  payment  of  the  mortgage  debt,  and  had  thus  parted  with  all  his 
interest  in  the  property,  the  mortgagor  yet  had  an  insurable  interest 
in  the  property  because  of  his  personal  liability  for  the  debt  and  his 
right  to  be  subrogated  to  the  mortgage  security  in  case  he  should  be 
compelled  to  make  payment.**  Likewise  where  certain  mortgagees,  aft- 
er they  had  indorsed  notes  and  assigned  the  mortgage  that  secured 
them,  procured  insurance  on  the  mortgaged  property,  payable  to  the 
assignee,  it  was  held  that  the  mortgagees  had  an  interest,  since  in  case 
they  were  held  on  their  indorsement  they  would  be  entitled  to  a  reas- 
signment of  the  mortgage.** 

It  is  generally  held  that  the  husband  has  no  insurable  interest  in  the 
separate  property  of  his  wife  when  the  statutes  deny  him  the  right  of 
possession,  or  the  enjoyment  of  rents  and  profits,  even  though  he  may 
be  in  actual  possession.**     This  is  equally  true  where  the  wife  is  not 

•1  WARREN  V.  INSURANCE  CO.,  31  Iowa,  464,  7  Am.  Rep.  160;  RIGGS 
V.  INSURANCE  CO.,  125  N.  Y.  7,  25  N.  E.  1058,  10  L.  R.  A.  684,  21  Am.  St 
Rep.  716;  Seamen  v.  Insurance  Co.  (C.  C.)  18  Fed.  250.  And  see  Wilson  v. 
Jones,  2  Exch.  139;  Glover  v.  Wells,  40  111.  App.  350.  There  is  a  dictum  to 
the  contrary  in  Philips  v.  Insurance  Co.,  20  Ohio,  174. 

»2  Hanover  Fire  Ins.  Co.  v.  Bohn,  48  Neb.  743,  67  N.  W.  774,  58  Am.  St. 
Rep.  719;  Waring  v.  Loder,  53  N.  Y.  581. 

»3  WILLIAMS  V.  INSURANCE  CO.,  107  Mass.  377,  9  Am.  Rep.  41. 

»*  AGRICULTURAL  INS.  CO.  v.  MONTAGUE,  38  Mich.  548,  31  Am.  Rep. 
326;  Clark  v.  Insurance  Co.,  81  Me.  373,  17  Atl.  303;  Trott  v.  Insurance  Co.. 
83  Me.  362,  22  Atl.  245;  Traders'  Ins.  Co.  v.  Newman,  120  Ind.  554,  22  N.  E. 
428.  But  a  husband  in  the  possession  and  enjoyment  of  the  realty  of  his 
wife,  with  an  inchoate  right  of  curtesy,  has  an  insurable  interest  therein. 
TRADE  INS.  CO.  v.  BARRAOLIFF,  45  N.  J.  Law,  543,  46  Am.  Rep.  792.  In 
the  case  last  cited  it  was  also  held  that  a  husband  had  an  insurable  interest 
in  his  wife's  personalty  which  he  had  in  his  possession,  and  the  benefits  of 
which  he  enjoyed.  But  such  a  holding  seems  opposed  to  sound  principle, 
and  a  contrary  doctrine  was  laid  down  in  AGRICUI/TUBAL  INS.  CO.  y. 


v 


II  < 


118  INSURABLE  INTEREST.  (Ch.  4 

allowed  to  sell  or  incumber  her  property  except  with  the  consent  of 
her  husband  and  his  uniting  with  her  in  the  conveyance,  and  when  he, 
under  the  law,  might  inherit  her  property.* •*  But  an  insurable  interest 
exists  where  the  wife  holds  such  separate  estate  under  a  parol  trust  in 
favor  of  the  husband.  Thus  in  Horsch  v.  Dwelling  House  Ins.  Co.,®' 
a  man  had  bought  with  his  own  money  land  that  was  conveyed  to  his 
wife,  with  the  parol  understanding  that  he  was  to  have  possession  and 
the  beneficial  use  of  the  property  for  the  purpose  of  supporting  the 
family,  and  that  the  wife  was  to  make  conveyance  to  him  upon  his  re- 
quest. The  husband  erected  buildings  on  the  land,  and  insured  them 
in  his  own  behalf.  The  insurer  sought  to  escape  liability  under  the 
policy  by  pleading  that  the  husband  had  no  insurable  interest,  but  the 
court  gave  judgment  for  the  plaintiff  on  the  ground  that  "the  posses- 
sion and  use  of  the  house  and  bams  was  of  the  utmost  importance  to 
him  in  providing  a  support  for  himself  and  family,  and  their  destruc- 
tion was  substantially  as  disastrous  to  him  in  his  endeavor  to  support 
himself  and  family  as  though  he  had  the  actual  title."  But  a  mere  in- 
truder, who  has  no  color  of  title  to  the  land  upon  which  he  erects 
buildings,  cannot  insure  such  buildings,  even  though  the  actual  ex- 
pense incurred  in  erecting  them  far  exceeds  the  amount  of  the  insur- 
ance.*^ So  where  a  turnpike  company  voluntarily  contributed  to  the 
cost  of  erecting  a  bridge,  in  which  it  had  no  property  interest,  but 
which  was  used  by  travelers  over  the  company's  road,  thus  adding  to 
the  profits  of  the  company,  it  was  held  that  the  company  was  without 
an  insurable  interest  in  the  bridge.  It  is  true  that  the  destruction  of 
the  bridge  damnified  the  turnpike  company  to  the  extent  of  the  dimi- 
nution of  profits  pending  the  rebuilding  of  the  bridge ;  but  such  profits 
constituted  but  a  mere  expectation,  lacking  the  legal  basis  necessary 
to  support  an  insurable  interest. •• 

Insurable  Interest  Arising  out  of  Contract  Rights, 

Any  binding  contract  giving  rights  which  will  be  injuriously  affect- 
ed by  the  destruction  of  any  designated  property  will  afford  an  insur- 

MONTAGUE,  supra.  Under  the  Maryland  statute  enacted  in  1842,  the  hus- 
band retains  marital  rights  in  his  wife's  realty,  and  has  an  insurable  inter- 
est therein.  Mutual  Fire  Ins.  Co.  v.  Deale,  18  Md.  26,  79  Am.  Dec.  673.  See, 
also,  Harris  v.  Insurance  Co.,  50  Pa.  341,  wherein  it  was  said  that  the  policy 
on  the  wife's  property,  taken  out  by  the  husband,  might  be  also  sustained  on 
the  ground  of  implied  agency  for  the  wife.  See,  further,  Clarke  v.  Insurance 
Co.,  18  La.  431;    MERRBTTT  v.  INSURANCE  CO.,  42  Iowa,  11. 

•6  Clarke  v.  Insurance  Co.,  supra;  Traders'  Ins.  Co.  v.  Newman,  supra. 

»•  77  Wis.  4,  45  N.  W.  946,  8  L.  R.  A.  806.  See,  also,  MERRETT  v.  INSUR- 
ANCE CO.,  Bupra. 

»T  Sweeny  t.  Insurance  Co.,  20  Pa.  337.  But  see  City  of  New  York  t. 
Brooklyn  Fire  Ins.  Co.,  41  Barb.  (N.  Y.)  231. 

98  FARMERS'  MUT.  INS.  CO.  v.  NEW  HOLLAND  TURNPIKE  CO.,  122 
Pa.  37,  15  Atl.  563. 


47) 


INSURABLE  INTEREST — WHAT  CONSTITUTES. 


119 


able  interest  in  such  property,  even  though  the  insurer  may  have  nei- 
ther interest  in  the  property  nor  any  specific  lien  upon  it.  A  work- 
man has  an  insurable  interest  in  any  building  he  may  have  contracted 
to  repair,  or  an  artist  might  insure  the  structure  for  the  interior  deco- 
ration of  which  he  had  been  employed.  In  either  case  the  accidental 
destrucfion  of  the  building  would  discharge  the  contract,  and  thus 
damnify  the  workman  to  the  extent  of  the  value  of  his  contract  rights. 
So  it  has  been  held  that  a  person  who  had  been  engaged  as  superin- 
tendent of  a  factory  for  a  long  term  had  an  insurable  interest  in  the 
factory."  Likewise  a  contractor,  who  had  insured  a  house  which  he 
was  engaged  in  moving,  was  held  entitled  to  recover  when  the  house 
was  burned,  before  the  completion  of  the  work,  to  the  extent  of  the 
compensation  he  was  to  have  received  under  the  contract.  ^•^ 

Insurance  of  Property  not  in  Existence.    Profits. 

It  must  be  true  that  one  cannot  have  insurable  interest  in  property 
which  does  not  exist.  Nor  is  it  correct  to  say  that  the  possibility  that 
property  may  come  into  existence  in  the  future  gives  a  present  insur- 
able interest  therein.  But  the  mere  fact  that  property  has  no  present 
existence  affords  no  reason  why  a  bona  fide  contract  should  not  be 
made  for  its  protection  when  it  shall  be  subsequently  acquired  or  come 
into  being.  Such  expectant  insurance  may  be  said  to  be  subject  to  a 
suspensory  condition,  and  attaches  to  any  specific  property  only  upon 
its  emerging  into  the  realm  of  existent  things.  According  to  this  view 
such  insurance  is  in  no  wise  opposed  to  public  policy,  but  rather  stands 
approved  by  it,  since  the  principle  of  insurance  is  thereby  adapted  to 
the  needs  of  modern  business.  Hence  it  may  be  broadly  stated  that  a 
valid  contract  of  insurance  may  be  made  for  the  future  protection  of 
property  in  which  the  insurer  has  no  present  right  or  interest  what- 
ever, and  which  may  not  even  be  in  esse.  Amould  "^  states  the  rule 
to  be  that  "an  expectancy,  coupled  with  a  present  existing  title  to  that 
out  of  which  the  expectancy  arises,  is  an  insurable  interest."  Such  a 
potential  interest  is  necessary  to  the  transfer  of  a  legal  title  by  sale  or 
gift,  but  by  no  means  necessary  to  the  validity  of  a  policy  of  insurance. 
It  is  well  settled  that  a  farmer  may  insure  crops  to  be  grown  on  land 
owned  by  him  at  the  time  of  the  issue  of  the  policy,  but  such  a  limita- 
tion is  without  reason.  He  may  just  as  properly  insure  the  crops  to 
be  raised  by  him  as  "cropper"  on  the  land  of  another,  provided  the 
crops  will  belong  to  him  when  produced.    In  Sawyer  v.  Dodge  Coun- 


i  ') 


f      H 


I 


;.    \ 


•»  Graham  v.  Insurance  Co.,  48  S.  0.  195,  26  S.  B.  323,  59  Am.  St.  Rep.  707. 

100  Planters*  &  Merchants'  Ins.  Co.  v.  Thurston,  93  Ala.  255,  9  South.  268. 
An  insurance  agent  who  receives,  as  compensation,  a  certain  percentage  of 
the  net  profits  of  the  company,  has  an  insurable  interest  in  the  property  in- 
sured by  that  company.    Hayes  v.  Insurance  Co.,  170  Mass.  492,  49  N.  E   754 

101 1  Arnould,  Mar.  Ins.  §  256. 


120 


INSURABLE   INTEREST. 


(Ch.4 


ty  Mut.  Ins.  Co./®'  insurance  upon  crops  to  be  grown  during  a  period 
of  five  years  was  held  to  cover  grain  that  was  properly  within  the  de- 
scription of  the  policy,  but  which  had  been  raised  on  land  not  owned 
by  the  insurer  at  the  time  of  the  execution  of  the  policy.  And  the  de- 
cision is  eminently  sound,  although  the  court  was  at  much  needless 
pains  to  reconcile  its  holding  with  accepted  rules  as  to  what  consti- 
tutes insurable  interest. 

Open  policies  of  marine  insurance  covering  cargoes  not  yet  shipped, 
or  even  contracted  for,  are  frequent,  and  uniformly  enforced ;  ^°^  and 
similar  policies  upon  changing  stocks  of  goods  on  land  are  equally 
unquestioned.^ °*  Such  policies  are  in  no  sense  wagers.  The  insur- 
ance, by  the  very  terms  of  the  contract,  cannot  attach  to  the  property 
until  it  is  acquired  by  the  insurer,  when  a  manifest  insurable  interest 
arises. 

Expected  profits  of  a  venture  undertaken  may  be  properly  insured.*®' 
But  there  can  be  no  recovery  for  loss  of  profits  unless  such  profits  are 
specifically  covered  by  the  policy.  Expected  profits  cannot  be  proved 
as  an  element  of  loss  suffered  under  a  general  policy  upon  the  subject 
out  of  which  the  profits  were  expected  to  arise.*®'  Under  the  Ameri- 
can cases,  it  is  not  necessary  for  the  insurer  to  show  that  profits  spe- 
cifically insured  would  probably  have  been  made  but  for  the  loss  of 
the  venture ;  *®^  but  in  England  it  is  held  that  recover}'  may  be  had 
only  to  the  extent  of  probable  profits  proved.*®' 

loa  37  wis.  503;  5  Bennett,  Fire  Ins.  Cas.  659. 

108  1  Amould,  Mar.  Ins.  §  258.  "It  is  everyday  practice  to  Insure  goods  on 
a  retnm  voyage,  long  before  the  goods  are  bouglit."  Rhind  v.  Wilkinson,  2 
Taunt.  237.  See,  further,  Whitney  v.  Insurance  Co.,  3  Oow.  (N.  Y.)  210; 
Haven  v.  Gray,  12  Mass.  71.  In  Dow  v.  Insurance  Co.,  1  Hall  (N.  Y.)  366,  the 
insurance  was  upon  goods  out,  and  "upon  the  proceeds  thereof  home,"  and 
it  was  held  that  the  policy  did  not  cover  the  same  goods  on  their  return 
voyage,  but  no  question  was  made  of  the  validity  of  the  insurance. 

104  Hooper  v.  Insurance  Co.,  17  N.  Y.  424;  HOFFMAN  v.  INSURANCE 
CO.,  32  N.  Y.  405,  88  Am.  Dec.  337;  LANE  v.  INSURANCE  CO.,  12  Me.  44, 
28  Am.  Dec.  150;  Lee  v.  Insurance  Co.,  11  Cush.  (Mass.)  324.  An  insurance 
on  "fixtures"  placed  or  to  be  placed  in  certain  buildings  covers  fixtures 
erected  in  the  buildings  subsequently  to  the  issuance  of  the  policy.  New 
YoTk  Gas  Light  Co.  v.  Mechanics'  Fire  Ins.  Co.,  2  Hall  (N.  Y.)  125.  In  the 
case  of  reinsurance,  whether  marine  (Boston  Ins.  Co.  v.  Globe  Fire  Ins.  Co., 
174  Mass.  229,  54  N.  B.  543,  75  Am.  St  Rep.  303)  or  fire  (Sun  Ins.  Ofiice  v. 
Merz,  64  N.  J.  Law,  301,  45  Atl.  785,  52  L.  R.  A.  330),  it  is  not  essential  to 
the  validity  of  the  policy  that  the  insurable  interest  should  exist  at  the  time 
of  effecting  the  reinsurance. 

106  BARCLAY  v.  COUSINS,  2  East,  544;  Patapsco  Ins.  Co.  v.  Coulter,  3 
Pet  (U.  S.)  222,  7  L.  Ed.  659. 

100  Niblo  T.  Insurance  Co.,  1  Sandf.  (N.  T.)  551  (profits  of  theater) ;  Matter  of 
WRIGHT  &  POLE,  1  Adol.  &  E.  621.  See  Niagara  Fire  Ins.  Co.  v.  Heflin 
(Ky.)  60  S.  W.  393;   Stock  v.  Inglis,  L.  R.  9  Q.  B.  Div.  708. 

107  Patapsco  Ins.  Co.  v.  Coulter,  3  Pet.  (U.  S.)  222,  7  L.  Ed.  659;  Loomis 
T.  Shaw,  2  Johns.  Cas.  (N.  Y.)  36;  1  Phillips,  Ins.  §  318. 

108  Hodgson  V.  Glover,  6  East,  316 ;  Arnould  Mar.  Ins.  (7th  Ed.)  8  287. 


8*S) 


DURATION   OF   INTEREST. 


DURATION  OF  INTEREST. 


121 


48.  In  order  that  insurance  on  property  shall  be  valid,  an  interest 
must  exist  in  the  insurer  at  the  time  of  the  loss.  It  is  not 
necessary  that  an  interest  shall  exist  at  the  time  of  the  issue  of 
the  policy;  nor  does  the  suspension  of  the  insured's ^^terest 
during  the  currency  of  the  policy  defeat  a  recovery  if  an  inter- 
est has  been  reacquired  before  the  loss  occurs. 

The  books,  both  texts  and  reports,  are  full  of  statements  to  the  ef- 
fect that  the  insurer  must  possess  an  interest  at  the  time  insurance  is 
procured  on  property,  as  well  as  at  the  time  the  loss  occurs,  in  order 
to  free  the  contract  from  the  fatal  fault  of  being  a  wager.^®*     That 
such  is  generally  considered  to  be  the  law  is  further  evidenced  by  the 
provision  of  the  California  Civil  Code  "<>  which  declares  that  "an  in- 
terest insured  must  exist  when  the  insurance  takes  effect  and  when 
the  loss  occurs,  but  need  not  exist  in  the  meantime."     But  notwith- 
standing the  great  volume  of  authority  to  this  effect,  it  seems  that  the 
existence  of  an  insurable  interest  at  the  inception  of  the  contract  is 
not  at  all  necessary  to  its  validity,  unless  made  so  by  such  code  provi- 
sion as  was  referred  to  above.     The  generally  prevailing  opinion  that 
a  policy  is  void  as  a  wager  unless  the  insurer  had  an  interest  at  the 
time  of  its  issue  seems  to  have  had  its  origin  in  a  dictum  of  Lord  Hard- 
wicke's  in  the  ancient  case  of  Sadlers'  Co.  v.  Babcock,"^  in  which  that 
great  judge  said :     "I  am  of  opinion  it  is  necessary  the  party  insured 
should  have  an  interest  in  property  at  the  time  of  the  insuring,  and  at 
the  time  the  fire  happens."    The  question  before  the  court  in  this  case 
was  whether  an  insured  should  be  allowed  to  recover  when  he  had  no 
interest  in  the  property  covered  by  the  policy  at  the  time  of  the  fire, 
and  the  assertion  that  an  interest  at  the  time  of  insuring  was  necessary 
was  as  ill  considered  as  it  was  uncalled  for.     But  the  doctrine  so  enun- 
ciated has  been  borne  upon  a  full  current  of  dictum  down  to  modern 
times,"2  and  has  only  recently  come  to  be  questioned.     Yet  from  its 

109  The  following  are  some  of  the  cases  in  which  this  dictum  has  been 
reiterated.  Ohrisman  v.  Insurance  Co.,  16  Or.  283,  18  Pac.  466;  Sheppard  v. 
Insurance  Co.,  21  W.  Va.  368;  Carpenter  v.  Insurance  Co.,  16  Pet  (U.  S.) 
495,  10  L.  Ed.  1044;  Commercial  Fire  Ins.  Co.  v.  Capital  City  Ins.  Co.,  81  Ala. 
320,  8  South.  222,  60  Am.  Rep.  162;  Howard  v.  Insurance  Co.,  3  Denio  (N.  Y ) 
301;  Fowler  v.  Insurance  Co.,  26  N.  Y.  422;  Lockhart  v.  Cooper,  87  N.  C.  149, 
42  Am.  Rep.  514;  Clinton  v.  Insurance  Co.,  176  Mass.  486,  57  N.  E.  998  50 
L.  R.  A.  833,  79  Am.  St.  Rep.  325. 

110  Civ.  Code,  §  2552. 

111  SADLERS'  CO.  v.  BABCOCK,  2  Atk.  554;  Id.,  1  Wils.  10,  decided  in 
1743. 

112  See  note  109,  supra,  and  the  very  recent  case,  Ohio  Farmers'  Ins    Go 
T.  Vogel  (Ind.  Sup.)  65  N.  B.  1056  [1903]. 


122 


INSURABLE   INTEREST. 


(Ch.4 


^ 


very  origin  this  rule  of  law  has  had  strange  and  illogical  fellows 
Thus  it  has  never  been  questioned  that  an  open  marine  policy  may 
properly  cover  a  return  cargo  to  be  purchased  months  after  the  time^^ 
of  the  making  of  the  policy.^^'  And  later  it  became  equally  well  es- 
tablished that  a  floating  policy  on  a  fluctuating  stock  of  goods  was  en- 
forceable so  as  to  aflFord  indemnity  for  the  loss  of  after-acquired  prop- 
erty.^** It  is  also  well  settled  that,  in  the  absence  of  special  provision 
in  the  policy  to  the  contrary,  the  alienation  of  insured  property  will  not 
defeat  a  recovery  under  the  policy  if  the  insured  has  subsequently  re- 
acquired the  property  and  possesses  an  insurable  interest  at  the  time 
of  loss.^**  These  floating  policies  have  been  usually  regarded  as  form- 
ing an  exception  to  the  general  rule,  and  as  being  successors  to  the  old 
marine  "interest  or  no  interest"  policies  ***  of  which  Lord  Hardwicke 
says:**^  "The  common  law  leant  strongly  against  these  policies  for 
some  time ;  but,  being  found  beneficial  to  merchants,  they  winked  at  it." 
But  there  is  no  real  necessity  for  the  courts  of  law  to  wink  at  these 
exceptional  policies  in  the  interest  of  business,  as  the  exception  gives 
the  true  rule.  The  sole  purpose  of  the  rule  as  generally  stated  is  to 
prevent  the  issue  of  wager  policies,  and  beyond  this  it  should  have  no 
application.  The  policy  of  the  law  will  not  allow  A.  to  insure  the 
house  of  B.,  when  he  has  no  interest  therein,  for  not  only  would  such 
insurance  be  mere  gambling  in  the  probability  of  B.'s  house  being  de- 
stroyed, but  would  also  afford  a  strong  temptation  to  A.  feloniously  to 
procure  its  destruction.  Neither  would  the  subsequent  acquisition  of 
B.'s  house  by  A.  validate  a  contract  so  thoroughly  vicious  in  its  incep- 
tion.*** But  there  is  no  reason  whatever  why  A.,  contemplating  the 
purchase  of  B.'s  house,  should  not  take  out  a  policy  of  insurance,  un- 
der which  the  risk  is  to  attach  upon  A.'s  purchasing  and  thereby  ac- 
quiring an  interest  in  that  house.  The  requirement  of  good  faith  and 
a  real  interest  at  the  time  of  the  loss  is  amply  sufficient  to  satisfy  the 
demands  of  public  policy.  Indeed  public  policy,  which  would  ever  en- 
courage and  protect  industry  and  business  of  any  legitimate  kind,  and 
frequently  has  forced  the  lagging  rules  of  law  to  move  forward  to  the 
support  of  advancing  business  usages,  requires  that  such  anticipatory 
insurances  shall  be  favored  and  enforced.  If  a  person  were  not  al- 
lowed to  insure  property  until  after  its  acquisition,  valuable  business 


118  See  note  103,  supra. 

11*  See  note  104,  supra. 

11 »  Rex  V.  Insurance  Cos.,  2  Phila.  357;  Id.,  14  Leg.  Int.  332.  See  the 
argument  of  Bigelow,  C.  J.,  In  WORTHINGTON  v.  BEARSE,  12  Allen 
(Mass.)  382,  90  Am.  Dec.  152.  Contra,  Cockerlll  y.  Insurance  Co.,  16  Ohio, 
148. 

ii«  Such  insurances  are  prohibited  by  St  19  Geo.  II,  c.  37, 

117  See  SADLERS'  CO.  v.  BABCOCK,  2  Atk.  554^  550. 

lit  See  note  in  2  Am.  Ltead.  Gas.  847. 


^■^S) 


DURATION  OF  INTEREST. 


tl 


123 


interests  must  needs  often  go  unprotected,  since  it  is  not  always  con- 
venient or  practicable  to  procure  insurance  at  the  time  the  interest  is 
actually  acquired,  or  within  a  reasonable  time  thereafter;   as  when  a 
return  cargo  is  shipped  from  a  distant  port,  or  when  a  merchant  or 
warehouseman  has  goods  that  are  gradually  disposed  of  and  as  gradual- 
ly  replaced  with  others.     So,  to  enforce  strictly  a  rule  requiring  the 
interest  protected  to  exist  at  the  time  the  policy  issues,  would  often  de- 
feat the  very  purpose  for  which  insurance  was  designed.    Thus  if  a 
builder  s  risk"  policy  covered  only  the  interest  possessed  by  the  in- 
sured  at  the  time  of  issue,  it  would  impose  upon  the  careful  builder  the 
mtolerable  burden  of  taking  out  daily  insurance.     Consequently  it  is 
very  properly  held  that  the  risk  attaches  under  a  builder's  policy  in 
proportion  as  the  construction  progresses,  and  the  interest  of  the  in- 
sured  increases.^** 

The  strong  tendency  of  the  courts  to  disregard  the  dicta,  however 
positive    laying  down  the  generally  accepted  rule,  and  to  hold  valid 
bona  fide  anticipatory  insurance,  is  well  indicated  by  the  words  of  the 
bupreme  Court  of  Vermont  in  the  case  of  Davis  v.  New  England  Fire 
Ins.  Co. :  "0     -It  is  jj^sj^^^^  ^^  ^^^  defendant,"  says  Taft,  T.,  "that 
the  declaration  is  defective,  for  that  there  is  no  allegation  that  the 
property  insured  was  the  property  of  the  plaintiff  at  the  time  the  policy 
was  issued,  citing  Dickerman  v.  Vermont  Mut.  Fire  Ins    Co  ^^i  jn 
which  it  is  said :     'It  is  essential  to  the  sufficiency  of  the  counts  that 
they  should  allege  an  insurable  interest  in  the  plaintiffs  at  the  time  the 
policies  were  issued  and  also  at  the  time  of  loss.'    This  is  a  general 
rule  according  to  the  current  of  decisions,  and  is  applicable  in  all  cases 
when  It  does  not  appear  that  there  was  any  interest  in  nor  ownership 
of  the  property  from  the  time  the  policy  was  issued  to  the  time  of  the 
loss.     But  a  policy  may  be  valid  and  attach  to  and  cover  property  ac- 
quired subsequent  to  its  delivery,  and  in  such  cases  the  rule  above  stated 
IS  modified,  and  an  allegation  that  subsequent  to  the  delivery  of  the 
policy  the  insured  acquired  an  interest  in  the  property  which  is  the 
subject  of  the  contract  is  sufficient.     In  Hooper  v.  Robinson,"^  Mr 
Justice  Swayne  cites  1  Arn.  Ins.  238,  viz. :     'It  is  now  cleariy  estab- 
lished tiiat  an  insurable  interest,  subsisting  during  the  risk  and  at  the 
time  of  loss,  is  sufficient,  and  that  the  insured  need  not  allege  nor 
prove  that  he  was  interested  at  the  time  of  effecting  the  policy     In- 
deed, it  is  every  day's  practice  to  effect  insurance  in  which  the  alleo-a- 
tion  could  not  be  made  with  any  degree  of  truth.' "    It  is  true  that  the 

119  Commercial  Fire  Ins.  Co.  v.  Capital  City  Ins.  Co  81  Ala  ^20  s 
South  222,  60  Am.  Rep.  162;  Ulmer  v.  Insurance  Co.,  61  s!  C.  459, Vt'^ 
712;  Sullivan  v.  Insurance  Co.,  34  App.  Div.  164.  54  N.  Y.  Supa  629 

120  70  Vt.  217,  39  Atl.  1095.  •  «  ^4^  «^». 

121  67  Vt  99,  30  Atl.  808. 

"2  98  U.  S.  528.  25  L.  Ed.  219. 


I 


I 


II 


124 


INSURABLE    INTEREST. 


(Ch.4 


quotation  from  Amould  approved  by  Mr.  Justice  Swayne  referre(| 
solely  to  marine  insurance,  which  only  was  considered  in  Hooper  v. 
Robinson,  but  the  breadth  of  the  statement  certainly  suggests  a  broader 
application  of  the  principle  stated.  The  most  recent  case  in  which  the 
question  has  been  carefully  considered  is  Sun  Fire  Ins.  Co.  v.  Merz,^** 
in  which  the  New  Jersey  Court  of  Errors  and  Appeals  reversed  the 
decision  of  the  Supreme  Court,  which  had  held  that  a  policy  of  rein- 
surance was  void  because  it  provided  indemnity  for  losses  under  poli- 
cies thereafter  to  be  written  by  the  reinsured  company.  The  conclu- 
sion of  the  court  is  thus  stated  by  Gummere,  J. :  "Up  to  the  present 
time  the  question  has  not  received  consideration  at  the  hands  of  this 
court.  An  examination  of  the  reasons  upon  which  the  earlier  rule 
rests  has  led  us  to  the  conclusion  that  they  are  not  well  founded,  and 
that  a  contract  by  which  the  parties  provide  for  -indemnity  against  loss 
by  fire  upon  property  to  be  subsequently  acquired  by  the  party  indem- 
nified is  not  in  any  sense  a  gaming  contract,  and  void  on  that  account ; 
in  other  words,  that  an  insurable  interest,  subsisting  during  the  risk 
and  at  the  time  of  the  loss,  is  sufficient  to  support  a  policy  insuring 
against  loss  by  fire."  *** 

Unfortunately  for  the  conclusiveness  of  this  decision  the  policy  in 
question  was  not  an  ordinary  fire  policy,  but  one  of  reinsurance,  which 
is  in  its  nature  essentially  a  floating  policy,  and  as  such  falls  properly 
within  the  recognized  exception  to  the  rule  as  generally  stated. 

Finally,  it  may  be  safely  stated  as  a  conclusion  from  an  examination 
of  the  authorities  that  only  a  very  few  cases  have  held  policies  other- 
wise valid  void  because  of  the  absence  of  an  insurable  interest  at  the 
time  of  the  issue;  ^^'  and  that  the  rule  requiring  the  existence  of  such 
interest  at  the  inception  of  the  policy  has  no  further  meaning  than,  in 
the  words  of  the  learned  editors  of  the  American  Leading  Cases,^^' 
"that  a  policy  intended  as  a  wager  will  not  be  rendered  valid  by  the 
subsequent  acquisition  of  an  interest  in  the  property  at  risk." 

"8  64  N.  J.  Law,  301,  45  Atl.  785,  52  L.  R  A.  330. 

12*  See  dictum  to  the  contrary  in  Ohio  Farmers'  Ins.  Co.  ▼.  Vogel  (Ind. 
App.)  65  N.  E.  1056. 

12B  See  HOWARD  y.  INSURANCE  CO.,  11  Can.  Sup.  Ct  92,  criUcised  in 
May,  Ins.  §  101a. 

i2«  Volume  2,  p.  847,  note 


5§  49-52) 


INSURABLE   INTEREST   IN   LIVES. 


125 


INSURABLE  INTEREST  IN  LIVES. 


49.  A  contract  of  life  insurance  not  supported  by  an  insurable  in- 

terest is  contrary  to  public  policy,  and  void. 

50.  Tbe  existence  of  an  insurable  interest  at  the  time  when  the  policy 

is  issued  is  sufficient.  The  subsequent  termination  of  such  in- 
terest before  the  maturity  of  the  policy  in  no  wise  affects  its 
▼aUdity. 

SI*  Every  person  has  an  insurable  interest  in  his  own  life,  and  may 
lawfully  insure  it  for  the  benefit  of  his  own  estate,  or  in  behalf 
of  any  other  person.  It  is  not  necessary  that  such  beneficiary 
shall  possess  an  interest  in  the  life  insured. 

52.  A  person  may  procure  insurance  on  the  life  of  another  when  he  is 
so  related  to  that  other  by  reason  of  blood,  niarriage,  or  com- 
merce that  he  has  well-grounded  expectations  of  deriring  ben- 
efit from  the  continuation  of  that  other's  life,  or  of  suffering 
detriment  or  incurring  liability  through  its  termination. 


5 


»  I 


iVager  Policies  on  Life. 

As  before  stated,  there  seems  little  room  to  doubt  that  wager  poli- 
cies of  life  insurance,  based  on  no  interest  in  the  assured,  were  enforce- 
able in  England  prior  to  the  enactment  of  the  statutes  of  19  Geo.  II.,  c 
:>7,  and  14  Geo.  III.,  c.  48,  by  which  such  policies  were  prohibited.^*^ 
The  courts  of  the  American  states,  however,  have  generally  held,  irre- 
spective of  statutes,  that  wager  policies  are  contrary  to  public  policy, 
and  void.^2*     In  some  cases  it  has  been  declared  that  the  English  stat- 


127  By  chapter  48  of  the  latter  statute  It  was  enacted:  'That  from  and 
after  the  passing  of  this  act  no  insurance  shall  be  made  by  any  person  or 
persons,  bodies  politic  or  corporate,  on  the  life  or  lives  of  any  person  or  per- 
sons, or  on  any  other  event  or  events  whatsoever,  wherein  the  person  or  per- 
sons for  whose  use,  benefit,  or  on  whose  account  such  policy  or  policies  shall 
be  made,  shall  have  no  interest,  or  by  way  of  gaming  or  wagering;  and  that 
every  assurance  made  contrary  to  the  true  intent  and  meaning  hereof  shall 
be  null  and  void  to  all  intents  and  purposes  whatsoever." 

128  Trinity  College  v.  Travelers'  Ins.  Co.,  113  N.  C.  248,  18  8.  B.  175,  22 
L.  R.  A.  291;  Helmetag's  Adm'r  v.  Miller,  76  Ala.  183,  52  Am.  Rep.  316; 
SINGLETON  v.  INSURANCE  CO.,  66  Mo.  63,  27  Am.  Rep.  321,  disapproving 
&  dictum  to  the  contrary  in  OHISHOLM  v.  INSURANCE  CO.,  52  Mo.  213,  14 
Am.  Rep.  414;  Whitmore  v.  Supreme  Lodge,  100  Mo.  36,  13  S.  W.  495;  Guard- 
ian Mut.  Life  Ins.  Co.  v.  Hogan,  80  111.  35,  22  Am.  Rep.  180;  Continental 
Life  Ins.  Co.  v.  Volger,  89  Ind.  572,  46  Am.  Rep.  185;  Burton  v.  Insurance 
Co.,  119  Ind.  207,  21  N.  E.  746,  12  Am.  St.  Rep.  405;  United  Brethren  Mut 
Aid  Soc.  V.  McDonald,  122  Pa.  324,  15  Atl.  439,  1  L.  R.  A.  238,  9  Am.  St  Rep 
111;  ROMBACH  v.  INSURANCE  CO.,  35  La.  Ann.  233,  48  Am.  Rep.  239; 
Ruse  V.  Insurance  Co.,  23  N.  Y.  516;  Wamock  v.  Davis,  104  U.  S.  775,  26  L. 
Ed.  924.  See  the  strong  language  in  Brockway  v.  Insurance  Co.  (C.  Q)  9 
Fed.  249.  Elarly  New  York  cases  on  marine  insurance  sustained  the  com- 
mon-law rule  upholding  wager  policies.  See  Juhel  v.  Church,  2  Johns.  Cas. 
833;  Buchanan  v.  Insurance  Co.,  6  Oow.  318;  Clendining  v.  Church,  S  Cainesi 


126 


INSURABLE    INTEREST. 


(Ch.  4 


utes  were  but  declaratory  of  the  common  law,***  but  this  can  scarcely 
be  true;  and  certainly  not  of  the  common  law  as  determined  on  this 
point  by  the  decisions  of  the  English  courts."®  Indeed,  it  seems  that 
in  New  Jersey  policies  without  interest  are  still  enforceable,  on  the  the- 
ory that  the  common-law  rule  of  decision  to  that  effect  remains  un- 
changed by  statute.*'* 

When  Such  Interest  Must  Exist. 

But  it  has  been  held  that  the  requirements  of  14  Geo.  III.  are  satis- 
fied by  the  presence  of  an  interest  in  the  assured  at  the  inception  of 
the  policy,  and  that  a  decrease,  suspension,  or  entire  termination  of 
that  interest  before  the  policy  matures  in  no  wise  affects  the  assured's 
right  of  recovery  under  a  policy  valid  at  its  inception.*'*  And  the 
decisions  of  the  American  courts  as  to  the  continuance  of  interests, 

141;  1  Phillips,  Ins.  3,  4.  But  these  cases  must  be  regarded  as  substantially 
overruled  by  RUSE  v.  INSURANCE  CO.,  23  N.  Y.  516. 

129  RUSE  V.  INSURANCE  CO.,  23  N.  Y.  516;  Whltmore  v.  Supreme  Lodge, 
100  Mo.  3G,  13  S.  W.  495.  "It  is  generally  agreed  that  mere  wager  policies 
— that  is,  policies  in  which  the  insured  party  has  no  interest  whatever  in 
the  matter  insured,  but  only  an  interest  in  its  loss  or  destruction— are  void 
as  against  public  policy.  This  was  the  law  of  England  prior  to  the  Revolu- 
tion of  1688.  But  after  that  period  a  course  of  decisions  grew  up  sustaining 
wager  policies.  The  Legislature  finally  interposed,  and  prohibited  such  in- 
surance: First,  with  regard  to  marine  risks,  by  St  19  Geo.  II,  c.  37;  and 
next,  with  regard  to  lives,  by  St  14  Geo.  Ill,  c.  48" — Mr.  Justice  Bradley,  in 
CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  SCHAEFHR,  94  U.  S.  457,  460,  24 
L.  Ed.  251. 

180  That  a  wager,  unaffected  with  any  special  cause  of  invalidity,  is  en- 
forceable at  common  law,  is  shown  by  decisions  since  the  enactment  of  this 
statute.  In  Good  v.  EJlliot,  3  Term  R.  693,  a  wager  was  sustained  at  com- 
mon law,  it  being  held  that  the  case  did  not  come  within  the  purview  of  the 
statute.  See  Andrews  v.  Heme,  1  Lev.  33;  Walcott  v.  Tappin,  1  Keb.  56,  65, 
cited  by  the  court  In  British  Ins.  Co.  v.  Magie,  Cooke  &  Alcock,  182,  a 
wager  policy  was  sustained  at  common  law,  it  being  held  that  the  statute 
was  inapplicable  to  Ireland.  The  statute  applies  not  only  to  policies  on  lives, 
but  also  to  policies  "on  any  other  event  or  events  whatsoever."  And  so.  In 
Roebuck  v.  Hammerton,  Cowp.  737,  a  wager  upon  the  sex  of  a  person 
was  declared  within  the  statute,  the  court  taking  care  to  show  that  the 
form  of  the  wager  was  a  policy.  To  the  same  effect  is  Patterson  v.  Powell, 
9  Bing.  320.  See,  further,  Craufurd  v.  Hunter,  8  Term  R.  14,  23,  per  Grose, 
J.;  Cousins  v.  Nantes,  3  Taunt.  513;  Abbott  v.  Sebor,  3  Johns.  Cas.  (N.  Y.) 
39,  2  Am.  Dec.  139,  per  Kent  J. 

i»i  Trenton  Mut  Life  &  Fire  Ins.  Co.  v.  Johnson,  24  N.  J.  Law,  576;  Mar- 
tin V.  Insurance  Co.,  38  N.  J.  Law,  140,  20  Am.  Rep.  372;  VIVAR  v. 
KNIGHTS  OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36,  41.  It  would  seem 
chat  the  statute  prohibiting  wagers  is  not  applied  to  Insurance.  See  Flagg 
V.  Baldwin,  38  N.  J.  Eq.  219,  48  Am.  Rep.  308. 

i»«  DALBY  V.  ASSURANCE  CO.,  15  C.  B.  365,  Richards'  Cases,  271,  Wood- 
ruff's Cases,  7,  overruling  GK)DSALL  v.  BOLDERO,  9  East  72,  In  which  it 
was  held  that  an  insured  creditor  could  not  recover  on  the  policy  when  the 
debt  had  been  paid  before  suit  brought,  but  after  the  death  of  the  debtor. 


§§  49-52) 


INSURABLE  INTEREST  IN   LIVES. 


127 

Thus' in  nfr'"''  T*'^..'^',  ^t"^^^'^  ^*"*"*^^'  ^'^  '^  t^^  «^^  effects- 
avowed  t?r^  ""'  ^""^'^  ^  ^^"^^"  ^'^'  ^^^"^-  C^-'"*  ^n  insurer  was 
allowed  to  recover  on  a  contract  of  reinsurance  when  the  loss  did  not 

Mut  I  ifl  T  *  V^^'^cT''.  ^"^  ^''"  ^^"^^^^^-  So  in  Connecticut 
Mut.  Life  Ins  Co.  v.  Schaefer  "»  the  Supreme  Court  of  the  United 
States  declared  although  the  point  was  not  really  in  judinent  thTa 
Tand  wf  ?'T  r^"'"'  ""'^^  ^  P^^^^^  "P-"  the^ife'^  L  his- 
another.       We  do  not  hesitate  to  say,  however,"  to  quote  from  the 

inteist  ZZTl\  '\r'  '""^^'^  ^'  '^'  '"''^"^^^  ^'  the  insurable 

eS^  ^l?"'  T'''"^  '^'^'  ^^  '^^  P^^^^^i^'^  of  the  pol- 

icy Itself       Some  doubt  has  been  cast  upon  the  generality  of  this  prin- 

Sover'l'rl^^^^'"'  ^""^T  ^'^  ^^^*  ^^  -  ---^  -elltor  to 
recover  more  than  the  amount  of  his  debt  and  charges."'     But  this 

note  of  uncertainty  in  the  appHcation  of  the  general  doctrine  is  £ 
lieved  to  be  due  to  misunderstood  precedents  and  ill-considered  dicta 
and  not  to  any  direct  decision  repudiating  the  doctrine."'  ' 

Insurance  on  OwnUfe-Bene/iciary  Need  Have  no  Interest, 

taken  out  b?th?^^^  ''''^'^'  ^'u''^^  '^''''''     ^"  ^"^  ^^^^^  ^^^  those 

himself  or  nf  h^    TT^  "P"""  •^''  ^^"  ^'^''  "^'^'^  ^^r  the  benefit  of 
himse  f  or  of  his  estate,  in  case  it  matures  only  at  his  death,  or  for  the 

othefare  ri:  '7'"  "'"  "'^  ^^  ^^^^^^^^^  ^^  beneficiary    Tn  the 
other  are  such  pohcies  as  are  taken  out  upon  the  life  of  another     In 

he  first  class  of  policies  the  question  of  insurable  interest  is  of  so  It" 

tie  importance  as  to  merit  scant  consideration.    It  is  ordinarily  said 

"8  Appeal  of  Corson,  113  Pa.  438.  6  Atl.  213,  57  Am  Reo  479-  Mnwr^  ^ 
Insurance  Co.,  9  R.  I.  346;  RAWLS  y.  INSURANC^CO  27  N  y7h7r1 
t^i    l^-.'^L^Jr^'"''''  ^^^'^  ^-  ^^^^^i«-^'  63  Ohio  St  77   57  N    R  965 

of  30  ;^ '"",  ^^^  "^".  ^  '''''''  eoitlngL'uiSn  the  ln's\^^^,^^^^^^^^ 
of  30  years,  and  insured  the  son's  life  for  2  vPArs  who«  +i!L  ^J-^^^s  uie  age 

father  had  received  the  legacy  ^    ^  ^  ""•  """^  *^*  *"« 

^^.^CONNECTICUT  MDT.  LIFE  INS.  CO.  v.  SCHAEFBE,  94  U.  S.  457.  24 

i»«  Exchange  Bank  v.  Loh.  104  Ga  44fi  «m  s  m  ak<\  aa  t    t^    »    „ 
metag  y.  Miller,  76  Ala.  18^.^  A^.Tep   316-   sSst  Nat   R,'  t  ^^  °*'- 
Adm-r.  99  Va.  194,  87  S.  E.  843,  86  Am    St  Rw   Ss  ^jlJ-J-"^' 


128 


INSURABLE    INTEREST. 


(Ch.4 


that  every  man  has  an  insurable  interest  in  his  own  life.^*'  It  were 
more  accurate  to  say  that  the  question  of  insurable  interest  is  immate- 
rial when  the  policy  is  upon  the  insured's  own  life.  The  presence  of 
an  insurable  interest  is  really  required  only  as  evidence  of  the  good 
faith  of  the  parties,  and  it  is  contrary  to  human  experience  that  a  man 
should  insure  his  own  life  for  the  purpose  of  speculation,  or  be  tempted 
to  take  his  own  life  in  order  to  secure  payment  of  money  to  some 
other,  although  instances  of  such  gruesome  fraud  upon  insurers  are 
not  wanting.^^*  Consequently  it  is  uniformly  held  that  the  mere  fact 
of  a  man's  insuring  his  own  Ufe  for  the  benefit  either  of  himself  or  of 
another  is  sufficient  evidence  of  good  faith  to  validate  the  contract.  It 
is  not  at  all  necessary  that  the  person  designated  as  beneficiary  in  such 
policies  should  have  any  interest  in  the  life  insured.^***  It  is  true  that 
such  a  beneficiary  without  interest  will  be  subject  to  the  same  tempta- 
tion to  terminate  unlawfully  the  life  insured  as  if  he  himself  had  taken 
out  the  policy,  and  there  are  cases  on  record  where  such  temptation 
has  been  yielded  to;"^  but  the  law  considers  this  danger  too  slight 
for  notice,  since  the  selection  of  the  beneficiary  by  the  insured  is,  in 
ordinary  cases,  sufficient  guaranty  of  the  existence  of  such  good  faith 
and  confidence  between  them  as  will  sufficiently  protect  the  insured. 

In  fact,  in  this  class  of  policies,  the  indemnity  feature  of  life  insur- 
ance is  so  faint  as  to  be  scarcely  traceable,  and  especially  so  where  the 
policy  is  on  the  endowment  plan,  payable,  after  a  certain  period,  to  the 
insured.  Such  policies  are  little  more  than  contracts  of  investment; 
and  even  where  the  proceeds  of  the  policy  are  to  be  paid  to  another 
than  the  insured  or  his  representative,  the  purpose  of  the  agreement 
is  chiefly  for  the  investment  and  accumulation  of  the  sums  annually 
paid  as  premiums  for  the  use  of  the  designated  beneficiary.  Where- 
fore, in  such  cases,  considerations  touching  indemnity  and  insurable 
interest  may  be  disregarded.^ 


142 


!«•  Union  Fraternal  League  ▼.  Walton,  109  Ga.  1,  34  S.  E.  317,  46  L.  R.  A. 
424  77  Am.  St  Rep.  850;  Provident  Life  Ins.  &  Inv.  Co.  v.  Baum,  29  Ind. 
236-  Prudential  Ins.  Co.  v.  Hunn,  21  Ind.  App.  525,  52  N.  E.  772,  69  Am.  St 
Rep.  380;  Northwestern  Masonic  Aid  Ass'n  v.  Jones,  154  Pa.  99,  26  Atl. 
253,  35  Am.  St.  Rep.  810;  Albert  v.  Insurance  Co.,  122  N.  C.  92,  30  S.  E.  327, 
65  Am.  St  Rep.  693;  CAMPBELL  v.  INSURANCE  CO.,  98  Mass.  381; 
Bloomington  Mut  Ben.  Ass'n  v.  Blue,  120  111.  121,  11  N.  B.  331,  60  Am.  Rep. 

558. 

18©  See  RITTER  r.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ot  300,  42 

L.  Ed.  693. 

140  Sabin  ▼.  Phlnney,  134  N.  Y.  423,  31  N.  B.  1087,  30  Am.  St  Rep.  681; 
Elkhart  Mot  Aid  B.  &  R.  Ass'n  v.  Houghton,  103  Ind.  286,  2  N.  E.  763,  53 
Am.  Rep.  514;   eases  cited  in  note  138. 

141  See  Schmidt  v.  Association,  112  Iowa,  41,  83  N.  W.  800,  51  L.  R.  A.  141, 
S4  Am.  St.  Rep.  323. 

142  Where  the  policy  is  Issued  to  the  insured,  the  beneficiary  need  neither 
Allege  nor  prove  an  insurable  interest    Northwestern  Masonic  Aid  Ass'n  t. 


§§  49-52) 


INSURABLE   INTEREST  IN   LIVES. 


129 


Insurance  on  the  Life  of  Another— What  Interest  Sumdent 

But  where  one  man  assumes  to  insure  the  life  of  another  the  ques- 
tions involved  are  strikingly  different     To  allow  such  insurances  to 
be  made  by  persons  having  no  other  interest  in  the  continuance  of  the 
lives  insured  than  springs  from  the  prospect  of  making  gain  through 
their  early  termination,  would  be  intolerable.     The  circumstances  at- 
tending the  makmg  of  the  contract  must  be  such  as  to  prove  the  ex- 
istence of  a  bona  fide  desire  and  interest  on  the  part  of  the  insurer 
that  the  life  insured  shall  continue  during  its  natural  term     The  cir- 
cumstances that  give  evidence  of  such  a  desire  are  said  to  constitute 
an  insurable  interest     Therefore,  by  transposing  terms,  we  have  the 
statement  made  in  accordance  with  the  decisions,  that  an  insurable 
interest  exists  whenever  the  relation  between  the  assured  and  insured 
whether  by  blood,  marriage,  or  commercial  intercourse,  is  such  that 
the  assured  has  a  reasonable  expectation  of  deriving  benefit  from  the 
continuation  of  the  life  insured,  or  of  sufl^ering  detriment  or  incurring 
liability  through  its  termination. "«     Or,  put  more  briefly,  the  policy 
of  the  law  requires  that  the  assured  shall  have  an  interest  to  preserve 
the  life  insured  in  spite  of  the  insurance,  rather  than  to  destroy  it  be- 
cause of  the  msurance.     As  has  been  shown  heretofore, i**  the  authori- 
ties do  not  require  that  the  expectation  of  the  benefit  to  be  derived 
shall  have  a  legal  basis,  nor  that  the  benefit  shall  be  susceptible  of  pe- 
cuniary estimation     The  benefit  must,  however,  be  valuable  and  not 
merely  sentimental.^*^     Neither  is  the  amount  or  character  of  the  ad- 
vantage hoped  for  any  measure  of  the  amount  for  which  insurance 
may  be  procured,  excepting  the  case  of  insurance  by  a  creditor  "« 
To  quote  agam  from  the  leading  case  of  Connecticut  Mut.  Life  Ins 
Co.  V   Schaefer:  "^     "But  precisely  what  interest  is  necessary,  in  or- 
der to  take  a  policy  out  of  the  category  of  mere  wager,  has  been  the 
subject  of  much  discussion.     In  marine  and  fire  insurance  the  diffi- 
culty is  not  so  great,  because  there  insurance  is  considered  as  strictly 

Jones,  154  Pa.  99  26  Atl.  253,  35  Am.  St  Rep.  810.  But  where  the  beneflclanr 
takes  out  the  policy  directly  from  the  insurer,  such  allegation  and  proof  ^ 
necessary.    Continental  Life  Ins.  Co.  y.  Volger,  89  Ind.  572,  46  Am   Ren   18.^ 

iirk''tSTfti%?3^V7\' V-  W.'^ ''  ^-  ^^-  ^^'-  ApptaTofcU'^; 

lid  Pa.  438,  6  A«.  213,  57  Am.  Rep.  479;   United  Brethren  Mut  Aid  Soc   v 
McDonald,  122  Pa.  324,  15  Atl.  439,  1  L.  E.  A.  238,  9  Am.  St.  Hep  111-  RoJ' 
BACH  v.  INSURANCE  CO.,  35  La.  Ann.  233,  48  Am.  Rep  2^ 
1**  See  p.  100,  supra. 

"»  Guardian  Mut  Life  Ins.  Co.  v.  Hogan,  80  111.  35   22  Am    Ran    i«a. 
Yancs  Ins.~8 


*' 


i. 


130 


INSURABLE    INTEREST. 


(Ch.4 


I 


I 


an  indemnity.  But  in  life  insurance  the  loss  can  seldom  be  measured 
by  pecuniary  standards.  Still,  an  interest  of  some  sort  in  the  insured 
life  must  exist.  A  man  cannot  take  out  insurance  on  the  life  of  a 
total  stranger,  nor  on  that  of  one  who  is  not  so  connected  with  him 
as  to  make  the  continuance  of  the  life  a  matter  of  some  real  interest 
to  him.  The  essential  thing  is,  that  the  policy  shall  be  obtained  in  good 
faith,  and  not  for  the  purpose  of  speculating  upon  the  hazard  of  a 
life  in  which  the  insured  has  no  interest."  It  may  thus  be  seen  that 
while  a  policy  on  the  life  of  another  is  not  a  contract  of  indemnity, 
and  that  the  real  requirement  for  its  validity  is  the  good  faith  of  the 
parties,  yet  it  is  based  on  the  theory  of  indemnity  in  its  inception."* 

Examples  of  Insurable  Interest  in  Life — Relationship. 

While  there  is  some  obiter  authority  to  the  contrary,"*  it  seems  now 
well  settled  that  mere  relationship,  however  close,   is  not  sufficient 

i*«  "It  [a  contract  of  life  insurance]  is  not  a  contract  of  indemnity  for  actual 
loss,  but  a  promise  to  pay  a  certain  sum  on  the  happening  of  a  future  event 
from  which  loss  or  detriment  may  ensue,  and  if  made  in  good  faith  for  the 
purpose  of  providing  against  a  possible  loss,  and  not  as  a  cloak  for  a  wager, 
is  sustained  by  any  interest  existing  at  the  time  the  contract  is  made."  W. 
Allen,  J.,  in  MUTUAL  LIFE  INS.  CO.  v.  ALLEN,  138  Mass.  24,  52  Am.  Rep. 

245. 

"  149  Thus,  in  Valley  Mut.  Life  Ass'n  v.  Teewalt,  79  Va.  421,  422,  it  was  said 
by  Hinton,'  J.,  that  "it  is  now  well  settled  that  a  father  has  an  insurable  in- 
terest in  the  life  of  his  child,  whether  a  minor  or  of  full  age,  and  the  child 
in  the  life  of  his  father."    In  this  case  the  policy  had  been  taken  out  by  the 
father  on  his  own  life,  and  was  made  payable  to  his  son.    The  policy  being 
based  on  the  father's  insurable  interest  in  his  own  life,  the  question  whether 
the  son  had  an  interest  in  his  father's  life  was  not  before  the  court.    For  the 
same  reason  the  statement  in  Crosswel  v.  Association,  51  S.  C.  103,  28  S.  E. 
200,  that  "a  son  has  an  insurable  interest  in  the  life  of  his  mother,  on  account 
of  relationship  alone,"  was  a  mere  dictum.    The  decision  i^  Equitable  Life 
•  Ids.  Ck).  v.  Hazelwood,  75  Ter.  338,  12  S.  W.  G21,  7  L.  R.  A.  217,  16  Am. 
St.  Rep.  893,  was  based,  not  on  the  blood  relationship  (brothers)  between  the 
Insured  and  assured,  but  on  the  relation  of  debtor  and  creditor.    The  case  of 
iETNA  LIFE  INS.  CO.  v.  FRANCE,  94  U.  S.  561,  24  L.  Ed.  287,  has  some- 
times been  cited  (see  two  cases  next  above)  for  the  statement  that  close  ties 
of  blood  may  give  an  insurable  interest.    But  in  this  case  the  question  was 
expressly  waived.    Chew  had  taken  out  the  policy  on  his  own  life  for  the 
benefit  of  his  sister,  to  whom  he  was  indebted.     She  advanced  the  money 
to  pay  the  premiums.    The  relationship  was  considered  only  as  showing  the 
bona  fides  of  the  parties.     In  RESERVE  MUT.  INS.  00.  v.  KANE,  81  Pa. 
154,  22  Am.  Rep.  741,  the  insurable  interest  of  a  son  in  his  father's  life  was 
based  upon  the  provision  of  the  poor  law  making  children  liable  for  the  sup- 
port of  their  Indigent  parents.     See  a  criticism  of  this  case  in  Life  Ins. 
Clearing  Co.  v.  O'Neill,  106  Fed.  800,  45  C.  C.  A.  641,  54  L.  R.  A.  225.    The 
decision  in  LOOMIS  v.  INSURANCE  CO.,  6  Gray  (Mass.)  396,  was  rested 
on  the  father's  right  to  the  earnings  of  his  minor  son,  which  is,  of  course, 
A  valuable  pecuniary  interest 


§§  49-52) 


INSURABLE   INTEREST   IN    LIVES. 


131 


alone  to  constitute  an  insurable  interest."®  But  a  legal  right  to  re- 
quire services  or  to  receive  benefit  of  whatever  kind  is  sufficient  to 
vahdate  insurance  upon  the  life  of  a  near  relative,  even  though  such 

150  A  demurrer  to  a  complaint,  based  upon  a  policy  of  Insurance,  alleging 
that  the  assured  is  the  daughter  of  the  insured,  should  have  been  sustained 
for  ^ant  of  an  allegation  of  insurable  interest.    Continental  Life  Ins.  Co.  v. 

I^f  ;.  J"'^-^^'  ^^  ^'^'  ^"P-  ^^'  '^^^  ^^^^t^«°  o^  father  and  son,  coupled 
v.ith  affectionate  regard  for  each  other,  and  the  moral  obligation  of  the  father 
to  compensate  the  son  for  his  labor,  are  only  facts  tending  to  show  an  insur- 
able  interest  of  the  son  in  his  father's  life.  An  instruction  that  these  facts 
did  give  the  son  an  insurable  interest  was  held  error.  Guardian  Mut  Life  Ins 
O).  V  Hogan,  80  111.  35,  22  Am.  Rep.  180.  In  Prudential  Ins.  Co  v  Himn 
21  ind.  App  522,  52  N.  E.  772,  69  Am.  St.  Rep.  380.  the  question  ar^seu^on 
t««T"wK  .^  complaint.  The  only  allegation  touching  insurable  interest 
was  that  the  insured  was  plaintiflf's  son,  and  it  was  held  that  the  demurrer 
should  have  been  sustained.     In  Life  Ins.  Clearing  Co.  v.  O'Neill,  106  Fed. 

H  I  •  ^;/l^^'  ^  ^'  ^'  ^'  22^'  "  ^*«  beld  that  under  the  facts  in  evi- 

dence plaintiff  had  not  from  the  bare  fact  of  relationship  an  insurable  Inter- 

™  m  «nnr.  ^H^'^K^';  ^/^'  Manning,  J.,  in  ROMBACH  v.  INSUR- 
nT^f  o  WK^  i  T^^  ^''''^^  formulate  the  general  principle  somewhat  in 
IttZ^  ^r^l^^  insurable  interest  arises  or  is  Implied  from  relationship, 
a  W«i^i«i!!  .f '.*  "^^^^  *^^  relationship  is  such  that  the  insurer  has 

a  lega  claim  upon  the  insured  for  services  or  support.  Even  though  such 
legal  claim  does  not  exist,  yet  where,  from  the  personal  relations  o?  the  two 

thf  ,*^'  ^'f^^'^  ''''^  ^^°^  ^"^"°S  displayed  by  the  Insured  to  the  Insur^e 
the  latter  has  a  reasonable  right  to  expect  some  pecuniary  advantage  from 
the  continuance  of  the  life  of  the  former,  or  to  fear  loss  from  his  death   an 

DAVIS,  104  U.  S.  775,  26  L.  Ed.  »24,  accords  with  this  view.  In  that  oft 
quoted  passage  Mr.  Justice  Field  says:  "It  is  not  easy  to  define  with  pr" 
cision  what  will  in  all  cases  constitute  an  insurable  interest,  s^  arto  teS 
the  contract  out  of  the  class  of  wager  policies.  It  may  be  stat^  generX 
^ZZ"V'.  "^^  '"'"^  an  interest  arising  from  the  relation^  of  tS  party  ot 
tammg  the  Insurance,  either  as  creditor  of  or  surety  for  the  assurec^  or  from 
the  ties  of  blood  or  marriage  to  him,  as  will  justify  a  reasonable  expectatio^ 
of  advantage  or  benefit  from  the  continuance  of  his  life.  It  L  nornressarv 
that  the  expectation  of  advantage  or  benefit  should  be  always  c^p^We  of 

his  child   and  a  child  In  the  life  of  his  parent,  a  husband  in  the  Ufe  of  his 

Sis'^nd  TsTo  '  I."  '^'  "''  ''  ^^^  '"^'^"^    ^^^  --'^^'  affection  lI^^Lli 
this  kind  Is  considered  as  more  powerful— as  operating  more  efflcacionsiv 

to  protect  the  life  of  the  Insured  than  any  other  consWrratLn.  Tut  if  ^i^ 
cases  there  must  be  a  reasonable  ground,  founded  upon  the  relations  of  the 
parties  to  each  other,  either  pecuniary  or  of  blood  or  affinity,  to  expect  somi 
benefit  or  advantage  from  the  continuance  of  the  life  of  the  insuref  OthTr! 
wise  the  contract  is  a  mere  wager,  by  which  the  party  takinHhe  nolicv  i« 
directly  Interested  in  the  early  death  of  the  assured.  SucrpoHc^^^^^^^^  a 
tendency  to  create  a  desire  for  the  event  They  are  therefore,  Cependently 
Th  J  ^^^^  ''''  ^^^  '"^J""*'  condemned  as  being  against  publifS^ 
The  doctrine  as  thus  announced  seems  clearly  t«  amount  t^merel^ 
An  Insurable  nterest  In  the  life  of  another  need  not  rest  upon  anTpecun^rv 
or  contractual  relations  to  that  other,  but  whatever  the  relation  whether 
pecuniary  or  of  blood  or  affinity,  it  must  furnish  reasonabir^ound^'to^^ 


'j'm< 


f' 


il} 


f 


It 


132 


INSURABLE    INTEREST. 


(Ch.4 


services  may  not  be  actually  rendered; "'  or  any  loss  or  liability  that 
will  be  incurred  by  reason  of  the  death  of  such  relative."*  So  a  mere 
expectation  of  benefit  to  be  received  from  the  insured  relative  is  suffi- 
cient, even  where  such  expectation  has  no  basis  of  legal  right."'  Thus 
a  parent  may  insure  the  life  of  his  minor  child,  to  whose  services  he 
is  entitled,"*  but  not  that  of  an  adult  child,  unless,  perchance,  he  has 
under  some  statute  a  right  to  look  to  such  child  for  support,  or  ac- 

pect  some  benefit  or  advantage  from  the  continuance  of  the  life  of  the  as- 
sured"  Certainly  by  "benefit  or  advantage"  was  meant  some  substantial, 
material— some  pecuniary— advantage  or  benefit,  and  not  any  sentimental 
benefit  arising  from  the  gratification  of  the  feelings  of  love  and  afifection 
for  the  insured  by  the  continuance  of  his  life.  See  Life  Ins.  Clearing  Co.  v. 
O'Neill,  106  Fed.  800,  45  C.  C.  A.  641,  54  L.  R.  A.  225.  "The  relationship, 
therefore,  seems  to  be  of  little  importance,  except  as  tending  to  give  rise  to 
the  circumstances  which  justify  the  expectation." 

151  In  a  case  where  the  plaintiff  had  made  advances  to  the  insured  to 
enable  him  to  prospect  for  gold  in  California,  Woodrufl'.  J.,  said:   "It  is  urged 
that  it  In  no  wise  appears  that  the  efforts  of  R.  H.  Miller  would  have  pro- 
duced  any  pecuniary  benefit  to  tiie  plaintiff.    So  It  may  be  said  to  the  wife, 
non  constat  that  your  husband  will  support  you  if  he  lives;  or  to  the  creditor, 
non  constat  that  your  debtor  would  have  been  either  able  or  willing  to  pay 
you  had  he  lived;    or  to  a  master,  non  constat  but  tiaat  the  labor  of  your 
apprentice  would  have  been  unproductive,  or  but  that  infirmity  or  vice  in 
him  would  have  made  a  continuance  of  the  relation  a  burden  to  you  instead 
of  a  profit     The  law  does  not  proceed  upon  any  such  speculation  as  to  pos- 
sible results.    There  is  a  legal  presumption  of  benefit  In  all  these  cases,  be^ 
cause  there  is  a  claim  to  what  is  in  its  nature  beneficial."    Miller  v    Insur- 
ance  Co    2  E.  D.  Smith  (N.  Y.)  268.    In  New  York  the  mother,  equally  with 
the  father,  is  entitled  to  the  expected  services  of  her  infant  child,  and  this 
is  an  insurable  interest.     O'Rourke  v.  Insurance  Co.,  10  Misc.  Rep.  405,  31 
N  Y  Supp  130.    But  where  it  is  affirmatively  shown  that  the  services  could 
never  have  been  rendered,  as  where  the  wife  was  a  hopeless  maniac  or  in- 
valid  at  tiie  time  tiie  policy  was  issued,  it  has  been  questioned  whether  an 
msurable  l^te^st  would  be  held  to  exist.     CURRIER  v.  INSURANCE  CO 
57  Vt  496   52  Am.  Rep.  134.    Cf.  People's  Mut  Ben.  See.  v.  Templeton,  16 
Ind.  App.  126,  44  N.  B.  809.    See,  also,  Mitchell  v.  Insurance  Co.,  45  Me.  104, 

^\fffi^v.Tollcy  CO.,  3  Bq.  388, 1  Kay  &  J.  223;  Scott  y.  Dickson,  108  Pa 
6  56  Am  Rep.  192.  In  this  case  it  was  held  that  a  surety  on  an  official 
bond  had  an  insurable  interest  in  the  life  of  his  principal. 

188  CRONIN  V.  INSURANCE  CO.,  20  R.  I.  670,  40  Ati.  497.  In  this  case  it 
aDoeared  that  an  annt  and  her  niece  lived  togetiier  in  amicable  and  affection- 
ate  relations.  Each  had  reason  to  rely  on  the  other  in  case  of  need,  and  upon 
this  eround  the  aunt  was  held  to  have  an  insurable  interest  in  the  life  of 
her  iSTce  see  Ca?^nter  v.  Insurance  Co.,  161  Pa.  9,  28  Ati.  943,  23  L.  R.  A. 
.571,  41  Am.  St  Rep.  880;  LORD  v.  DALL,  12  Mass.  115  7  ^^   I)ec.  38. 

164  Mitchell  v.  Insurance  Co..  45  Me.  104,  71  Am.  Dec.  529;    IXDOMIS  v. 
INSURANCE  CO.,  6  Gray  (Mass.)  396.    The  rule  seems  to  be  otherwise  in 
England.    It  is  there  held  that  tiie  word  "interest"  as  used  in  St  14  Geo. 
Ill   c  48,  means  pecuniary  interest    See  HALFORD  v.  KYMER,  10  Barn   &    . 
a  724.    Cf.  Law  T.  Policy  Co..  1  Kay  &  J.  223,  2  Bigelow  L.  &  Ace  Rep.  404. 


§§  49-52)  INSURABLE   INTEREST  IN   LIVES.  133 

tually  receives  support  from  him.  So  a  minor  child  has  an  insurable 
interest  in  the  life  of  a  parent  to  whom  he  may  look  for  education  and 
support,  but  an  adult  son,  Uving  apart  from  and  independently  of  his 
father,  has  no  insurable  interest  in  the  latter's  life,  in  the  absence  of 
special  circumstances  justifying  an  expectation  of  future  benefit,"*^ 
and  the  same  is  true  of  insurance  procured  by  a  daughter  on  the  life 
of  her  mother."* 

That  provision  of  the  poor  laws  of  some  of  the  states  by  which  per- 
sons having  sufficient  ability  are  required  to  maintain  their  lineal 
kindred  materially  affects  the  question  of  insurable  interest  between 
persons  so  related.  Plainly  one  may  insure  the  life  of  a  kinsman  to 
whom  he  may  look  for  support  under  such  laws,  provided  it  appears 
that  the  person  whose  life  is  insured  has  the  ability  to  render  the  sup- 
port."^ And  it  seems  to  be  the  generally  accepted  rule  that  a  policy 
may  be  validly  taken  out  on  the  life  of  a  kinsman  to  cover  expenditures 
actually  made  in  the  support  of  the  insured,  or  those  necessarily  to  be 
made  in  the  future."®  But  the  Pennsylvania  court  has  gone  still  fur- 
ther, and  held  that  the  mere  possibility  of  having  to  incur  such  ex- 
penditures under  the  statute  constitutes  a  sufficient  insurable  interest. 
"Maintenance  of  a  father  or  mother  unable  to  work  is,  therefore,  a 
legal  liability.  When  we  add  to  this  the  feelings  of  natural  affection 
and  the  desire  produced  by  these  feelings  to  provide  for  the  comforts 
of  parents,  the  right  to  effect  an  insurance  on  the  life  of  the  parent, 
to  carry  out  these  purposes,  ought  not  to  be  denied.  It  would  be 
technical  in  the  extreme  to  say  that  a  son  has  no  insurable  interest  in 
his  father's  life.  Poverty  may  overtake  the  father  in  his  lifetime, 
and  thus  both  father  and  mother  be  cast  upon  the  son;  or,  if  the 
father  die  before  her,  the  necessity  may  fall  at  once  upon  the  son. 
Why,  then,  should  he  not  be  permitted  to  make  a  provision,  by  insur- 
ance, to  reimburse  himself  for  his  outlays,  past  or  future?  What  in- 
jury is  done  to  the  insurance  company?  They  receive  the  full  pre- 
mium, and  they  know  in  such  case,  from  the  very  relationship  of  the 
parties,  that  the  contract  is  not  a  mere  gambling  adventure,  but  is 
founded  in  the  best  feelings  of  our  nature,  and  on  a  legal  duty  which 

185  Guardian  Mut  Life  Ins.  Co.  v.  Hogan.  80  111.  35,  22  Am.  Rep.  180; 
Life  Ins.  Clearing  Co.  v.  O'Neill,  106  Fed.  800,  45  C.  C.  A.  641,  54  L.  R.  A.  225. 

i8«  Continental  Life  Ins.  Co.  v.  Volger,  89  Ind.  572,  46  Am.  Rep.  185;  Pru- 
dential Ins.  Co.  V.  Hunn,  21  Ind.  App.  525,  52  N.  E.  772,  69  Am.  St.  Rep.  380. 

i«7  Life  Ins.  Clearing  Co.  v.  O'Neill,  106  Fed.  800,  45  C.  C.  A.  641,  54  L.  R. 
A.  225.  In  this  case,  however,  there  was  no  proof  of  the  father's  probable 
ability  to  support  his  son,  and  a  judgment  sustaining  the  policy  was  re- 
versed. To  same  effect,  see  People's  Mut  Ben.  Soc.  v.  Templeton,  16  Ind. 
App.  126,  44  N.  K  809.  See  Hurd  v.  Doty,  86  Wis.  1,  56  N.  W.  371,  21  L.  R. 
A.  746. 

!••  Life  Ins.  Clearing  Co.  v.  O'Neill,  supra. 


ii 


134 


INSURABLE    INTEREST. 


(Ch.4 


may  arise  at  any  time.  We  are  of  the  opinion  that  the  policy  is  not 
void."  ^»» 

On  principle  it  is  difficult  to  see  how  even  the  actual  expenditure 
of  money,  or  the  immediate  liability  to  pay,  can  give  any  insurable 
interest  in  the  life  of  the  indigent  and  dependent  relative.  The  death 
of  the  insured  will  but  relieve  the  assured  of  his  burden,  and  from  a 
merely  pecuniary  point  of  view  will  unquestionably  be  a  benefit  to 
the  assured,  and  not  a  source  of  detriment,  excepting  so  far  as  it  may 
impose  liability  for  funeral  expenses.  Manifestly  the  theory  of  the 
Pennsylvania  court,  as  expressed  in  Mutual  Reserve  Ins.  Co.  v.  Kane, 
just  cited,  that  the  assured  should  be  allowed  by  insurance  to  reim- 
burse himself  for  outlays,  past  or  future,  is  unsound.  Life  insurance 
is  not  a  profit-making  transaction  to  the  assured.  The  premiums  pay- 
able in  each  case  are  so  calculated  that  if  the  life  insured  continues  as 
long  as  the  average  expectancy  of  one  of  similar  age  and  health,  the 
amount  paid  in  premiums,  with  interest,  will  exceed  the  amount  ulti- 
mately realized  from  the  policy.  Hence,  unless  the  assured  had  fraud- 
ulent secret  knowledge  of  conditions  that  would  probably  terminate 
the  life  insured  at  an  earlier  period  than  that  fixed  by  the  mortuary 
tables,  it  would  be  thoroughly  unwise  for  him  to  hope  to  regain  his 
expenditures  on  behalf  of  the  dependent  relative  by  insuring  his  life. 

A  sister  may  insure  the  life  of  a  brother  from  whom  she  receives, 
or  expects  to  receive,  support,^ ••  but  not  otherwise.***  The  mere  re- 
lation of  brothers,^ •*  or  of  uncle  and  nephew,  or  aunt  and  nephew,**' 


W 


iB»  RESERVE  MUT.  INS.  CO.  v.  KANE,  81  Pa.  154,  22  Am.  Rep.  742. 

i«o  LORD  V.  DALLs  12  Mass.  115,  7  Am.  Dec.  38.  See  the  rather  unsatis- 
factory opinion  on  this  question  in  Goodwin  v.  Insurance  Co.,  73  N.  Y.  480, 
493. 

i«i  The  unqualified  statement  in  Hosmer  v.  Welch,  107  Mich.  470,  67  N. 
W.  504,  that  "at  the  common  law  the  defendant  had  an  insurable  interest  In 
her  brother's  life,"  is  an  obiter  dictum.    The  policy  was  issued  to  the  brother. 

i«»  Lewis  V.  Insurance  Co.,  39  Conn.  104,  3  Bigelow  L.  &  Ace.  Ins.  Rep. 
527.  In  this  case  Carpenter,  J.,  said:  **We  think  it  Is  a  correct  legal  propo- 
sition that  the  mere  relationship  of  a  brother  is  not  such  an  interest  as  will 
support  a  policy  of  life  insurance.  The  interest  required  to  make  such  a  con- 
tract valid  must  be  of  a  pecuniary  nature.  A  few  cases  will  be  cited  by  way 
of  illustration.  A  father,  being  entitled  to  the  wages  of  his  minor  son,  has 
an  insurable  interest  in  his  life.  LOOMIS  v.  INSURANCE  CO.,  6  Gray 
(Mass.)  396.  A  sister,  dependent  upon  a  brother  for  her  education  and  sup- 
port, has  an  insurable  interest  in  the  brother's  life.     LORD  v.  DALL,  12 

i«3  SINGLETON  v.  INSURANCE  CO.,  66  Mo.  63,  27  Am.  Rep.  321.  An 
uncle  living  on  his  sister's  place,  and  keeping  his  nephew,  the  child  of  his 
sister,  has  no  insurable  interest  in  such  child.  Prudential  Ins.  Co.  v.  Jenkins, 
15  Ind.  App.  297,  43  N.  E.  1056,  57  Am.  St  Rep.  228.  A  nephew  has  no  in- 
surable interest  In  the  life  of  his  aunt  by  force  of  the  mere  relationship. 
Appeal  of  Corson,  113  Pa.  438,  6  Atl.  213,  57  Am.  Rep.  479.  See,  also,  Mowry 
V.  Insurance  Co.,  9  R.  I.  353,  1  Bigelow  L.  &  Ace.  Ins.  Rep.  698. 


§§  49-52) 


INSURABLE   INTEREST  IN   LIVES. 


135 


Ii 


or  grandfather  and  grandson,^®*  will  not  constitute  an  insurable  inter- 
est. There  must  be  some  further  reason  for  expecting  pecuniary  ad- 
vantage from  the  continued  life  of  the  insured  than  the  mere  kindly 
or  affectionate  feeling  naturally  existent  between  such  near  relatives. 
It  has  further  been  held  that  a  mere  moral  obligation  to  support  or 
render  other  service  is  not  sufficient  of  itself.  There  must  be  either  a 
legal  right  or  a  well-grounded  expectation  of  benefit  to  be  conferred. 
Thus  in  Guardian  Mut.  Life  Ins.  Co.  v.  Hogan  "»  it  was  held  that  the 
moral  obligation  resting  upon  the  father  to  reimburse  the  son  for  labor 
and  money  expended  in  improvements  on  the  father 's  land  did  not  give 
the  son  such  an  interest  as  would  validate  a  policy  on  the  father's  life. 
But  the  existence  of  such  moral  obligation  may,  in  connection  with  near 
relationship  and  kindly  feeling,  be  evidence  of  a  well-grounded  expec- 
tation of  advantage  to  be  derived  from  the  continuation  of  the  life  of 
the  person  upon  whom  such  obligation  rests,  which  will  constitute  a 
sufficient  interest.  Thus  where  an  aunt  and  niece  had  lived  tc^ether 
like  mother  and  daughter  for  many  years,  the  aunt  supporting  and 
caring  for  the  niece,  it  was  held  that  the  aunt  had  an  insurable  inter- 
est in  the  life  of  the  niece,  since  she  had  reason  to  expect,  from  the 
kindly  feelings  that  subsisted  between  them,  that  the  niece  would  per- 
form the  moral  obligation  imposed  upon  her  by  those  circumstances 
to  care  for  and  support  the  aunt  in  case  of  need.^®* 

The  conclusion  to  be  reached  from  an  examination  of  the  cases  is 
that,  despite  the  positive  tone  of  the  persistent  dicta  to  the  contrary, 
the  fact  of  near  relationship  does  not  of  itself  constitute  an  insurable 
interest,  and  is  of  importance  only  as  affording  evidence  of  the  exist- 
ence of  a  legal  right  to  demand  maintenance,  or  of  a  reasonable  hope 


Mass.  115,  7  Am.  Dec.  38.  A  person  advancing  money  to  another,  in  con- 
sideration of  which  he  acquires  an  interest  by  contract  in  his  future  serv- 
ices, may  protect  that  interest  by  an  insurance  on  his  life.  BEVIN  v.  IN- 
SURANCE CO.,  23  Conn.  244.  From  these  and  many  other  cases  that  might 
be  cited,  it  is  apparent  that  the  plaintiff  might  have  had  an  insurable  interest 
in  the  life  of  his  brother.  He  might  have  been  dependent  upon  him  for  his 
support.  He  might  have  had  a  fixed  pecuniary  interest  in  his  future  services. 
He -might  have  been  a  creditor.  The  defendants  could  not  know  from  the 
application  that  the  plaintiff  did  not  have  a  pecuniary  interest  in  the  continu- 
ance of  his  brother's  life.  The  policy,  therefore,  on  its  face,  is  not  void,  but 
prima  facie  valid,  and  could  only  be  avoided  upon  proving,  by  parol  evi- 
dence, a  want  of  interest"  But,  so  it  has  been  held,  a  brother  has  an  in- 
surable interest  in  the  life  of  a  sister  whom  he  supports  and  maintains  in  his 
family.    Keystone  Mut  Ass'n  v.  Beaverson,  16  Wkly.  Notes  Cas.  (Pa.)  188. 

i«*  Burton  v.  Insurance  Co.,  119  Ind.  207,  21  N.  E.  746,  12  Am.  St.  Rep. 
405.  A  mother-in-law  has  no  insurable  interest  in  the  life  of  her  son-in-law. 
Adams  v.  Reed  (Ky.)  36  S.  W.  568. 

i«8  80  111.  35,  22  Am.  Rep.  180. 

ie«  CRONIN  V.  INSURANCE  CO.,  20  R.  I.  570.  40  Ati.  497. 


i: 


136 


INSURABLE   INTEREST. 


(Ch.4 


of  future  benefit  arising  out  of  the  kindly  feeling  and  benevolent  dis- 
position usually  incident  to  such  relationship. 

The  Relation  of  Husband  and  Wife. 

There  would  seem  to  be  no  proper  question  as  to  the  right  of  either 
spouse  to  insure  the  life  of  the  other.  The  wife  has  a  legal  right  to  sup- 
port from  the  husband/*^  and,  under  the  common  law,  the  husband  has 
a  right  to  the  services  of  his  wife.^*®  Even  under  the  modern  mar- 
ried women's  laws,  by  which  the  wife  is  entitled  to  retain  her  own  earn- 
ings, it  is  clear  that  the  husband's  expectation  of  services  to  be  rendered 
by  the  wife  in  and  about  the  common  household  would  give  him  an  in- 
surable interest  in  her  life.  And  it  would  seem  that  the  mere  right  to 
the  wife's  services  will  support  a  policy  on  her  life  taken  out  by  the  hus- 
band, without  actual  proof  that  the  right  was  of  value.  In  a  Vermont 
case,  however,  it  was  intimated  that  proof  of  the  inability  of  the  wife 
to  render  such  services,  as  when  she  is  hopelessly  insane  or  an  invalid, 
might  require^the  application  of  a  different  rule.*** 

Commercial  Relations. 

Any  person  is  permitted  to  protect  by  insurance  any  commercial  in- 
terest he  may  possess  in  the  life  of  another.    A  creditor  may  insure 


i«T  Reed  V.  Assurance  Co.,  Peake,  Add.  Cas.  70;  MUTUAL  LIFE  INS.  CO. 
T.  ALLEN,  138  Mass.  24,  52  Am.  Rep.  245.  In  the  latter  case  it  appeared  that  a 
wife  had  taken  out  a  policy  on  the  life  of  her  husband,  and  had  assigned  it 
to  plaintiff.  The  policy  was  enforced,  the  court  assuming,  without  discus- 
sion, that  the  wife  had  an  insurable  interest  in  her  husband's  life.  In  ROM- 
BACH  V.  INSURANCE  00.,  35  La.  Ann.  233,  48  Am.  Rep.  239,  Manning,  J., 
said:  "It  is  thoroughly  settled,  because  universally  held,  that  a  wife  has  an 
insurable  interest  in  the  life  of  her  husband,  and  although,  in  that  case  es- 
pecially. It  might  be  assumed  that  love  and  affection  fmmished  a  sufficient 
basis  for  it,  the  decisions  do  not  place  it  on  that  ground,  but  rather  on  the 
support  she  is  entitled  to  from  him."  Dicta  to  the  same  effect  are  numer- 
ous. See  Crotty  v.  Insurance  Co.,  144  U.  S.  621,  12  Sup.  Ct.  749,  36  L.  Ed.  566. 
Statutes,  permitting  the  wife  to  take  out  insurance  on  her  husband's  life, 
and  exempting  the  proceeds  thereof  from  the  payment  of  his  debts,  have 
been  enacted  in  nearly  all  of  the  states.  See  4  Rev.  St  N.  Y.  (8th  Ed.)  p.  2602; 
Code  Ala.  1896,  §  2356.  A  wife  under  a  common-law  marriage  has  an  in- 
surable interest  in  the  life  of  her  husband.  Watson  v.  Insurance  Co.  (C.  C.) 
21  Fed.  698.  In  this  case  the  husband  had  taken  out  the  policy,  but  the 
court  did  not  consider  this  fact  See,  also,  E3quitable  Life  Assur.  Soc.  v. 
Paterson,  41  Ga.  338,  5  Am.  Rep.  535.  A  woman  has  an  insurable  interest  in 
the  life  of  her  fianc6.  CHISHOLM  v.  INSURANCE  CO.,  52  Mo.  213,  14  Am. 
Rep.  414;  Taylor  v.  Insurance  Co.,  15  Tex.  Civ.  App.  254,  39  S.  W.  185.  And 
it  has  been  held  that  a  mistress  had  an  insurable  interest  in  the  life  of  her 
paramour.    Lampkin  v.  Insurance  Co.,  11  Colo.  App.  249,  52  Pac.  1040. 

i«8  This  constitutes  an  insurable  interest  CURRIER  t.  INSURANCE  CO., 
57  Yt.  496,  52  Am.  Rep.  134. 

i«»Id. 


§§  49-52) 


INSURABLE   INTEREST  IN  LIVES. 


137 


the  life  of  his  debtor/^®  a  partner  that  of  his  copartner/^ ^  or  a  serv- 
ant the  life  of  his  master.* ^^  And  a  master  may  insure  his  servant 
against  such  injuries  in  the  course  of  his  employment  as  will  impose 
liability  on  the  master.*^*  The  life  of  a  contractor  under  obligation  to 
construct  any  work  may  be  insured  by  his  employer,  and  persons  pe- 
cuniarily interested  in  any  financial  enterprise  may  insure  the  life  of 
the  financier  who  has  charge  of  it.^^*  The  life  of  one  only  indirectly 
connected  with  a  commercial  enterprise  may  be  insured  by  those  in- 
volved in  it  if  the  death  of  such  person  would  injuriously  affect  the 
enterprise,  as  in  the  recent  instances  of  insurance  on  the  life  of  the 
King  of  England  procured  by  those  who  had  invested  money  in 
preparations  for  the  King's  coronation.  So  a  tenant  pur  autre  vie 
might  well  insure  the  life  of  his  cestui  que  vie;  ^"^^  and  one  who  owns 
a  property  interest  contingent  upon  another's  attaining  some  specified 
age  may  through  insurance  secure  indemnity  for  the  loss  he  would  suf- 
fer by  the  death  of  that  other  before  arriving  at  that  age.*^^ 
A  surety  may  insure  the  life  of  his  principal,  for  the  latter  is  but  a 

i7«  BBVIN  V.  INSURANCE  CO.,  23  Conn.  244;  RAWLS  y.  INSURANCE 
CO.,  27  N.  Y.  282,  84  Aul  Dec.  280;  MOliRELL  v.  INSURANCE  CO.,  10 
Ousb.  (Mass.)  282,  57  Am.  Dec.  92;  Shafifer  v.  Spangler,  144  Pa.  223,  22  Atl. 
865;  Walker  v.  Larkin,  127  Ind.  100,  26  N.  E.  684;  Mace  v.  Association,  101 
N.  0.  132,  7  S.  E.  674;  Equitable  Life  Ins.  Co.  v.  Hazelwood,  75  Tex.  338,  12 
S.  W.  621,  7  L.  R.  A.  217,  16  Am.  St.  Rep.  893.  And  the  creditor  retains  an 
insurable  interest  in  the  life  of  his  debtor  after  the  debt  is  barred  by  the 
statute  of  limitations.  RAWLS  v.  INSURANCE  CO.,  supra.  A  creditor 
may  insure  the  life  of  his  infant  debtor,  even  though  the  infant  may  avoid 
the  obligation.    Porter  on  Ins.  69,  citing  Dwyer  v.  Bdie,  2  Park,  Ins.  914. 

iTi  "Certainly  Luchs  had  a  pecuniary  interest  in  the  life  of  Dillenberg  on 
two  grounds:  Because  he  was  his  creditor,  and  because  he  was  his  partner. 
The  continuance  of  the  partnership,  and,  of  course,  a  continuance  of  Dillen- 
berg's  life,  furnished  a  reasonable  expectation  of  advantage  to  himself.  It 
waa  in  the  expectation  of  such  advantage  that  the  partnership  was  formed, 
and,  of  course,  for  the  like  expectation,  was  continued."  Mr.  Justice  Field 
in  CONNECTICUT  MUT.  LIFE  INS.  CO  v.  LUCHS,  108  U.  S.  498,  2  Sup.  Ot 
949,  27  L.  Ed.  800. 

172  Hebdon  v.  West,  3  Best  &  S.  579. 

173  EMPLOYERS'  LIABILITY  ASSUR  CORP.  v.  MERRILL,  155  Mass. 
404,  29  N.  B.  529.  An  employer's  insurance  against  his  liability  for  the  neg- 
ligent killing  of  his  employs  is  essentially  different  from  an  insurance  of  the 
life  of  an  employ^.  See  American  Employers'  Liability  Ins.  Co.  v.  Fordyce, 
62  Ark.  562,  36  S.  W.  1051,  54  Am.  St.  Rep.  305. 

174  It  is  currently  reported  in  the  newspapers  that  insurance  to  a  large 
amount  is  carried  upon  the  life  of  Mr.  J.  P.  Morgan  by  stockholders  of  enter- 
prises of  which  that  financier  has  charge.  See  Mechanics'  Nat  Bank  v. 
Comins  (N.  H.)  55  Atl.  191. 

17  5  A  tenant  of  a  landlord  having  only  a  life  estate  in  the  leased  premises 
has  an  insurable  interest  in  such  landlord's  life.  Sides  v.  Insurance  Co.  (a 
a)  16  Fed.  650. 

176  Law  T.  PoUcy  Co.,  3  Eq.  388,  1  Kay  &  J.  223,  2  Bigelow  U  &  Ace.  Ins. 
Rep.  404. 


t  i 


i( 


1 


) 


n 


ill 


138 


INSURABLE   INTEREST. 


(Ch.4 


§53) 


INTEREST  OP  CREDITOR  IN   LIFE   OP  DEBTOR. 


139 


conditional  debtor,*''  but  the  principal  has  no  such  interest  in  the  life 
of  his  surety."*  Likewise  it  has  been  held  that  a  building  association 
has  no  insurable  interest  in  the  life  of  a  member  who  is  in  no  wise  in- 
debted to  it."» 


INTEREST  OF  CREDITOR  IN  LIFE  OF  DEBTOR. 

53.  Tlie  interest  of  the  creditor  in  the  life  of  the  debtor  is  measured 
by  the  amonnt  of  the  debt.  The  insurance  effected  by  the  cred- 
itor upon  such  an  interest,  -while  not  limited  to  the  amount  of 
the  debt,  ncill  not  be  allowed  so  to  exceed  that  sum  as  to  justify 
an  inference  that  it  was  taken  out  as  a  wager.  Therefore  cred- 
itor's insurance  to  an  amonnt  unreasonably  greater  than  the 
debt  is  illegal  and  void. 

Debtor  and  Creditor — Amount  of  Insurance. 

It  is  well  settled  that  a  creditor  has  an  insurable  interest  in  the  life 
of  his  debtor,*'®  but  it  is  difficult  to  ascertain  from  the  authorities  just 
what  is  the  nature  of  that  interest,  and  what  is  the  principle  on  which 
is  to  be  determined  the  proportion  which  the  amount  of  insurance  pro- 
cured shall  bear  to  the  amount  of  the  debt.  It  is  clear  that  insurance 
limited  to  the  exact  amount  of  the  debt  will  fail  to  indemnify  the  cred- 
itor, in  case  the  debtor  dies  before  the  debt  is  paid,  by  an  amount  equal 
to  the  sum  of  all  premiums  paid,  with  interest  thereon.***  On  the 
other  hand,  it  is  equally  clear  that  to  allow  the  creditor  to  procure  in- 
surance greatly  exceeding  the  amount  of  the  debt  would  be  to  tempt 
him  to  bring  the  debtor's  life  to  an  unnatural  end,  and  thus  contravene 
the  principle  of  public  policy  which  has  been  seen  to  lie  at  the  very* 
basis  of  the  doctrine  of  insurable  interest.  And  that  this  fear  of  in- 
ducing crime  is  not  an  idle  one  is  apparent  from  the  experience  of  in- 
surance companies,  as  sometimes  reflected  in  the  reported  cases.*** 

ITT  Scott  T.  Dickson,  108  Pa.  6,  66  Am.  Rep.  192;  Embry's  Adm'r  v.  Harris, 
104  Ky.  61,  52  S.  W.  958. 

178  Tate  V.  Association,  97  Va.  74,  33  S.  B.  382,  45  L».  R.  A.  243,  75  Am.  St 

Rep.  770. 

iT»  Id.  A  religious  society,  supported  largely  by  voluntary  contributions 
from  its  members,  has  no  insurable  interest  in  the  life  of  such  a  member. 
Trinity  College  v.  Insurance  Co.,  113  N.  C.  244,  18  S.  B.  175,  22  L.  R.  A.  291. 

i«o  See  note  170,  supra. 

i»i  "He  [the  creditor]  must  be  allowed  to  provide  for  a  sum  sufficient, 
when  collected,  to  cover  his  demand,  and  such  disbursements  as  may  be  re- 
quired to  keep  the  policy  in  force,  with  accrued  interest."  fienry,  J.,  in 
Equitable  Life  Ins.  Co.  v.  Hazelwood,  75  Tex.  338,  12  S.  W.  621,  7  U  R.  A. 
217,  16  Am.  St.  Rep.  893. 

182  See  Reg.  v.  Flanagan,  15  Cox,  Cr.  Cas.  411.  In  this  case  it  appeared 
that  a  woman,  having  lent  divers  sums  to  several  persons,  secured  the  loan 


The  courts  have  generally  not  attempted  to  lay  down  any  precise  or 
arbitrary  rule  fixing  the  proportion  of  valid  insurance  to  the  debt  in- 
tended to  be  secured,  but  have  contented  themselves  with  stating  broad- 
ly that  when  the  disproportion  between  the  insurance  and  the  debt  is  so 
great  as  to  show  the  transaction  to  be  really  a  wager,  and  not  a  bona 
fide  eflFort  to  secure  a  debt,  the  policy  shall  be  void."'  In  eflFect  each 
case  has  been  decided  on  its  own  facts,  and  the  proportionate  amounts 
of  debt  and  insurance  are  merely  evidential  of  the  good  or  bad  faith 
of  the  creditor  procuring  the  insurance.  Thus  a  policy  of  $3,000  to 
secure  a  debt  of  $70  was  held  manifestly  dishonest  and  void;"* 
while,  under  the  peculiar  circumstances  of  another  case,  insurance  to 
the  amount  of  $6,500  was  held  not  to  be  so  disproportionate  to  a  debt 
of  $1,000  as  to  avoid  the  contract."'' 

The  Pennsylvania  decisions,  however,  attempt  to  formulate  a  rule  to 
govern  the  proportion  between  the  insurance  and  the  debt  as  follows : 
The  creditor  may  insure  the  life  of  his  debtor  in  an  amount  equal  to 
the  sum  of  the  debt,  plus  all  the  premiums  payable  during  the  debtor's 
life  expectancy  according  to  the  Carlisle  tables,  with  interest  on  the 
debt  and  premiums  during  that  time."'  This  rule,  however,  though  ap- 
proved in  several  successive  decisions,"^  is  wholly  impracticable  and 
valueless.  The  premiums  payable  upon  any  policy,  with  annual  in- 
terest thereon,  during  the  insured's  life  expectancy,  will  alone  always 
amount  to  a  sum  equal  to  or  greater  than  the  proceeds  of  the  policy, 

by  insurance  on  their  lives,  and  then  poisoned  them  to  secure  the  insurance 
money. 

188  See  the  opinion  of  Miller,  J.,  in  Cammack  v.  Lewis,  15  Wall.  (U.  S.)  643. 
21  L.  Ed.  244.  . 

184  Cammack  v.  Lewis,  15  Wall.  043,  21  L.  Ed.  244.  In  this  case  it  appeared 
that  the  debtor  procured  the  policy,  and.  in  pursuance  of  a  previous  agree- 
ment with  his  creditor,  assigned  it  to  him  to  secure  the  debt  of  $70.  The 
assignee  creditor  agreed  to  pay  to  the  insured's  wife  $1,000  out  of  the  pro- 
ceeds of  the  policy.  The  court  declared  the  assignment  invalid  because  of 
the  great  disproportion  between  the  debt  and  the  insurance.  See  CON- 
NECTICUT MUT.  LIFE  INS.  CO.  v.  LUCHS,  108  U.  S.  498,  2  Sup.  Ct.  949, 
27  L.  Ed.  800.  In  Corson's  Appeal,  113  Pa.  438,  6  Atl.  213,  57  Am.  Rep.  479] 
a  policy  for  $2,000,  to  cover  a  debt  of  $743,  was  sustained.  In  Grant's  Adm'rs 
V.  Kline,  115  Pa.  618,  9  Atl.  150,  the  policy  was  for  $3,000,  the  debt  $743, 
and  the  transaction  was  declared  valid.  There  were  cu-cumstances,  how- 
ever, evidencing  the  good  faith  of  the  creditor.  In  Cooper  v.  Weaver's 
Adm'r  (Pa.)  li  Atl.  780,  a  policy  for  $3,000,  to  secure  a  debt  of  $100,  was 
declared  void  as  a  wager.  To  same  effect,  see  Cooper  v.  Shaeflfer  (Pa)  11 
Atl.  548.  ' 

18B  RIT^TLER  V.  SMITH,  70  Md.  261,  16  Atl.  890,  2  L.  R.  A.  844 

186  uirich  V.  Reinoehl,  143  Pa.  238,  22  Atl.  862,  13  L.  R.  A.  433,  24  Am.  St 
Rep.  534. 

187  This  rule  was  proposed  In  Grant's  Adm'p  t.  Kline,  supra,  was  spoken  of 
approvingly  in  Cooper  v.  Shaeflfer,  supra,  was  adopted  in  Ulrlch  y.  Reinoehl. 
and  reaffirmed  In  Shaffer  t.  Spangler,  144  Pa.  223,  22  Atl.  865. 


:a 


t 


i 


11 


1 


140 


INSURABLE    INTEREST. 


(Ch.4 


leaving  no  margin  for  the  debt.    If  it  were  otherwise,  insurance  com- 
panies could  not  possibly  meet  their  obligations.^®® 

Hence  the  only  working  rule  would  seem  to  be  that  when  the  dis- 
proportion between  the  insurance  and  the  debt  is  so  great,  taken  with^ 
the  other  circumstances  of  the  case,  as  to  show  a  want  of  good  faith 
in  the  creditor,  the  policy  will  be  deemed  a  wager  contract,  and  void.^**^ 


XNTEBEST  OF  THE  ASSIGNEE  OF  A  LIFE  POLICY. 

54.  On  principle,  and  according  to  the  dear  weight  of  authority,  an 
assignn&ent  of  a  life  policy  to  one  having  no  insurable  interest 
therein  is  perfectly  valid  if  made  in  good  faith,  and  not  as  a 
•over  for  fraudulent  speculation  in  life. 

The  validity  of  the  assignment  of  a  life  policy  to  one  having  an  in- 
surable interest  in  the  life  insured  is  unquestionable,  but  there  is  much 
conflict  of  authority  and  consequent  confusion  in  the  law  as  to  whether 
a  valid  assignment  of  a  life  policy  can  be  made  to  one  having  no  in- 
surable interest.  This  confusion  is  due  partly  to  the  difficult  nature 
of  the  principles  involved,  and  partly  to  the  misleading  opinion  de- 
livered by  Mr.  Justice  Field,  of  the  Supreme  Court  of  the  United 
States,  in  the  correctly  decided  case  of  Warnock  v.  Davis,^'®  follow- 
ing the  preceding  case  of  Cammack  v.  Lewis, ^'^  decided  by  the  same 
court.  These  confusing  influences  have  further  been  aided  and  abet- 
ted by  a  catch  phrase,  which,  however,  does  not  state  the  issue  fairly, 
to  the  effect  that  the  law  will  not  allow  a  person  to  procure  by  as- 
signment insurance  that  he  could  not  procure  directly.^**  A  fair  state- 
ment of  the  issue  is  found  in  the  postulate  that  the  law  will  allow  the 


188  See  the  exposition  of  tJie  fallacy  of  this  rule  by  Lumpkin,  P.  J.,  in 
Exchange  Bank  v.  Loh,  104  Ga.  446,  31  S.  E.  459,  44  L.  R.  A.  372. 

i8j>  A  third  view  of  this  question  is  expressed  in  Equitable  Life  Ins.  Go. 
V.  Hazelwood,  75  Tex.  338,  12  S.  W.  621,  7  L.  R.  A.  217,  16  Am.  St.  Rep. 
893.  In  this  case  Henry,  J.,  iaid:  "When  the  insurance  is  obtained  by  a 
person  on  his  own  life,  and  made  payable  originally,  or  by  assignment,  to 
another,  having  none,  or  only  a  limited  insurable  interest  in  his  life,  as  the 
surplus  after  the  payment  of  the  charges  will  go  to  the  party  whose  life  is 
assured,  we  see  no  reason  for  limiting  the  amount  for  which  the  insurance 
may  be  taken  out  When  the  insurance  is  not  contracted  for  by  the  person 
whose  life  is  insured,  but  by  a  creditor,  in  his  own  name,  so  that  there  is  no 
party  to  the  contract  except  himself  and  the  insurer,  it  becomes  Immaterial 
what  amount  may  be  contracted  for,  as  no  more  will  be  collected  than  wiP 
be  ultimately  sufficient  to  discharge  his  debt  and  disbursements  on  the  pol 
ley,  including  interest  upon  both.'* 

i»o  WARNOCK  V.  DAVIS,  104  U.  S.  775,  782.  26  L.  Ed.  924,  Elliott,  Cas.  71. 

!•!  15  Wall.  (U.  S.)  643,  21  L.  Ed.  244. 

i»a  WARNOCK  t.  DAVIS,  supra. 


§54) 


INTEREST  OF  THE   ASSIGNEE   OF  A  LIFE   POLICY. 


141 


insured  to  designate  a  beneficiary  under  the  policy  as  well  by  assign- 
ment as  by  original  nomination. 

The  true  principle  governing  the  question  may  be  derived  from  the 
statement  of  some  generally  accepted  rules  of  law : 

(1)  A  person  insuring  his  own  life  may  designate  any  person  what- 
ever as  beneficiary,  irrespective  of  insurable  interest  in  that  bene- 
ficiary. 

(2)  The  law  requires  an  insurable  interest  only  at  the  inception  of 
the  policy,  as  evidence  of  good  faith.  The  presence  of  such  interest 
at  any  subsequent  period  is  wholly  immaterial. 

(3)  Life  insurance,  though  based  on  the  theory  of  indemnity  at  its 
inception,  is  not  a  contract  of  indemnity,  but  chiefly  of  investment  As 
a  chose  in  action  it  has  at  any  time  after  its  issue  a  recognized  value, 
termed  the  "reserve  value." 

Hence  wc  conclude  that  a  policy  of  life  insurance,  validly  issued  to 
one  having  an  insurable  interest,  becomes  in  his  hands  a  valuable 
chose  in  action,  which  should  be  assignable  as  any  other  property 
right,  unless  such  assignment  be  opposed  to  some  clear  rule  of  public 
policy;  that  this  right  remains  unimpaired  in  the  hands  of  the  original 
assured,  even  after  the  termination  of  the  interest  upon  which  its  pro- 
curement was  based,  and  there  can  be  no  sufficient  reason  for  requir- 
ing an  interest  in  the  assignee  which  is  not  possessed  by  the  assignor; 
and,  finally,  that  there  is  no  sufficient  reason  why  the  beneficiary  des- 
ignated by  assignment  of  the  policy  after  its  valid  issue  should  be 
subject  to  a  different  rule  as  to  interest  required  from  that  applying 
to  the  beneficiary  designated  at  the  time  of  the  issue  of  the  policy. 
Since  an  insurable  interest  is  not  necessary  in  the  latter,  neither  should 
it  be  required  of  the  former. 

But  in  considering  the  doctrine  that  an  assignment  to  one  having  no 
insurable  interest  is  valid,  it  is  important  to  note  two  qualifying  phases 
that  materially  affect  the  rights  of  the  assignee.  An  assignment  in 
form  will  not  be  allowed  to  operate  as  a  mere  cloak  to  conceal  a  wager 
in  reality.  Again,  assignments  may  be  absolute  or  conditional.  A 
conditional  assignment  made  to  secure  a  debt  cannot  possibly  give  to 
the  assignee  any  rights  in  the  proceeds  of  the  policy  in  excess  of  his 
interest,  measured  by  the  debt  secured,  with  interest  and  the  charges 
incurred  on  account  of  the  policy.  Upon  these  two  propositions  all 
authorities  are  agreed.  Yet  critical  examination  of  the  numerous 
cases  that  lay  down  the  rule  that  an  assignment  to  one  having  no  in- 
terest is  invalid,  and  that  the  assignee  can  retain  the  proceeds  of  the 
assigned  policy  only  to  the  extent  of  his  interest,  discloses  the  fact  that 
in  nearly  all  of  them  the  assignment  in  question  was  either  a  cloak 
for  gambling  insurance,  or  a  conditional  assignment  to  secure  a  debt. 
This  appears  strikingly  in  the  misleading  leading  case  of  Warnock  y. 


[I 


142 


INSURABLE    INTEREST. 


(Ch.4 


§54) 


INTEREST  OF  THE  ASSIGNEE  OF  A   LIFE   POLICY. 


1421 


Davis. *••  Here  one  Grosser  applied  for  insurance,  being  moved 
thereto  by  an  agreement,  made  on  the  same  day  with  the  application, 
by  the  Scioto  Trust  Association,  to  maintain  the  policy,  and  to  pay 
all  charges  connected  with  it,  in  consideration  of  receiving  an  assign- 
ment entitling  them  to  collect  the  sum  due  under  the  policy  upon  the 
death  of  Grosser,  and,  after  paying  10  per  cent,  of  such  sum  to  Gros- 
ser's  widow,  to  retain  absolutely  the  balance.  In  accordance  with  this 
agreement,  the  policy  was  assigned  the  day  succeeding  its  issue,  and 
upon  Crosser's  death,  some  18  months  later,  the  assignees  collected  the 
amount  payable  under  the  policy,  and  retained  nine-tenths  of  the  sum 
collected.  Upon  suit  by  Grosser's  administrator  it  was  very  properly 
held  that  the  assignees  could  retain  only  so  much  of  the  proceeds  of 
the  policy  as  was  necessary  to  reimburse  them  for  their  outlay  in  re- 
spect to  it ;  that  the  assignment  operated  merely  to  secure  the  payment 
of  money  loaned  for  the  payment  of  premiums. 

It  would  be  difficult  to  imagine  a* case  showing  more  clearly  than 
this  a  purpose  to  evade  the  rule  of  law  forbidding  wager  policies,  and 
to  obtain  indirectly  insurance  that  the  law  would  not  allow  directly. 
The  real  effect  of  the  transaction  was  precisely  the  same  as  if  the  as- 
sociation had  directly  procured  insurance  upon  the  life  of  Grosser,  in 
which  they  had  absolutely  no  interest.  The  decision  of  the  court, 
therefore,  in  refusing  to  uphold  such  a  masquerading  assignment,  was 
eminently  just  and  proper.  But  the  court  unfortunately  went  far  be- 
yond the  case  decided,  and  made  various  general  observations,  which 
apply  equally  well  to  cases  entirely  different  from  the  one  giving  oc- 
casion to  them,  and  have  on  that  account  been  productive  of  much 
loose  thinking  and  confusing  adjudication.  "The  assignment  of  a  pol- 
icy," says  Field,  J.,  "to  a  party  not  having  an  insurable  interest,  is  as 
objectionable  as  the  taking  out  of  a  policy  in  his  name.  Nor  is  its 
character  changed  because  it  is  for  a  portion  merely  of  the  insurance 
money.  To  the  extent  in  which  the  assignee  stipulates  for  the  pro' 
ceeds  of  the  policy  beyond  the  sums  advanced  by  him,  he  stands  in 
the  position  of  one  holding  a  wager  policy.  The  law  might  be  read- 
ily evaded,  if  the  policy,  or  an  interest  in  it,  could,  in  consideration  of 
paying  the  premiums  and  assessments  upon  it,  and  the  promise  to  pay 
upon  the  death  of  the  assured  a  portion  of  its  proceeds  to  his  repre- 
sentatives, be  transferred  so  as  to  entitle  the  assignee  to  retain  the 
whole  insurance  money." 

The  case  of  Roller  v.  Moore's  Adm'r,"*  decided  by  the  Virginia  Court 
of  Appeals  in  1889,  and  often  cited  as  authority  for  the  doctrine  that  an 
assignment  of  a  life  policy  to  one  having  no  insurable  interest  is  in- 
valid, is  typical  of  that  class  of  cases  which  make  an  unnecessary  ex- 

i»»  WARNOCK  V.  DAVIS,  104  U.  S.  775,  26  L.  Ed.  924,  Elliott,  Cas.  71, 
i»4  86  Ya.  512,  10  S.  B.  241,  6  L.  R.  A.  136. 


tension  to  absolute  assignments  of  the  principle  properly  applicable  to 
conditional  assignments.  In  that  case  Roller  had  obtained  from  the 
insured  an  assignment  of  a  policy  on  his  life,  which,  though  absolute  on 
its  face,  was  yet  proved  to  have  been  given  merely  as  security  for  money 
advanced  by  Roller  to  pay  the  premiums  on  the  policy.  Under  these 
facts  the  court  properly  decided  that  the  assignment  was  really  con- 
ditional, and  that  the  assignee  could  retain  only  so  much  of  the  pro- 
ceeds of  the  policy  as  would  reimburse  him  for  all  sums  he  had  paid 
on  account  of  the  policy,  with  interest  thereon.  Under  the  facts  of 
this  case  any  other  decision  would  have  been  impossible.  It  must 
have  been  the  same  if  the  assignment  had  been  of  any  other  chose  in 
action.  But  the  court,  not  content  with  correctly  deciding  the  case 
before  it,  proceeded  to  lay  down  obiter  a  rule  for  absolute  assignments, 
which  is  declared  to  be  the  same,  in  effect,  as  that  for  conditional  as- 
signments. Echoing  the  dictum  in  Warnock  v.  Davis,  the  court  says : 
"The  assignment  of  a  policy,  however,  to  a  party  not  having  an  in- 
surable interest,  is  as  objectionable  as  the  taking  out  of  a  policy  in 
his  name."  The  Virginia  court  has  lost  no  opportunity  in  subsequent 
decisions  to  re-echo  this  dictum  in  Roller  v.  Moore's  Adm'r,  although 
in  every  case  the  assignment  was  shown  to  be  conditional.^'* 

In  like  manner  it  will  be  found  that  in  nearly  all  the  cases  that  lay 
down  the  rule  that  an  assignment  to  one  without  interest  is  invalid, 
the  real  question  before  the  court  for  decision  involved  a  conditional 
assignment.  On  the  other  hand,  there  are  numerous  cases  fairly  pre- 
senting for  decision  the  rights  of  parties  under  an  absolute  assign- 
ment, in  which  the  courts  of  many  different  states  have  held,  after 
careful  consideration,  that  no  interest  in  the  assignee  is  necessary  to 
support  the  validity  of  an  assignment  of  a  life  policy  that  has  been  val- 
idly taken  out  by  one  having  such  interest.  Among  the  states  that  have 
adopted  this  view  are  the  great  commercial  states.  New  York,^®'  Penn- 
sylvania,"^ Massachusetts,"*  Gonnecticut,"*  Illinois,"®  Indiana,"* 
Ohio,"*  New  Jersey,"*  and  Maryland,"*  as  well  as  Iowa,"*  Louisi- 

i»6  See  Tate  v.  Association,  97  Va.  74,  33  S.  E.  382,  45  L.  R.  A.  243,  75  Am. 
St.  Rep.  770,  and  cases  therein  cited. 

196  STEINBACK  v.  DIEPENBROCK,  158  N.  Y.  24,  52  N.  E.  662.  44  L.  R.  A. 
417,  70  Am.  St  Rep.  424. 

i»7  Cunningham  v.  Smith's  Adm'r,  70  Pa.  450. 

i»8  Shea  V.  Association,  160  Mass.  289,  35  N.  B.  855,  39  Am.  St.  Rep.  475; 
King  V.  Cram  (Mass.)  69  N.  E.  1049. 

i»»  Fitzgerald  v.  Insurance  Co.,  56  Conn.  116,  13  Atl.  673,  17  Atl.  411.  7  Am. 
St.  Rep.  288. 

soo  Martin  v.  Stnbbings,  126  111.  387,  18  N.  E.  657,  9  Am.  St.  Rep.  625. 

«oi  Metropolitan  Life  Ins.  Co.  v.  Brown  (Ind.  Sup.)  65  N.  E.  908. 

ao2  Eckel  v.  Renner,  41  Ohio  St.  232. 

«08  VIVAR  V.  KNIGHTS  OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36. 

S04  RITTLER  V.  SMITH,  70  Md.  261,  16  Atl.  890,  2  L.  R.  A.  844. 

106  Farmerg*  &  Traders*  Bank  v.  Johnson  (Iowa)  91  N.  W.  1074. 


1 


;  > 


'  i 


f. 


144 


INSURABLE    INTEREST. 


(Ch.4 


§55) 


CONSENT  OF  THE  LIFE  INSURED. 


145 


ana,***  Mississippi,'**  New  Hampshire,**'*  Tennessee,***  Rhode  Isl- 
and,*" South  Carolina,*"  Vermont,*^*  ^nd  Wisconsin.*"  The  Eng- 
lish ***  and  Canadian  *^*  courts  have  also  adopted  the  same  rule. 

In  Mutual  Life  Ins.  Co.  v.  Allen,* ^*  which  repudiated  the  appar- 
ently contrary  holding  of  the  same  court  in  Stevens  v.  Warren,*^* 
Allen,  J.,  so  well  expresses  the  reasons  why  the  assignee  need  have  no 
insurable  interest  that  his  words  may  well  be  quoted  here:  "The 
other  objection  urged  is  that  such  transactions  may  lead  to  gaming 
contracts.  This  does  not  meet  the  question,  which  is  whether  such 
an  assignment  is  in  itself  illegal  as  a  wagering  contract.  Most  con- 
tracts have  an  element  of  gambling  in  them.  There  is  uncertainty 
in  the  value  of  any  contract  to  deliver  property  at  a  future  day,  and 
great  uncertainty  in  the  present  value  of  an  annuity  for  a  particular 
life,  or  of  a  sum  payable  in  the  event  of  a  particular  death,  and  such 
contracts  and  rights  are  often  used  for  gambling  purposes.  The 
question  is  whether  the  right  to  a  sum  of  money,  payable  on  the  death 
of  a  person  under  a  contract  in  the  form  of  an  insurance  policy,  has 
any  special  character  or  quality  which  renders  it  less  assignable  than 
the  right  to  a  sum  payable  at  the  death  of  the  same  person  under  any 
other  contract  or  assurance,  or  than  a  remainder  in  real  estate  ex- 
pectant on  such  death.  We  see  nothing  in  the  contract  of  life  insur- 
ance which  will  prevent  the  assured  from  selling  his  right  under  the 
contract  for  his  own  advantage,  and  we  are  of  the  opinion  that  an 
assignment  of  a  policy  made  by  the  assured  in  good  faith  for  the  pur- 
pose of  obtaining  its  present  value,  and  not  as  a  gaming  risk  between 
him  and  the  assignee,  or  a  cover  for  a  contract  of  insurance  between 
the  insurer  and  assignee,  will  pass  the  equitable  interest  of  the  assignor ; 
and  that  the  fact  that  the  assignee  has  no  insurable  interest  in  the  life 
insured  is  neither  conclusive  nor  prima  facie  evidence  that  the  trans- 
action is  illegal." 

>••  Hearing's  Succession,  26  La.  Ann.  326. 

«07  Murphy  v.  Red,  64  Miss.  614,  1  South.  761,  60  Am.  Rep.  68w 

«o«  Mechanics*  Nat  Bank  v.  Comins  (N.  H.)  55  Atl.  191. 

«o»  Mutual  Protection  Ins.  Oo.  v.  Hamilton,  5  Sneed  (Tenn.)  269. 

«io  Clark  v.  Allen,  11  R.  I.  439,  23  Am.  Rep.  496. 

>ii  Cross wel  t.  Association,  51  S.  C.  103,  28  S.  E.  200. 

«"  Fairchlld  t.  Association,  51  Vt.  613. 

«i«  Bursinger  T.  Bank,  67  Wis.  75,  30  N.  W.  290,  58  Am.  Rep.  84a 

>i*  ASHLEY  T.  ASHLEY,  3  Sim.  149. 

«i»  Vezina  v.  Insurance  Oo.,  6  Can.  Sup.  Ct,  30. 

>i<  MUTUAL  LIFE  INS.  CO.  Y.  ALLEN,  138  Mass.  24,  52  Am.  Rep.  245. 

aiT  101  Mass.  564. 


CONSENT  OF  THE  LIFE  INSUHED. 

65*  While  tlie  practice  of  insurers  makes  the  qnestion  someDrliat  un- 
certain, it  seems  that  both  by  reason  and  authority  insurance 
written  upon  the  life  of  one  urho  has  not  consented  thereto  is 
contrary  to  public  policy,  and  void. 

The  Consent  of  the  Insured. 

It  seems  not  to  be  yet  clearly  settled  whether  the  consent  of  the  in- 
sured is  necessary  to  the  validity  of  a  policy  procured  by  another, 
especially  in  view  of  the  undoubtedly  extensive  practice  of  insurers 
now  to  grant  insurances  to  large  amounts  on  the  lives  of  persons 
who  have  no  knowledge  of  the  contract  and  have  given  no  consent  to 
it.  Policies  upon  the  lives  of  infants  are  not  of  infrequent  occurrence. 
Such  policies  are  necessarily  issued  without  examination  of  the  life 
insured,  or  other  means  of  ascertaining  the  character  of  the  risk. 
Hence  the  element  of  pure  chance,  suggestive  of  speculation  and 
gambling,  is  large  in  these  contracts.  It  is  generally  reported  that 
large  amounts  of  insurance  were  taken  by  tradesmen  and  others  in- 
terested, on  the  life  of  Queen  Victoria  prior  to  her  jubilee  celebration, 
and  on  the  life  of  the  present  king  of  England  before  his  recent  coro- 
nation. It  is  likewise  said  that  large  insurances  were  procured  on 
the  life  of  a  prominent  New  York  financier  during  the  pending  of  cer- 
tain large  financial  operations  of  which  he  had  charge.  In  none  of 
tliese  cases  is  it  probable  that  the  person  whose  life  was  the  subject  of 
insurance  was  consulted  or  examined  with  a  view  to  determining  the 
state  of  his  health. 

On  clear  principle,  and  by  the  weight  of  authority,  it  is  believed 
that  all  such  contracts  are  contrary  to  public  policy,  and  void.^^®  AS 
has  been  shown  heretofore,  the  amount  of  insurance  that  may  be  val- 

218  In  Metropolitan  Life  Ins.  Co.  v.  Smith,  59  S.  W.  24,  22  Ky.  Law  Rep. 
8G8,  53  L.  R.  A.  817,  it  was  held  that  where  a  wife  insures  her  husband's 
life  without  his  knowledge  or  consent,  and  pays  the  premiums  out  of  money 
given  her  by  him  for  household  expenses,  such  premiums  are  recoverable  by 
him.  The  doctrine  of  the  previous  case  of  Metropolitan  Life  Ins.  Co.  v. 
Monohan,  102  Ky.  13,  42  S.  W.  924,  that  it  is  contrary  to  public  policy  for  one 
to  procure  an  insurance  on  the  life  of  another  without  such  other's  consent 
was  reaffirmed.  To  similar  effect,  see  Metropolitan  Ins.  Co.  v.  Trende,  53 
S.  W.  412,  21  Ky.  Law  Rep.  909;  Metropolitan  Life  Ins.  Co.  v.  Sehlhorst, 
53  S.  W.  524,  21  Ky.  Law  Rep.  912.  In  Metropolitan  Life  Ins.  Co.  v.  Blesch 
(Ky.)  58  S.  W.  436,  it  appeared  that  a  daughter  had  insured  her  father's 
life  without  his  knowledge  or  consent,  not  knowing  that  such  insurance  is 
void  as  contrary  to  public  policy.  She  was  allowed  to  recover  the  premiums 
as  paid  under  a  mistake  of  law.  In  Chicago  Guaranty  Fund  Life  Soc.  v. 
Dyon,  79  111.  App.  100,  it  was  declared  that  a  policy  of  insurance  on  the  life 
of  a  father,  issued,  without  his  knowledge  or  consent,  to  his  son,  was  void 
as  contrary  to  public  policy, 

Vance  Ins. — 10 


a 


I  d 

i 


'  I 


146 


INSURABLE   INTEREST. 


(Ch.4 


idly  procured  is  not  limited  strictly  to  the  amount  of  the  pecuniary 
interest  to  be  protected.  A  margin  must  be  allowed  to  cover  premiums 
and  other  charges.  But  this  excess  of  insurance  offers  a  strong  temp- 
tation to  hasten  the  death  of  the  insured  by  criminal  means.  The 
danger  to  the  public  from  such  insurances  is  largely  obviated  when  the 
insured,  with  knowledge  of  all  the  circumstances,  has  given  his  con- 
sent to  the  contract  His  very  consent  is  strong  evidence  of  the  good 
faith  of  the  person  procuring  the  insurance,  and  thus  affords  a  needed 
guaranty  to  society.  Remove  this  consent,  and  there  is  no  guaranty 
of  the  good  faith  of  the  assured,  or  of  the  safety  of  the  life  insured. 
The  especial  necessity  of  guarding  the  lives  of  rulers  and  other  promi- 
nent persons  whose  lives  are  usually  the  subjects  of  this  illicit  insurance 
emphasizes  the  value  of  a  rule  of  law  that  would  prohibit  such  doubt- 
ful and  corrupting  contracts,  and  remove  a  very  real  public  danger.*^^ 

«!•  Cases  bave  arisen  in  which  persons  whose  lives  were  insured  without 
their  consent  have  demanded  the  cancellation  of  the  policies  because  of  their 
distrust  of  the  assured.  See  ROMBACH  v.  INSURANCE  CO.,  35  La.  Ann. 
233,  48  Am.  Rep.  239. 


§56) 


THE  MAKING  OP  THE  CONTRACT, 


147 


.1 


56. 
57-59. 

GO. 

61. 
62-63. 

64. 

65. 

66. 

67. 

68. 

G9. 


CHAPTER  V. 

THE  MAKING  OF  THE  CONTRACT. 

In  General — Offer  and  Acceptance. 
The  Form  Required— Oral  Contracts. 

When  an  Oral  Contract  Becomes  CompIetVi 
Contracts  in  Writing. 

Informal  Written  Contracts. 
Formal  Written  Contracts— The  Policy. 
When  the  Policy  Becomes  Binding. 
Delivery. 

Payment  of  First  Premium. 
What  Papers  Form  the  Written  Contract 
Same — Mutual  Benefit  Insurance. 


TN  GENERAL—OFFER  AND  ACCEPTANCE. 

56.  The  contract  of  insnranoe,  like  any  other  contract,  is  complete  and 
bindine  only  when  an  offer  made  by  one  party  is  accepted  by  the 
other  in  the  terms  in  which  it  is  made.  Neither  the  offer  nor 
the  acceptance,  however,  need  be  in  any  particular  form.  Any 
acts  or  words  showing  an  intention  to  make  an  offer  and  to  give 
an  acceptance  are  sufficient  to  establish  a  binding  contract. 

The  contract  of  insurance,  like  any  other  contract,  becomes  com- 
plete only  when  the  minds  of  the  parties  have  met  in  a  common  in- 
tention to  be  bound  in  accordance  with  certain  terms.  An  oflFer  com- 
municated with  contracting  intent  must  within  a  reasonable  time  be 
accepted  in  the  terms  in  which  it  is  made,  and  that  acceptance  prop- 
erly communicated.  The  familiar  rules  of  general  contract  law  de- 
termmmg  what  constitutes  a  contractual  offer  or  a  valid  acceptance 
apply  fully  to  the  special  contract  of  insurance.  For  a  discussion  of 
such  rules  or  their  general  applications,  the  reader  is  referred  to 
treatises  on  contracts.  They  will  here  be  noticed  only  with  reference 
to  the  phases  peculiar  to  the  insurance  contract. 

In  the  conduct  of  the  insurance  business  there  has  been  developed 
a  customary  method  of  making  insurance  contracts.  The  offer  is 
made  by  the  person  desiring  the  insurance,  who  signs  a  written  ap- 
plication containing  such  information  concerning  the  subject  of  the 
proposed  insurance  as  may  be  desired  by  the  insurer.  This  applica- 
tion IS  delivered  to  a  soliciting  agent  of  the  insurer,  whose  powers  are 
usually  limited  to  receiving  such  application  and  forwarding  it  to  the 
general  offices  of  the  insurer,  where  it  is  either  rejected  or  accepted. 
i^y  the  terms  of  the  offer,  the  acceptance,  however,  is  not  ordinarily 


•■.I 


!i 


it: 

(    1 


li 


148 


THE  MAKING  OP  THB  CONTRACT. 


(Ch.5 


§§  57-59)     THE  FORM  REQUIRED — ORAL  CONTRACTS. 


149 


complete  until  the  issue  and  delivery  of  a  policy  and  payment  of  the 
first  premium.  When  the  preliminary  negotiations  take  such  form, 
there  is  seldom  any  difficulty  in  determining  when  the  contract  is  com- 
plete. The  policy  contains  the  contract,  which,  by  its  terms,  goes  into 
effect  only  when  delivered  without  condition.  And  all  preliminary  ne- 
gotiations and  agreements  are  merged  in  the  written  policy. 

But  this  usual  course  of  procedure  may  be  departed  from.  It  may 
be  that  the  insurer  offers  a  contract  which  is  accepted  by  the  insured 
with  or  without  writing,  or  the  agent  to  whom  the  application  for  in- 
surance is  made  may  have  authority  to  accept  the  offer  without  refer- 
ence, and  this  acceptance  may  be  written  or  oral.  Even  though  re- 
strictions have  been  put  upon  the  agent's  power,  they  may  be  invalid 
because  of  repugnancy,  or  because  waived  by  the  conduct  of  the  in- 
surer. In  these  and  numerous  other  irregular  cases  it  often  becomes 
a  difficult  task  to  determine  at  what  time  an  insurance  contract  becomes 
complete.  In  this  determination  two  considerations  are  of  paramount 
importance :  First,  the  intention  of  the  parties,  and,  second,  the  au- 
thority of  the  parties,  as  agents,  to  carry  out  that  intention.  Of 
course,  expression  must  be  given  to  this  intention ;  and  we  shall  now 
consider  the  form  which  this  expression  must  assume,  reserving  the 
discussion  of  the  powers  of  agents  for  a  later  chapter. 

THE  FORM  REQUIRED— ORAL  CONTRACTS. 

57.  It  la  well  settled  that,  in  the  absence  of  statutes  to  the  contrary, 

an  oral  contract  of  insurance  is  ▼alid,  with  the  possible  ex- 
ception of  guaranty  insurance. 

58.  Oral  contracts  concerning  insurance  nuty  be  of  two  kinds,  which 

must  be  carefully  distinguished. 

(a)  A  contract  of  present  insurance  made  without  writing  confers 

the  same  rights  and  imposes  the  same  obligations  as  does  a  writ- 
ten contract. 

(b)  An  oral  contract  thereafter  to  make  a  contract  of  insurance  gives 

to  one  of  the  parties  a  right  to  demand  of  the  other  the  execu- 
tion of  an  insurance  contract  in  accordance  with  the  usual 
terms,  and  the  delivery  of  a  policy  as  written  evidence  thereof. 

59.  By  implication,  the  oral  contract  of  present  insurance  includes  all 

the  terms  of  the  policy  expected  subsequently  to  issue,  or,  in 
some  states,  prescribed  by  statute.  But  an  executory  agree- 
ment to  make  a  contract  is  not  subject  to  the  conditions  of  the 
contemplated  policy.  In  the  one  case  the  insurer  incurs  liabil- 
ity upon  the  happening  of  the  loss  insured  against;  in  the  other, 
vpon  his  failure  to  deliver  a  policy  as  agreed. 

The  numerous  and  complex  provisions  of  the  usual  contract  of  in- 
surance, and  the  long  terms  for  which  insurance  is  sometimes  granted., 
make  it  eminently  desirable  that  the  terms  of  this  important  contract 


should  be  fixed  in  writing.  Hence  arose  a  general  commercial  usage 
that  required  the  insurance  contract  to  assume  the  form  of  a  written 
policy.  The  formal  dignity  of  the  policy  was  sometimes  enhanced  by 
placing  it  under  seal.  The  existence  of  this  custom,  and  the  fact 
that  the  contract  was  one  properly  belonging  to  the  law  merchant, 
led  the  learned  author  of  an  early  work  on  marine  insurance  ^  to  ex- 
press the  opinion  that  an  action  on  an  oral  contract  of  insurance 
would  not  now  be  sustained.  This  view  was  adopted  in  full  by  the 
Ohio  Court  of  Appeals,  which  declared  in  an  early  case  that  "such  a 
thing  as  a  verbal  policy  is  unknown  to  the  law  of  insurance,  and  the 
books  upon  the  subject  and  the  decisions  unite  in  declaring  that  a  policy 
must  be  in  writing."  *  But  it  is  now  settled  beyond  question  that,  in 
the  absence  of  statutory  requirements  to  the  contrary,  an  oral  con- 
tract of  insurance  is  valid  and  enforceable.'  The  argument  from 
commercial  usage  was  thus  met  by  the  court  in  the  leading  case  of 
Sanborn  y.  Fireman's  Ins.  Co. :  *  "It  is  not  easy  to  see  the  force  of 
the  reasoning  which  would  infer  that,  because  parties  usually  make 
their  contract  in  one  way,  it  would  be  void  when  they  choose  to  make 
it  in  another,  equally  good  at  common  law,  and  not  prohibited  by 
statute."  Indeed,  a  usage  that  an  oral  contract  should  be  invalid 
unless  in  writing  would  be  contrary  to  law,  as  adding  terms  to  the 
statute  of  frauds,  and  evidence  tending  to  prove  such  usage  would  be 
inadmissible.*  But  the  fact  that  such  contracts  are  customarily  in 
writing  will  raise  a  strong  presumption  that  no  contract  exists  when 
there  has  been  no  policy  delivered  or  premium  paid.* 

Not  within  the  Statute  of  Frauds. 

The  contract  of  insurance,  even  though  by  its  terms  extending  over 
many  years,  does  not  come  within  that  provision  of  the  statute  of 

1  Duer,  Ins.  p.  60;   Miller,  Ins.  p.  30. 

2  Cockerill  v.  Insurance  Co.  (1847)  16  Ohio,  148.  This  declaration,  however, 
was  obiter,  as  tlie  insurer's  charter  required  its  contracts  to  be  in  writing. 
And  it  seems  to  have  been  repudiated  in  later  Ohio  cases.  See  Dayton  Ins. 
Co.  V.  Kelly  (1873)  24  Ohio  St.  345,  15  Am.  Rep.  61;  Newark  Mach.  Co.  v.  Ken- 
ton Ins.  Co.,  50  Ohio  St.  549,  35  N.  E.  1060,  22  D.  K.  A.  768.  In  Bell  v.  Insur- 
ance Co.  (1843)  5  Rob.  (La.)  423,  39  Am.  Dec.  542,  it  is  also  stated  that  an  in 
surance  contract  must  be  in  writing.  But  this  is  pure  dictum.  So  in  Platho 
V.  Insurance  Co.,  38  Mo.  254. 

•  Newark  Mach.  Co.  v.  Kenton  Ins.  Co.  (1893)  50  Ohio  St  549,  35  N.  R 
1060,  22  L.  R.  A.  768,  and  note,  Woodruff,  Ins.  Cas.  93 ;  Haskin  v.  Insurance 
Co.,  78  Va.  700;  Pacific  Mut  Ins.  Co.  v.  Shaffer,  30  Tex.  av.  App.  313,  70 
S.  W.  566;  Commercial  Union  Assur.  Co.  v.  Urbansky  (Ky.)  68  S.  W.  653; 
Wooddy  V.  Insurance  Co.,  31  Grat.  (Va.)  362,  31  Am.  Rep.  739. 

•  16  Gray  (Mass.)  448,  77  Am.  Dec.  419. 

•  See  Emery  v.  Insurance  Co.  (1885)  138  Mass.  398. 

•  See  Equitable  Life  Assur.  Soc.  v.  McElroy  (1897)  83  Fed.  631,  28  C.  C.  A. 
365.    But  see  dissenting  opinion  of  Caldwell,  J. 


■(• 


:    f' 


I 


U  v!|  i» 


l! 


150 


THE  MAKING  OF  THE  CONTRACT, 


(Ch.5 


', 


frauds  requiring  contracts  not  to  be  performed  within  one  year  from 
the  making  thereof  to  be  in  writing.  The  insurer  becomes  Hable  to 
perform  his  contract  immediately  upon  the  happening  of  the  loss  to  be 
indemnified,  which  may  easily  be  within  a  year.^  It  has  been  held 
that  a  contract  of  reinsurance  is  a  promise  to  answer  for  the  debt  of 
another,®  but  this  is  contrary  to  both  reason  and  authority.®  Contracts 
of  giiaranty  insurance,  however,  would  seem  possibly  within  the  stat- 
ute, so  as  to  require  writing. 

Statutory  and  Charter  Provisions. 

We  have  thus  seen  that  at  common  law  an  oral  contract  of  insur- 
ance is  valid  and  binding.  We  have  next  to  consider  the  effect  of 
legislative  enactments  upon  this  doctrine.  Such  enactments  modify- 
ing the  common-law  rule  may  assume  two  forms.  They  may  be  con- 
tained in  general  statutes  governing  all  insurance  contracts,  by  whom- 
soever made,  or  they  may  be  found  in  the  charters  of  corporate  in- 
surers, thus  affecting  only  the  contracts  of  those  corporations.' 

It  is  competent  for  the  legislature  to  require  all  insurance  contracts 
to  be  in  writing,  and  in  some  states  statutes  to  this  effect  have  been 
passed.**  But  statutes  regulating  the  form  of  such  contracts  are  in 
derogation  of  common  right,  and  must  be  strictly  construed.  There- 
fore, it  is  held  that  a  statute  prescribing  a  standard  form  of  policy 
does  not  invalidate  oral  contracts,  but  merely  subjects  such  oral  in- 
surances to  the  conditions  of  the  standard  policy.** 

Revenue  Laws  Requiring  Policies  to  he  Stamped. 

Revenue  laws  are  usually  held  not  to  affect  the  validity  of  instru- 
ments required  to  be  stamped,  but  merely  the  admissibility  of  such 


I 


I  Sanborn  v.  Insurance  Co.,  16  Gray  (Mass.)  448,  77  Am.  Dec.  419;  Sanford 
v.  Insurance  Co.  (1899)  174  Mass.  416,  54  N.  E.  884,  75  Am.  St  Rep.  358; 
Franklin  Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  L.  Ed.  423;  Croft  v. 
Insurance  Co.,  40  W.  Va.  508,  21  S.  E.  855,  52  Am.  St  Rep.  902;  Phoenix  Ins. 
Co.  V.  Spiers,  87  Ky.  286,  8  S.  W.  453;  Wiebeler  v.  Insurance  Co.  (1883)  30 
Minn.  464,  16  N.  W.  363;  Woodruff,  Ing.  Cas.  79. 

But  where  an  agent  agrees  to  issue  policies  on  certain  goods  each  year 
during  a  number  of  years  in  the  future,  the  agreement  is  within  the  stat- 
ute of  frauds.     Klein  v.  Insurance  Co.  (Ky.)  67  S.  W.  250. 

»  Egan  V.  Insurance  Co.,  27  La.  Ann.  368. 

•  See  Commercial  Mut  Ins.  Co.  v.  Union  Mut  Ins.  Co.,  19  How.  (U.  S.) 
318,  16  L.  Ed.  636. 

10  See  section  2794,  Code  Ga.  1882;  Simonton  v.  Insurance  Co.  (1874)  51 
Ga.  76. 

II  HICKS  V.  ASSURANCE  CO.  (1900)  162  N.  Y.  284,  56  N.  E.  743,  48  L.  R. 
A.  424.  So  a  statute  invalidating  any  terms  of  a  policy  printed  in  type 
smaller  than  a  designated  size  would  not  affect  the  validity  of  an  oral  con- 
tract See  Code  Va.  1887,  §  3252;  Burruss  v.  Association,  96  Va.  543,  32  S. 
E.  49.  So  of  a  statute  requiring  the  application  to  be  attached  to  the  policy. 
RITTER  T.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct  300,  42  L.  Ed,  693. 


§§  67-59)     THE  FORM  REQUIRED — ORAL  CONTRACTS. 


151 


instruments  as  evidence.  Manifestly,  oral  contracts  are  not  thereby 
prohibited. ^^  The  federal  revenue  law  of  189S  provided  that  if  any 
of  the  instruments  required  by  that  law  to  be  stamped,  among  which 
were  insurance  policies,  should  be  issued  without  a  stamp  with  intent 
to  evade  the  law,  such  instrument  should  not  only  be  inadmissible  as 
evidence  in  any  court,  but  should  also  "be  deemed  invalid  and  of  no 
effect."  The  previous  federal  revenue  acts,  passed  during  and  im- 
mediately after  the  Civil  War,  contained  similar  provisions.  By  the 
great  weight  of  authority  it  has  been  held  that  the  rule  of  evidence 
laid  down  by  these  acts  has  no  application  to  the  state  courts,  being 
confined  to  the  federal  courts.^*  Nor,  it  seems,  does  the  omission  of 
a  required  stamp,  even  with  intent  to  evade  the  law,  render  such  un- 
stamped instrument  void,  as  it  is  not  within  the  powers  of  Congress 
to  enforce  its  revenue  laws  by  declaring  void  contracts  recognized  as 
valid  by  the  laws  of  the  state.^* 

Restrictions  upon  Contract  by  Charter  Provisions. 

The  charter  of  a  corporate  insurer  is  the  law  of  its  existence  and 
the  measure  of  its  powers.^*  It  is  manifestly  within  the  power  of  the 
creating  state  to  impose  upon  its  corporate  creature  such  limitations 
as  to  the  mode  of  contracting  as  may  seem  to  it  proper.  Therefore, 
if  a  provision  in  its  charter  prohibits  it  from  making  a  contract  other- 
wise than  in  writing,  its  oral  contracts  will  be  ultra  vires  and  invalid.^® 
But  such  oral  contracts  are  deemed  to  be  prohibited  only  when  the 

1*  Fish  V.  Cottenet,  44  N.  Y.  538,  4  Am.  Rep.  715.  In  an  ill  considered 
Kansas  case  it  was  held  that  the  revenue  law  required  writing  and  a  stamp 
to  validate  the  contract  Western  Massachusetts  Ins.  Oo.  v.  Duffey,  2  Kan. 
347. 

18  Knox  V.  Rossi  (Nev.  1900)  57  Pac.  179,  48  L..  R.  A.  305,  83  Am.  St.  Rep. 
5G6,  and  note  collating  cases.  See  especially  luminous  opinion  in  Carpenter 
V.  Snelling  (1867)  97  Mass.  452;  Talley  v.  Robinson's  Assignee,  22  Grat.  (Va.) 
888;  Wingert  v.  Zeigler,  91  Md.  318,  46  Atl.  1074,  51  L.  R.  A.  316,  80  Am. 
St.  Rep.  453;  Garland  v.  Gaines  (1901)  73  Conn.  662,  49  Atl.  19,  84  Am.  St. 
Rep.  182,  and  note.  In  Pennsylvania  a  different  view  is  taken,  and  un- 
stamped Instruments  are  held  inadmissible.  Chartlers  &  R.  Turnpike  Co.  v. 
McNamara  (1872)  72  Pa.  278,  13  Am.  Rep.  673. 

1*  Moore  v.  Moore,  47  N.  Y.  467,  7  Am.  Rep.  466;  Southern  Ins.  Co.  v. 
Estes,  106  Tenn.  472,  62  S.  W.  149,  52  L.  R.  A.  915,  82  Am.  St  Rep.  892; 
Latham  v.  Smith,  45  111.  31;   Hunter  v.  Cobb,  1  Bush  (Ky.)  239. 

As  to  effect  of  English  revenue  laws,  see  Morgan  v.  Mather,  2  Ves.  Jr. 
18;    1  Joyce,  Ins.  §  33. 

18  By  the  earlier  common-law  rule,  corporations  could  contract  only  under 
corporate  seal.  1  Bl.  Comm.  475.  But  it  is  now  well  settled  that  they  may 
contract  freely  by  parol,  unless  prohibited  from  so  doing.  Bank  of  Colum- 
bia v.  Patterson,  7  Cranch  (U.  S.)  299,  3  L.  Ed.  351;   Clark,  Corp.  157. 

i«  Head  v.  Insurance  Co.,  2  Cranch  (U.  S.)  150,  2  L.  Ed.  229.  A  considera- 
tion of  the  rights  of  the  insurer  under  such  agreements  raises  the  diflScult 
question  of  the  effect  of  ultra  vires  contracts  of  corporations,  which  cannot 
here  be  discussed.    See  Clark,  Corp.  157,  170,  et  seq. 


! 


152 


THE   MAKING   OF   THE    CONTRACT. 


(Ch.5 


I 


i; 


ii 


legislature  clearly  so  intended.  And  even  when  oral  contracts  of 
insurance  are  clearly  prohibited,  it  is  held  that  the  insurer  may  still 
make  valid  oral  preliminary  contracts  to  insure.*^ 

Such  are  the  holdings  when  the  charter  expressly  or  by  necessary 
implication  prohibits  contracts  by  parol.  A  very  different  rule  ap- 
plies when  the  charter  authorizes  contracts  in  writing,  and  their  ex- 
ecution by  certain  designated  officers.  Such  provisions  are  held  to  be 
enabling,  and  directory  in  their  purpose  of  regulating  the  internal 
management  of  the  corporation  and  the  conduct  of  its  business,  rather 
than  as  mandatory,  and  limiting  usual  powers  of  contracting. 

Thus  in  a  leading  case  in  the  Supreme  Court  of  the  United  States, 
in  which  an  article  of  the  insurer's  charter  authorized  the  president 
or  other  officer  appointed  by  the  board  of  directors  to  make  contracts 
of  insurance  "in  and  by  policy  of  insurance  in  writing,  to  be  signed 
by  the  president  or  other  officer  and  secretary  of  the  company,"  Jus- 
tice Bradley  used  the  following  language :  *•  "The  substantial  power 
given  by  law  to  an  association  organized  under  it  is  to  make  insur- 
ance against  loss  and  damage  by  fire.  The  mode  and  form  in  which 
it  shall  make  its  contracts  is  not  prescribed  as  an  essential  part  of  its 
being  or  mode  of  action.  The  expressions  referred  to  are  not  of  that 
character.  They  indicate,  in  language  chosen  by  the  company  itself, 
and  not  by  the  legislature,  the  ordinary  mode  of  conducting  its  busi- 
ness. After  having,  by  its  officers  and  agents,  made  a  parol  contract 
of  insurance,  and  induced  the  insured  party,  acting  in  good  faith,  to 
rely  on  its  engagements,  it  cannot  be  permitted  to  shelter  itself  behind 
any  such  ambiguous  expressions  in  its  charter,  and  claim  to  have  a 
special  statute  of  frauds  for  its  own  benefit." 

There  are  numerous  other  cases  involving  charters  that  contain 
similar  provisions,  and  holding  that  they  do  not  invalidate  oral  in- 


surances. 


i» 


Several  Kinds  of  Oral  Insurance  Contracts, 

Having  now  established  the  validity  in  modem  law  of  oral  con- 
tracts of  insurance,*®  it  is  fitting  that  we  next  determine  the  kinds 
of  such  contracts,  and  the  character  of  the  rights  secured  under  them. 
These  oral  contracts  concerning  insurance  will  be  found  to  fall  into 

IT  Constant  v.  Insurance  Co.  (1861)  3  Wall.  Jr.  316,  Fed.  Cas.  No.  3,136; 
FrankUn  Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  L.  Ed.  423. 

"  Relief  Fire  Ins.  Co.  v.  Shaw,  94  U.  S.  574,  577,  24  L.  Ed.  291. 

!•  Sanborn  v.  Insurance  Co.,  16  Gray  (Mass.)  448,  77  Am.  Dec.  419;  Trus- 
tees of  First  Baptist  Church  t.  Brooklyn  Fire  Ins.  O).,  19  N.  Y.  305;  Secur- 
ity Fire  In«.  Co.  v.  Kentucky  Marine  &  Fire  Ins.  Co.,  7  Bush  (Ky.)  81,  3  Am, 
Rep.  301. 

In  Henning  v.  Insurance  Co.,  47  Mo.  425,  4  Am.  Rep.  332,  such  a  provision 
was  held  to  be  restrictive,  and  an  oral  policy  therefore  to  be  void. 

10  There  seems  to  be  no  suificient  reason  why  these  rules  of  law  should 


§§  57-59)     THE  FORM  REQUIRED — ORAL  CONTRACTS. 


153 


three  classes.  The  first  and  least  important  of  these  embraces  those 
cases  in  which  the  expectant  insured  contracts  with  an  insurance  broker 
for  insurance  in  whatsoever  company  the  broker  may  elect,  and  for 
the  continuance  of  such  insurance,  or  that  the  broker  shall  keep  cer- 
tain property  insured!  Here  the  broker  is  purely  the  agent  of  the  in- 
sured, and  the  contract  between  them  is  simply  one  of  agency,  to  be 
governed  by  the  rules  of  law  ordinarily  applying  to  such  contracts. 
If  the  broker  fails  to  perform  his  agreement  and  secure  valid  insur- 
ance, he  is  liable  for  his  breach  of  contract,  the  measure  of  damages 
being  the  sum  for  which  the  broker  was  instructed  to  procure  insur- 
ance, provided  the  insurance  in  such  sum  could  have  been  secured  by 
the  exercise  of  reasonable  diligence  on  the  part  of  the  broker.*^  Such 
contracts,  however,  cannot  be  properly  called  insurance  contracts. 

Preliminary  Oral  Contracts, 

The  most  frequently  occurring  and  most  important  kinds  of  oral 
insurance  contracts  are  those  preliminary  to  the  execution  of  formal 
policies.  As  has  been  seen,  there  is  no  reason  in  the  law  why  final 
contracts  of  present  insurance  should  not  be  made  by  parol,  but  such 
unwritten  contracts  would  be  so  inexpedient  that  they  are  seldom 
encountered.  But  the  exigencies  of  business  render  preliminary  oral 
contracts  highly  expedient.  It  is  frequently  of  the  highest  impor- 
tance that  persons  engaged  in  commercial  ventures  shall  be  able  to 
secure  immediate  protection  against  possible  loss ;  and,  to  use  the  lan- 
guage of  Justice  Bradley  in  Eames  v.  Home  Ins.  Co. :  **  "If  parties 
could  not  be  made  secure  until  all  the  formal  documents  were  exe- 
cuted and  delivered,  especially  where  the  insuring  company  is  sit- 
uated in  a  different  state,  the  beneficial  effect  of  this  benign  contract 
of  insurance  would  often  be  defeated  and  rendered  unavailable.  As 
said  by  Mr.  Justice  Field  in  the  case  of  Franklin  Fire  Ins.  Co  v. 
Colt,^*  *It  would  be  impracticable  [for  a  company]  to  carry  on  its 
business  in  other  cities  and  states,  or  at  least  the  business  would  be 
attended  with  great  embarrassment  and  inconvenience,  if  such  pre- 
liminary arrangements  required  for  their  validity  and  efficacy  the  for- 

not  be  equally  applicable  to  mutual  benefit  insurance  organizations.  It  1» 
true  that  such  organizations  are  usually  more  narrowly  restricted  in  the  ex- 
ercise of  their  powers,  but  this  rule  of  construction  should  not  be  pushed  to 
such  an  extreme  as  partially  to  defeat  the  object  of  the  organization  by  de- 
claring its  preliminary  oral  contracts  void.     See  Bac.  Ben.  Soc.  §  172. 

21  Mallery  v.  Frye,  31  Wash.  Law  Rep.  (D.  C.)  63;  Lindsay  v.  Pettigrew, 
5  S.  D.  500,  59  N.  W.  726;    Morton  v.  Hart,  88  Tenn.  427,  12  S.  W.  1026. 

If  the  broker  was  acting  under  specific  instructions,  of  course  the  meas- 
ure of  damages  for  his  failure  to  perform  is  merely  the  sum  which  would 
have  been  received  under  the  policy  he  had  been  instructed  to  procure.  See 
Sawyer  v.  Mayhew,  51  Me.  398;  Alsop  v.  Coit,  12  Mass.  40. 

22  94  U.  S.  621,  627,  24  L.  Ed.  298. 
«•  20  Wall.  (U.  S.)  567,  22  L.  Ed.  423. 


Vt\ 


i 

* 

i  ■ 


154 


TTTi:    MAKING   OF    THE    CONTRACT. 


(Ch.5 


I 


'! 


I' 


nialities  essential  to  the  executed  contract.  The  law/  he  continues, 
'distinguishes  between  the  preliminary  contract  to  make  insurance  or 
issue  a  policy,  and  the  executed  contract  or  policy.  And  we  are  not 
aware  that  in  any  case,  either  by  usage  or  the  by-law  of  any  com- 
pany, or  by  any  judicial  decision,  it  has  ever  been  held  essential  to 
the  validity  of  these  initial  contracts  that  they  should  be  attested  by 
the  officers  and  by  the  seal  of  the  company.  Any  usage  or  decision  to 
that  effect  would  break  up  or  greatly  impair  the  business  of  insurance 
as  transacted  by  agents  of  insurance  companies.'  " 

Again,  these  preliminary  contracts  are  of  two  kinds,  which,  while 
distinct  in  purpose  and  in  rights  acquired  by  the  parties,  are  yet  so 
similar  in  ultimate  effect  as  to  be  often  confused  and  seldom  clearly 
distinguished.  First,  the  insurer,  by  this  preliminary  contract,  may 
either  presently  insure  the  subject-matter  by  parol  or  binding  slip,  the 
contract  to  be  effective  until  the  formal  policy  is  issued  or  the  risk  re- 
jected; or,  secondly,  he  may  make  a  contract  to  insure  the  subject- 
matter  at  some  subsequent  time,  which  may  be  definite  or  indefinite. 
Under  such  contract  the  insurer  becomes  obligated  to  execute  a  con- 
tract of  actual  insurance,  in  accordance  with  the  terms  agreed  upon. 

Preliminary  Contracts  of  Present  Insurance, 

Preliminary  informal  contracts  of  present  insurance  are  intended 
to  afford  protection  to  the  insured  pending  the  execution  and  delivery 
of  a  formal  policy,  and  are  completed  either  by  mere  word  of  mouth 
or  by  binding  slip.  The  binding  slip  is  merely  a  written  memoran- 
dum in  aid  of  the  oral  contract,  containing  a  statement  of  the  important 
terms  of  the  agreement,  but  not  intended  as  a  formal  repository  of 
all  the  terms  of  the  contract.  The  oral  agreement,  therefore,  whether 
aided  by  the  binding  slip  or  not,  contemplates  the  issue  of  a  formal 
policy,  and  by  implication  includes  all  the  terms  of  that  policy.  There- 
fore, the  rights  and  liabilities  of  the  parties  to  these  informal  prelimi- 
nary contracts  are  to  be  determined  by  the  conditions  of  the  policy 
expected,  even  though  that  policy  may  never  issue. 

Thus,  in  the  leading  case  of  Lipman  v.  Niagara  Fire  Ins.  Co.,"*  a 
preliminary  contract  of  insurance,  evidenced  by  a  binding  slip,  was 
made  upon  certain  property  which  was  described  in  the  slip.  Upon 
examination,  the  officers  of  the  company  determined  to  reject  the  risk, 
and  two  and  a  half  hours  before  the  property  was  burned  gave  notice 
to  the  agents  of  the  insured  that  the  insurance  was  terminated.    A 


«4  LIPMAN  y.  NIAGARA  FIRE  INS.  CO.,  121  N.  T.  454,  24  N.  E.  699,  8 
L.  R.  A.  719,  Richards,  Ins.  Cas.  301,  Woodruff,  Ins.  Cas.  100.  See,  to  the 
same  effect.  Underwood  v.  Insurance  Co.,  161  N.  Y.  413,  55  N.  B.  936 ;  HICKS 
V.  ASSURANCE  CO.,  162  N.  Y.  284,  56  N.  E.  743,  48  L.  R.  A.  424 ;  Eames  v. 
Insurance  Co.,  94  U.  S.  621,  629,  24  L.  Ed.  298 ;  Newark  Mach.  Co.  t.  Kenton 
Ins.  Co.  (1893)  50  Ohio  St  549,  35  N.  E.  1060.  22  L.  R.  A.  768. 


§§  57-59)     THE  FOKM  REQUIRED — ORAL  CONTRACTS. 


155 


term  of  the  policy  expected  to  issue  gave  to  the  insurer  a  right  to  ter- 
minate the  contract  upon  notice  given.  The  insured  contended  that 
the  contract  was  final,  and  could  not  be  so  discharged,  but  the  court 
said:  "We  think  there  can  be  no  doubt  that  the  true  construction  of 
the  binding  slip  only  obligated  the  defendant  according  to  the  terms  of 
the  policy  in  ordinary  use  by  the  company.  There  is  no  other  rea- 
sonable interpretation  of  the  transaction.  The  binding  slip  was  a 
short  method  of  issuing  a  temporary  policy  for  the  convenience  of  all 
parties,  to  continue  until  the  execution  of  the  formal  one.  It  would 
be  unreasonable  to  suppose  either  that  the  broker  expected  an  insur- 
ance except  upon  the  usual  terms  imposed  by  the  company,  or  that 
the  secretary  of  the  company  intended  to  insure  upon  any  other  terms. 
The  right  of  an  insurance  company  to  terminate  a  risk  is  an  important 
one.  It  is  not  reserved  in  terms  in  the  binding  slip,  and  could  not  be 
exercised  at  all  so  long  as  no  policy  should  be  issued,  unless  the  con- 
dition in  the  policy  is  deemed  to  be  incorporated  therein.  Upon  the 
plaintiff's  contention  the  company  could  not  cancel  the  risk  so  long 
as  the  binding  slip  was  in  force,  and  the  only  remedy  of  the  company 
to  get  rid  of  the  risk  would  be  to  issue  the  policy  and  then  immediately 
cancel  it.  The  binding  slip  was  a  mere  memorandum  to  identify  the 
parties  to  the  contract,  the  subject-matter,  and  the  principal  terms. 
It  refers  to  the  policy  to  be  issued.  The  construction  is,  we  think, 
the  same  as  though  it  had  expressed  that  the  present  insurance  was 
under  the  terms  of  the  usual  policy  of  the  company  to  be  thereafter 
delivered." 

Where  a  standard  policy  has  been  prescribed  by  law,  an  oral  con- 
tract is  valid,  but  is  conclusively  subject  to  all  the  terms  of  the  stand- 
ard policy.  Accordingly  it  has  been  held  in  a  recent  important  deci- 
sion by  the  Court  of  Appeals  of  New  York  that  the  rights  of  the  in- 
sured under  a  preliminary  oral  contract  were  defeated  by  his  failure 
to  furnish  proofs  of  loss  as  required  by  the  standard  policy,  which  had 
never  been  issued,  and  which  the  insurer,  denying  the  existence  of  the 
oral  contract,  had  declined  to  issue.  ^' 

Preliminary  Executory  Contracts  of  Insurance, 

Instead  of  making  a  contract  of  present  insurance,  the  parties  may 
make  an  agreement  by  which  the  insurer  binds  himself,  subject  to  speci- 
fied conditions,  to  issue  a  policy  of  insurance  to  the  insured.     A  cer- 

25  HICKS  V.  ASSURANCE  CO.,  162  N.  Y.  284,  56  N.  B.  743,  48  L.  R.  A.  424. 

It  is  difiBcult  to  accept  the  reasoning  of  the  majority  of  the  court  in  this 
case.  As  is  clearly  shown  in  the  dissenting  opinion  of  Werner,  J.,  the  com- 
pany, through  its  agent,  repudiated  the  contract,  and  declined  to  furnish 
forms  for  proof  of  loss.  It  is  a  well-settled  rule  of  contract  law  that  one 
party  mav  not  himself  repudiate  the  obligation  of  a  contract  and  still  hold  the 
other  to  performance.  Upon  such  repudiation  the  aggrieved  party  should  be 
allowed  to  consider  the  contract  discharged,  and  sue  for  the  breach.    Clark, 


1  .>i 


1       ■; 


^1 


J 


156 


THE  MAKING  OP  THE  CONTRACT. 


(Ch.5 


tain  time  for  its  issue  may  be  designated,  but,  if  there  is  no  such  time 
agreed  upon,  the  policy  is  to  be  delivered  within  a  reasonable  time. 
Under  such  an  executory  contract  the  right  acquired  by  the  insured 
is  merely  to  demand  the  delivery  of  a  policy  in  accordance  with  the 
terms  agreed  upon,  and  the  obligation  assumed  by  the  insurer  is  to 
deliver  such  policy.  The  policy  to  be  delivered  is,  of  course,  that  in 
the  contemplation  of  the  parties  at  the  time  of  making  the  preliminary 
contract — ^that  is,  the  usual  policy  issued  by  that  insurer,  or  the  stand- 
ard policy  in  case  such  a  form  has  been  prescribed  by  law.  A  failure 
on  the  part  of  the  insurer  to  deliver  the  policy  in  accordance  with  the 
agreement  at  the  time  stipulated,  or  within  a  reasonable  time,  will 
render  him  liable  in  an  action  for  breach  of  contract,^®  or  to  a  suit 
in  equity  for  specific  performance.  In  case  the  property  to  be  insured 
is  destroyed  before  the  issue  of  the  policy,  the  measure  of  damages 
in  an  action  for  breach  of  contract  to  insure  will  be  the  same  as  if 
it  had  been  brought  upon  the  contract  of  insurance  that  should  have 
issued.*^  Nor  can  the  defendant  in  such  case  require  of  the  plaintid 
a  performance  of  all  the  conditions  of  the  policy  contemplated.  Hav- 
ing himself  wrongfully  failed  to  make  the  written  contract,  he  cannot 
now  claim  that  the  plaintiff  is  bound  by  its  terms.  Hence  the  plain- 
tiff may  recover  without  having  furnished  proofs  of  loss  or  having  com- 
plied with  other  requirements  of  the  contemplated  policy.^*  So,  when 
suit  is  brought  in  equity  for  specific  performance,  if  the  loss  to  be 
insured  against  has  already  occurred,  the  court  will  do  complete  jus- 
tice between  the  parties  by  rendering  a  decree  for  the  amount  recover- 
able under  the  policy  when  issued. *• 

Another  important  consequence  of  the  distinction  between  contracts  of 
present  insurance  and  executory  contracts  for  future  insurance  is  found 
in  the  application  of  the  statute  of  frauds.    As  has  been  before  stated, 

Contr.  645;  Knickerbocker  Life  Ins.  Co.  v.  Pendleton,  112  U.  S.  696,  5  Sup. 
Ct  314,  28  L.  Ed.  866;   Stokes  v.  Mackay,  147  N.  Y.  223,  41  N.  B.  496. 

^«  Sanford  v.  Insurance  Co.,  174  Mass.  416,  54  N.  E.  884,  75  Am.  St.  Rep. 
358;  CAMPBELL  v.  INSURANCE  CO.,  73  Wis.  100,  40  N.  W.  661,  Wood- 
rufif,  Ins.  Cas.  p.  76;  Klein  v.  Insurance  Co.  (Ky.)  57  S.  W.  250;  Preferred 
Ace.  Ins.  Co.  V.  Stone,  61  Kan.  48,  58  Pac.  988. 

aT  Klein  v.  Insurance  Co.  (Ky.)  57  S.  W.  250;  HICKS  v.  ASSURANCE 
CO.,  162  N.  Y.  284,  56  N.  E.  743,  48  L.  R.  A.  424;  CAMPBELL  v.  INSUR- 
ANCE CO.,  73  Wis.  100,  40  N.  W.  661,  Woodruff,  Ins.  Cas.  76. 

28  See  cases  cited  in  note  25,  especially  dissenting  opinion  of  Landon,  J., 
In  HICKS  V.  ASSURANCE  CO.,  supra;  Tayloe  v.  Insurance  Co.,  9  How.  (U. 
S.)  390,  13  L.  Ed.  187;  Post  v.  Insurance  Co.,  43  Barb.  (N.  Y.)  351;  New  Eng- 
land Fire  &  Marine  Ins.  Co.  v.  Robinson,  25  Ind.  536;  Western  Assur.  Co. 
T.  McAlpin,  23  Ind.  App.  220,  55  N.  E.  119,  77  Am.  St.  Rep.  423. 

2»  Wooddy  T.  Insurance  Co.,  31  Grat.  (Va.)  362,  31  Am.  Rep.  733;  Phoenix 
Ins.  Co.  V.  Ryland,  69  Md.  437,  16  Atl.  109,  1  L.  R.  A.  548;  Commercial  Mut. 
Ins.  Co.  V.  Union  Mut.  Ins.  Co.,  19  How.  (U.  S.)  318,  15  L.  Ed  636;  Western 
Assur.  Co.  V.  McAlpin,  23  Ind.  App.  220,  55  N.  E.  119,  77  Am,  St  Rep.  423. 


It 


§60) 


WHEN  AN  ORAL  CX)NTRA.OT  BECOMES  COMPLBTB. 


157 


a  contract  of  present  insurance  is  valid  without  writing,  though  for 
a  period  exceeding  one  year,  but  a  parol  agreement  to  make  a  contract 
of  insurance  at  a  future  date  more  than  a  year  distant  is  unenforce- 
able. Thus,  in  a  recent  case  in  Kentucky,  it  was  held  that  an  oral 
agreement  on  the  part  of  an  insurer  to  issue  a  policy  on  certain  prop- 
erty on  a  specified  date  each  year  until  further  directed  was  not  en- 
forceable because  it  could  not  be  performed  within  a  year.'* 


WHEN  AN  ORAL  CONTRACT  BECOMES  GOMPI«ETE. 

60.   The  eadstence  of  a  binding  oral  contract,  being  a  question  of  fact, 

is  for  the  determination  of  a  jnry;   bnt  these  requisites  must 

be  presents 
<a)   The  agent  of  the  insurer,  if  a  corporation,  must  have  authority 

to  contract  orally. 
(b>    A^^  the  essential  terms  of  the  contract  must  either  expressly  or 

impliedly  be  determined  by  the  parties,  or  the  means  of  fixing 

such  terms  agreed  upon. 

Having  thus  found  that  a  contract  of  insurance  is  valid  though 
merely  oral,  it  next  becomes  necessary  to  determine  when  such  oral 
contract  will  be  deemed  to  be  complete.  In  order  to  the  creation  of 
such  a  contract,  a  meeting  of  the  minds  of  the  parties  is  necessary; 
but  whether  such  a  meeting  has  taken  place  is  a  question  of  fact  neces- 
sarily left  to  a  jury  under  proper  instructions  from  the  court.  But 
in  making  proper  application  of  the  findings  of  fact  certain  requisites 
for  the  existence  of  a  binding  contract  must  be  considered.  In  the 
first  place,  it  must  be  noted  that  the  insurer  cannot  be  bound  upon  an 
oral  contract  unless  the  agent  through  whom  it  is  made  is  authorized 
to  contract  by  parol.  *^  As  a  general  rule,  an  agent  who  has  authority 
to  fix  terms  of  insurance  and  to  issue  policies  on  behalf  of  his  company 
has  also  authority  to  make  preliminary  oral  contracts,**  even  though 
the  charter  of  the  insurer,  or  a  public  statute,  may  direct  that  its  con- 
tracts shall  be  made  in  writing,  and  signed  by  certain  designated 
officers.** 

«o  Klein  v.  Insurance  Co.,  57  S.  W.  250.  The  correctness  of  this  decision 
is  doubtful.  The  agreement  for  the  issue  of  yearly  policies  was  terminable 
by  the  insured  upon  notice.  It  might,  therefore,  easily  have  been  wholly 
performed  within  the  year. 

81  A  bill  for  specific  performance  of  a  parol  contract  to  Insure  must  show 
on  its  face  that  the  person  making  the  contract  on  behalf  of  an  insurer  had 
authority  so  to  bind  it  Haskin  v.  Insurance  Co.,  78  Va.  700;  Haden  v.  Am- 
soclation,  80  Va.  683. 

8  2  Baker  v.  Assurance  Co.,  162  Mass.  358,  38  N.  B.  1124. 

88  Baker  v.  Assurance  Co.,  162  Mass.  858,  38  N.  E.  1124;  Sanborn  t.  In- 
surance Co.,  16  Gray  (Mass.)  448,  77  Am.  Dec.  419;  Security  Fire  Ins.  Co.  v. 
Kentucky  Marine  &  Fire  Ins.  Co.,  7  Bush  (Ky.)  81,  3  Am.  Eep.  301;  Belief 


li! 


158 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


I 


Again,  no  insurance  agreement  can  be  held  a  complete  contract 
unless  the  parties  have  reached  an  agreement  upon  all  the  essential 
terms  of  the  contract,  such  as  the  exact  subject  of  the  insurance,  the 
rate  of  premium,  the  extent  of  the  insurance,  both  as  to  time  and  as 
to  risks  assumed,  and  as  to  the  amount  of  insurance  underwritten,  and 
any  other  terms  that  may  in  any  given  case  be  essential.  There  must 
remain  nothing  to  be  done  by  the  insurer  save  the  formal  execution 
and  delivery  of  the  policy,  and  nothing  by  the  insured  save  the  ac- 
ceptance of  the  policy  and  the  payment  of  the  premium  stipulated." 
Where  some  essential  term  of  the  contract  remains  unsettled  at  the 
time  of  the  loss,  the  insurer  cannot  be  considered  as  bound ;  *'  as  when 
the  length  of  the  term,  or  the  rate  of  premium,"  has  not  been  agreed 
upon,  or  where  the  property  to  be  covered  by  the  insurance  has  not 
been  clearly  designated.'^  So,  if  any  condition  precedent  to  the  mak- 
ing of  the  contract  remains  unfulfilled,  it  cannot  be  deemed  binding; 
as  where  an  agent  agrees  with  the  insured  upon  certain  terms,  subject 
to  the  approval  of  a  superior  agent.»«  But  the  mere  fact  that  a  parol 
contract  is  made  subject  to  the  revision  and  possible  rejection  of  higher 
officers  of  the  insurer  does  not  prevent  it  from  being  binding  until 
rejected.'*  The  right  of  rejection  is  rather  a  condition  subsequent, 
that  may  operate  to  determine  the  rights  of  the  insured  under  the  con- 
tract, than  a  condition  precedent  to  the  binding  effect  of  the  contract. 
Nor,  it  seems,  does  a  failure  to  specify  a  date  at  which  the  insurance 
is  to  take  effect  prevent  the  contract  from  being  operative,  as  the  risk 
will  be  considered  to  commence  immediately.*® 

It  is  not  necessary  that  these  essential  terms  of  the  contract  shall 
be  definitely  determined ;  it  is  sufficient  if  they  are  made  determinable.** 

Fire  Ins.  Co.  ▼.  Shaw,  94  U.  S.  574,  24  L..  Ed.  291.  As  to  power  of  subagent 
see  Insurance  Co.  of  North  America  v.  Thornton,  130  Ala.  222,  30  South. 
614,  55  L.  R.  A.  547,  89  Am.  St.  Rep.  30. 

»*  See  Trustees  of  First  Baptist  Church  v.  Brooklyn  Fire  Ins.  Co.,  28  N. 
Y.  153;  Home  Ins.  Co.  v.  Adler,  77  Ala.  242;  Western  Assur.  Co.  v.  McAlpin, 
23  Ind.  App.  220,  55  N.  B.  119,  77  Am.  St  Rep.  423;  Johnson  v.  Insurance  Co., 
84  Ky.  470,  2  S.  W.  151. 

««  Scammell  v.  Insurance  Co.,  164  Mass.  341,  41  N.  E.  649,  49  Am.  St.  Rep. 
462;  J.  C.  Smith  &  Wallace  Co.  v.  Prussian  Nat.  Ins.  Co.,  68  N.  J.  Law,  674, 
54  Atl.  458;  Piedmont  &  A.  Ins.  Co.  v.  Ewing,  92  U.  S.  377,  23  L.  Ed.  610; 
Hamilton  v.  Insurance  Co.,  5  Pa.  339. 

8«  Strohn  v.  Insurance  Co.,  37  Wis.  625,  19  Am.  Rep.  777. 

•7  Kimball  v.  Insurance  Co.  (C.  C.)  17  Fed.  625. 

»8  See  Haden  v.  Association,  80  Va.  683;  Atkinson  v.  Insurance  Co.,  71 
Iowa,  340,  32  N.  W.  371. 

»»  Fidelity  &  Casualty  Go.  v.  Ballard,  105  Ky.  253,  48  S.  W.  1(^74;  Putnam 
v.  Insurance  Co.,  123  Mass.  324,  25  Am.  Rep.  93.  And  see  Oliver  v.  Insurance 
Co.,  97  Va.  134,  33  S.  B.  536. 

*o  Potter  V.  Insurance  Co.  (C.  C.)  63  Fed.  382. 

«i  See  Orient  Mut  Ins.  Co.  v.  Wright,  28  How.  (U.  S.)  401,  16  L.  Bd.  524; 


§61) 


CONTRACTS  IN   WRITING. 


159 


The  parties  may  agree  upon  a  method  of  fixing  terms  yet  unsettled, 
and  become  at  once  bound  by  the  contract.  Thus,  where  all  the  terms 
of  contract  for  insurance  of  a  certain  building  were  agreed  upon  save 
the  premium  rate,  which  was  left  to  the  determination  of  the  agent 
after  inspection,  it  was  held  that  the  insurer  was  bound  and  liable  for 
the  loss  occurring  before  the  rate  of  premium  fixed  by  the  agent  had 
been  communicated  to  the  insured.*^  So,  some  of  the  essential  terms 
of  the  contract  may,  without  express  stipulation,  be  well  understood 
by  reason  of  a  local  usage  or  a  previous  course  of  dealing  between  th^ 
parties,  and  an  apparently  incomplete  agreement  thus  become  binding.*' 

CONTRACTS  IN  WRITING. 

61.  The  contract  of  insurance  is  nsually  evidenced  by  writing.  Tliia 
writing  may  be  informal,  as  a  binding  slip,  or  a  written  appli- 
cation informally  accepted;  or  it  may  be  formal,  being  the 
carefully  dravirn  written  policy  in  customary  use,  or,  more 
rarely,  the  policy  under  seal. 

The  completed  contract  of  insurance  is  usually  evidenced  by  a  for- 
mal written  instrument  known  as  a  "policy,"  which  ordinarily  is  in- 
tended to  contain  and  merge  all  previous  negotiations,  and  serve  as 
the  only  and  final  repository  of  the  agreement  of  the  parties.  This 
policy  was  formerly  frequently  executed  under  corporate  seal,  but  in 
modern  times  a  policy  under  seal  is  of  rare  occurrence. 

There  are,  however,  informal  writings  made  in  evidence  of  the  con- 
tract entered  into,  which  fall  halfway  between  the  formal  written  policy 
and  the  oral  contract 


1- 


..■,:> 


Scammell  v.  Insurance  Co.,  supra;  J.  C.  Smith  &  Wallace  Co.  v.  Prussian 
Nat.  Ins.  Co.,  supra. 

*2  Cooke  V.  Insurance  Co.,  7  Daly  (N.  Y.)  555;  Audubon  v.  Insurance  Co., 
27  N.  Y.  216. 

*«  J.  C.  Smith  &  Wallace  Co.  v.  Prussian  Nat.  Ins.  Co.,  68  N.  J.  Law,  674, 
54  Atl.  458.  In  this  case  the  court  well  sums  up  the  law  as  follows:  **To 
constitute  a  valid  contract  there  should  be  parties  thereto,  a  premium,  a 
subject-matter,  an  insurable  interest,  certain  risks  or  perils,  duration  of  the 
risk,  and  the  amount  insured;  but  in  the  temporary  oral  contracts,  or  in 
those  evidenced  by  binders,  some  of  these  terms  are  often  omitted,  and  need 
not  be  expressly  negotiated  upon,  since  they  may  be  understood — ^as  where 
the  terms  of  the  usual  policy  are  presumed  to  be  Intended,  or  where  the 
usual  rate  of  premium  is  presumed  to  be  meant,  or,  in  case  of  duration  of  the 
risk,  is  understood  to  be  the  same  as  in  a  former  policy,  or  where  by  custom 
or  usage  a  certain  course  of  dealing  hag  been  established." 


I 

I! 


160  THB  MAKING  OF  THB   CONTRACT.  (Ch.  5 


HfFORMAIi  WBITTEN    CONTRACTS. 

62.  THE  BINDING  SLIP— Tlie  binding  slip  is  merely  a  written  mem- 

oranduni  of  the  most  important  terms  of  a  preliminary  con- 
tract of  insnranoe,  intended  to  give  temporary  protection 
pending  the  investigation  of  the  risk  by  the  insurer,  or  un- 
til the  issue  of  a  formal  policy.  By  intendment  it  is  sub- 
ject to  all  the  conditions  in  the  policy  to  be  issued. 

63.  A  iimdtten  application  for  insurance,  urhen  finally  and  absolutely 

accepted  by  the  insurer,  becomes  thereby  the  memorandum  of 
a  completed  contract,  which  is  binding  until  the  issue  of  a 
policy.  So,  any  written  oSer  properly  accepted  by  the  insurer 
becomes  a  binding  contract  -without  the  execution  of  a  policy. 

These  informal  writings  are  but  incomplete  and  temporary  contracts 
—memoranda  given  in  aid  of  parol  agreements.  Such  memoranda 
usually  fix  all  the  essential  provisions  that  are  variable,  but  they  are 
not  ordinarily  intended  to  include  all  the  terms  of  agreements,  and 
always  look  to  the  formal  policy  that  is  expected  subsequently  to 
issue  for  a  complete  statement  of  the  contract  made.  Hence,  as  here- 
tofore stated,  the  contract  evidenced  by  the  binding  slip  is  subject  to 
all  the  conditions  of  the  contemplated  policy,  even  though  it  may  never 
issue ;  **  and  the  same  is  true  of  other  informal  written  contracts. 
The  memorandum  may  evidence  a  binding  contract  even  where  some 
essential  term  remains  undetermined,  provided  the  parties  have  agreed 
upon  some  method  of  thereafter  fixing  such  term.  This  is  well  illus- 
trated in  a  case  *'  recently  decided  by  the  Supreme  Court  of  Massa- 
chusetts, in  which  the  memorandum  relied  upon  as  evidence  of  a  con- 
tract was  as  follows:  "About  $3,000  insurance  is  wanted  by  Scam- 
mell  Bros.,  for  account  of  whom,  etc.,  loss,  if  any,  payable  to  them 

or  order  for  $ of  chartered  freight  per  Brigt.  'Peeress'  valued 

at  $ amount  of  charter  at  and  from  Santa  Fc  to  a  port  in  the 

U.  K.  or  on  the  Continent.  Priv.  of  port  of  call  for  others.  Premium, 
open  for  particulars.  Binding."  It  was  contended  by  the  defendant 
insurer  that  the  memorandum  fell  short  of  a  complete  contract,  since 
the  premium  rate,  one  of  the  most  essential  terms  of  such  agreements, 
had  never  been  fixed.  The  court  held,  however,  that  the  parties  had 
made  a  binding  agreement  for  temporary  insurance,  subject  to  the 
condition  that  the  insured  should,  within  a  reasonable  time,  furnish 
the  insurer  particular  information  concerning  the  risk  which  would 
enable  the  insurer  to  fix  a  reasonable  rate  to  be  paid  for  the  protection 

««  See  MPMAN  v.  INSURANCE  CO.,  121  N.  Y.  454,  24  N.  B.  699,  8  L.  R.  A. 
719,  Richards,  Ins.  Cas.  301,  Woodruff,  Ins.  Cas.  100. 

49  Scammell  y.  Insurance  Co.,  164  Mass.  341,  41  N.  E.  649,  49  Am.  St  Rep. 
462. 


§§  62-63) 


INFORMAL   WRITTEN   CONTRACTS. 


161 


given.  If  the  insured  had  given  the  particulars  within  a  reasonable 
time,  and  paid  the  premium  as  then  fixed  by  the  insurer,  the  latter 
would  have  been  bound.  But  since  the  insured  failed,  during  some 
five  months  that  intervened  between  the  dates  of  the  making  of  the 
memorandum  and  the  loss  of  the  vessel,  to  give  the  information  he  had 
by  implication  agreed  to  furnish,  he  was  precluded,  by  his  own  default, 
from  requiring  performance  on  the  part  of  the  insurer. 

Acceptance  of  Application. 

Under  the  usual  conditions  attending  the  making  of  an  insurance 
contract,  a  binding  acceptance  of  the  offer  contained  in  the  applica- 
tion is  given  only  upon  the  delivery  of  a  policy.  But  this  is  not  neces- 
sarily the  case.  If  the  application  is  accepted,  and  the  fact  of  accept- 
ance made  known  to  the  insured,  and  no  condition  remains  to  be  per- 
formed in  order  to  entitle  the  insured  to  the  policy  to  be  executed,  or 
to  the  benefit  of  the  insurance,  the  contract  is  complete,  and  the  in- 
sured ma)  compel  the  insurer,  even  after  loss,  to  issue  a  policy  in  ac- 
cordance with  the  terms  of  the  application.**  Of  course,  however,  an 
acceptance  of  the  application  does  not  complete  the  contract  when 
such  acceptance  has  not  been  comm.unicated  to  the  applicant,*^  nor 
when  the  application  contains  the  condition  that  the  contract  shall 
not  become  operativj  until  the  delivery  of  the  policy  **  or  the  payment 
of  the  first  premium,  or  the  performance  of  some  other  condition. 
Neither,  in  such  cases,  does  the  acceptance  of  the  application  and  the 
tender  of  a  policy  to  the  applicant  complete  the  contract  when  the  ap- 
plicant refuses  to  receive  the  policy."  In  order  that  the  insurer  shall 
be  bound,  the  application  must  be  actually  accepted.  Mere  delay  in 
acting  upon  the  application  is  not  sufficient. ''<>  Neither  will  the  pay- 
ment of  the  first  premium  to  the  agent,  pending  the  action  of  the  in- 
surer upon  the  application,  complete  the  contract."     Even  though 

*•  Commercial  Ins.  Co.  v.  Hallock,  27  N.  J.  Law,  645,  72  Am.  Dec.  379; 
MoCulIoch  V.  Insurance  Co.,  1  Pick.  (Mass.)  278;  Lightbody  v.  Insurance  Co., 
23  Wend.  (N.  Y.)  18;  Walker  v.  Insurance  Co.,  56  Me.  371;  New  York  Life 
Ins.  Co.  V.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A.  88,  69  Am.  St.  Rep. 
134. 

*T  Equitable  Life  Assur.  Soc.  v.  McEIroy,  83  Fed.  631,  28  C.  C.  A.  365 
*8  McCully's  Adm'r  v.  Insurance  Co.,  18  W.  Va.  782.    And  see  Jacobs  v. 
Insurance  Co.,  71  Miss.  658,  15  South.  639;   Langstaflf  v.  Insurance  Co.  (1903) 
69  N.  J.  Law,  54,  54  Atl.  518;   McClare  v.  Association,  55  N.  J.  Law,  187.  26 
Atl.  78. 

*»  Hogben  v.  Insurance  Co.,  69  Conn.  503,  38  Ati.  214,  61  Am.  St  Rep.  53; 
Schwartz  v.  Insurance  Co.,  18  Minn.  448  (Gil.  404). 

80  Home  Forum  Ben.  Order  v.  Jones,  5  Okl.  598,  50  Pac.  165;  Walker  v 
Insurance  Co.,  61  Iowa,  679,  2  N.  W.  583;  Winnesheik  Ins.  Co.  v.  Holzgrafe 
53  111.  516,  5  Am.  Rep.  64.  ^ 

»i  Pickett  v.  Insurance  Co.,  39  Kan.  697,  18  Pac.  903;  Armstrong  v.  Insur- 
ance Co.,  61  Iowa,  212,  16  N.  W.  94;  Coker  v.  Insurance  Co.  (Tex.  Civ.  Add  ) 
81  S.  W.  708.  ^^'^ 

Vance  Ins. — 11 


■: 


^ 

\\l\ 


m 


162 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


* 


rtic  jM  emium  paid  may  still  be  in  the  hands  of  the  agent  of  the  insure: 
at  the  time  the  loss  against  which  the  insurance  is  proposed  occurs, 
the  insurer  is  not  liable  unless  he  has  actually  accepted  the  applica- 
tion.**    The  principles  applying  to  such  cases  have  been  well  stated 
by  the  Georgia  Court  of  Appeals  in  an  excellent  opinion  by  Lewis,  J., 
from  which  the  following  paragraph  may  well  be  quoted:"     "The 
fundamental  question  to  be  determined  in  the  leg^al  construction  of  all 
contracts  is,  what  was  the  real  intention  of  the  parties?    Where  one 
party  makes  a  proposition  to  purchase  a  thing  which  is  unconditionally 
accepted  by  the  other,  the  contract  of  purchase  becomes  complete. 
There  is  no  reason  why  the  same  rule  should  not  be  applied  when  a 
written  application  is  made  for  an  insurance  policy.     So  long  as  the 
application  is  not  acted  upon  by  the  insurance  company,  of  course  no 
contract  has  been  consummated,  and,  if  the  applicant  should  die  before 
the  acceptance  of  his  application,  the  company  has  incurred  no  lia- 
bility.    But  when  the  application  is  accepted,  and  nothing  remains  for 
the  applicant  to  do,  the  contract  becomes  complete.    Actual  delivery 
of  the  policy  to  the  insured  is  not  essential  to  the  validity  of  such  a 
contract,  unless  expressly  made  so  by  its  terms.     It  is  true  that  whether 
or  not  a  policy  has  been  delivered  often  becomes  a  material  question, 
for  this  is  usually  the  most  effective  way  of  proving  the  acceptance  of 
the  application  made  by  the  insured.     But  the  contract  may  be  other- 
wise proved,  and  when  it  is  shown  to  be  in  writing  it  is  ordinarily 
binding  upon  the  company,  though  there  should  be  no  delivery  what- 
ever, either  actual  or  constructive,  of  the  policy,  and  though  it  should 
remain  in  the  hands  of  the  company.     This  principle  is  settled  by  the 
provisions  of  our  statute,  which  declares:    'Such  contract  [fire  insur- 
ance], to  be  binding,  must  be  in  writing;  but  delivery  is  not  necessary 
if,  in  other  respects,  the  contract  is  consummated/    Civ.  Code,  §  2089." 

Insurance  by  Correspondence. 

Just  as  a  valid  contract  of  insurance  may  be  made  by  parol,  so  it 
may  be  entered  into  by  informal  correspondence.  The  communica- 
tions contain  the  offer  and  acceptance,  thus  making  up  the  written 
contract.  The  same  general  rules  apply  to  the  consummation  of  such 
an  informal  written  contract  as  have  been  previously  discussed  "  with 
regard  to  oral  contracts ;  that  is,  the  contract  will  be  deemed  complete 
and  binding  when  the  offer  made  has  been  accepted  in  terms,  and  this 

82  See  cases  dted  In  the  two  preceding  notes ;  also,  Chamberlain  v.  Insurance 
Co.,  109  Wis.  4,  85  N.  W.  128,  83  Am.  St.  Rep.  851,  modifying  Mathers  v.  As- 
sociation, 78  Wis.  588,  47  N.  W.  1130,  11  L.  R.  A.  83. 

88  New  York  Life  Ins.  Go.  T.  Babcock,  104  Qa.  67,  30  S.  B.  273,  42  L.  R.  A, 
88,  69  Am.  St.  Rep.  134. 

»*  Supra,  S  60. 


6i) 


rOEMAIi  WEITTEN   CONTRACTS — THE   POUCT. 


163 

acceptance  properly  communicated,  even  though  both  parUes  contem- 
plate the  subsequent  issue  of  a  formal  policy. 

The  rules  governing  acceptance  by  letter  in  general  contract  law 
apply  fully  to  similar  conditions  in  the  law  of  insurance."  The  con- 
tract IS  consummated  by  acceptance  upon  the  mailing  of  the  letter  of 
acceptance  properly  stamped  and  addressed,  and  the  insurer  will  be 
bound,  even  though  the  letter  may  never  be  received,  or  may  be  re- 
ceived only  after  the  property  insured  has  been  destroyed."  But  in 
an  early  Massachusetts  case  "  it  was  held  that  the  insurer  was  not 
,nTr^/  tJ  \''"'P*  °^.*'  '"""'■  <=0"t^inin?  the  acceptance  of  the 
luthoriiy.         '     ^^^''^''  **'  '^  ^°''^''"^  ^  *^  ^^^  '^^'ght  of 

thll  ,'r.'T^*!rf '  '^'?!;*  '"^y  ^  *^  *°™  "^^'^^  *e  communications 
that  are  alleged  to  evidence  the  contract  of  insurance  may  assume,  or 

how  informal  they  may  be.    It  is  sufficient  if  these  co^municati^^s 

clearly  show  that  the  parties  have  come  to  an  agreement  upon  fte 

V.  Home  Ins.  Co. "  a  letter  in  which  the  plaintiff  wrote.  "6y,%  is 
pret  y  heavy,  but  I  guess  we  will  have  to  stand  it.  as  I  d;  notknow 
where  we  can  do  better  at  present,"  was  held  to  be  a  sufficient  accept- 
ance of  the  offer  made  by  the  defendant  in  a  letter  to  which  the  one 
quoted  from  was  the  reply. 

FORUAI,  WBITTEK  0ONT]SACTS-TBE  POUOT. 

64.  Wlen  the  coatract  of  la.n»nce  1.  toaUy  oomnUt.  It  i.  «,^ 
tomarlly  embodied  ia  a  formal  written  b^t^r^^L*  *  ^ 
•  "policy."  Thi.  in.tm«ent  mevg,,^,!^^^^:  *""•* 
neon,  parol  agreement,  tonelS^g  tL^r^tJLf       r*""" 

::::?"rfranrt  'r-^t*-  -''"^'e^^^J^"^  ^rz 

•eace  of  frand,  to  hare  given  U.  a..ent  to  aU  of  li,  term.. 

As  heretofore  stated,  a  contract  of  insurance  may  validly  be  mad- 

nuJ'h      'f''"'  *^  ''"'^'■"*^  '''^'^''''-  °f  *«  contract  and  Ae  ^eat 
number  of  conditions  ordinarily  contained  in  it  render  it  exce^dCw 

unwise  for  the  parties  to  allow  the  important  property  righte^^ 

ments.    Hence  has  ansen  a  custom,  as  old  as  the  practice  of  msuT- 
"  Clark,  Contr.  (2d  Bfl.)  pp.  25,  26. 

S.  621  24  T.  TM   9QC.   Q^  72        T      ^'        '   ^^™®«  ▼•  Insurance  Co.,  94  U 

V.  Insurant  Z  6  Pa   3^     t!.- Jf""?' ^  °°-  ^°-  ^'^  "  ^<^  ^^S;   HamUton 
L.  mm  •   ^^'°*  ''•  I°«°™"«*  C«^  »  How.  (U.  S.)  380.  18 

"  McCulIoch  V.  Insurance  Co.,  1  Hck.  278. 
"  84  U.  S.  621,  24  L.  Ed.  288. 


i 


f. 


<<1 


f 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


^1 


164 

ance,  and  departed  from  only  in  cases  of  emergency,  to  commit  the 
contract  to  writing.     This  formal  writing  is  termed  a  "pohcy. 

The  history  of  the  development  of  the  insurance  pohcy,  undoubt- 
edly one  of  the  most  important  of  commercial  instruments,  is  full  ot 
interest.     Probably  no  other  instrument  in  frequent  use  has  been  drawn 
with  so  little  skill  and  with  such  consistent  disregard  of  settled  rules 
of  law.    The  courts  have  complained  in  vain,*^'  and  even  grown  caustic 
to  no  effect    "Courts  of  law,"  said  a  famous  English  judge,««    have 
always  considered  a  policy  of  insurance  as  an  absurd  and  incoherent 
instrument"     But  the  merchant  was  wedded  to  his  idol,  and  the  ma- 
rine policy  remained  for  centuries  unalterably  incoherent,  and  only 
^adually  was  beaten  into  an  intelligible  shape,  from  a  legal  point  of 
view   by  the  heavy  blows  dealt  it  in  the  course  of  the  incessant  litiga- 
tion provoked  by  its  cumbrous  and  uncertain  terms.    Even  to  this 
day  marine  insurers  on  both  sides  of  the  Atlantic  make  use  of,  as  the 
repository  of  their  insurances,  the  form  of  policy  so  severely  censured 
by  Justice  Buller,  only  a  few  changes  having  been  made  by  reason  of 
English  statutes  or  of  changed  conditions.     Of  course,  however,  the 
numerous  decisions   construing  its  terms  have   rendered  practically 
certain  the  meaning  of  this  remarkable  instrument,  and  probably  jus- 
tify insurers  in  enduring  the  ills  they  have  in  its  cumbrous  form  rather 
than  in  flying  to  those  they  know  not  of  in  some  newly  adopted  form. 
Neither  are  the  modem  fire  and  life  policies  free  from  the  objec- 
tions thus  made  to  the  ancient  marine  policy.     Drawn  up  vnih  the 
double  purpose  of  attracting  parties  to  be  insured  and  of  limiting  the 
liability  of  the  insurer  as  narrowly  as  possible,  these  instruments 
are  full  of  crudities,  inconsistencies,  and  ambiguities,  which  have  been 
slowly  pared  away  by  the  courts  in  the  course  of  litigation  which  would 
have  been  greatly  reduced  in  volume  if  the  policies  had  been  f airiy  and 

skillfully  drawn.  ,  .  _ 

These  same  evU  characteristics  of  which  the  courts  complain— com- 
plexity and  unintelligibleness— have  also  wrought  some  cunous  re- 
sults in  regard  to  the  practice  of  persons  insured.  It  seldom  happens 
that  an  ordinarily  prudent  man  enters  into  a  written  contract  without 
first  assuring  himself  as  to  its  terms  by  a  careful  perusal.  Yet  such 
is  not  the  case  with  insurance  policies.  It  is  the  exceptional  man  who 
reads  the  policy  delivered  to  him,  although  the  legal  consequence  of  his 
acceptance  of  the  instrument  is  to  raise  a  conclusive  presumption  that 
he  knows  and  consents  to  all  of  its  terms,  and  to  preclude  him  from 

••  See  Yeaton  v.  Fry.  5  Cranch  (U.  S.)  342,  8  L.  Bd.  117.  per  Marshall.  C 
J.    M^iand  InJ.^a^^^   Woods,  6  Cranch  (U.  S.)  29  (at  page  45  et  seq.),  3 
K  Ed.  143 ;  American  Ins.  Co.  v.  Stoy,  41  Mich.  385. 1  N.  W  877. 

•VBnller  J.,  in  Brongh  v.  Whitmore.  4  Term  R.  206.  In  the  same  case  Lord 
Kenyon  said  ih^t  only  the  uniform  practice  of  merchants  and  underwriters 
had  rendered  policies  of  insurance  intelligible. 


§64) 


FORMAL   WRITTEN   CONTRACTS — THE   POLICY. 


165 


showing  by  parol  any  terms  of  the  agreement  not  set  forth  in  the  policy, 
or  in  any  wise  contradicting  or  varying  the  writing  which  he,  by  his 
act  of  acceptance,  makes  the  sole  repository  of  his  contract.  Such 
carelessness  on  the  part  of  persons  insured  is  explained,  and  to  some 
extent  excused,  by  the  fact  that  on  account  of  the  complex  character 
of  the  instrument  the  untrained  layman  was  little  wiser  after  reading 
than  before.  From  the  bad  forms  of  insurance  policies  and  the  con- 
sequent failure  of  parties  insured  to  understand  their  rights  and  lia- 
bilities under  them,  flow  most  of  the  difficulties,  and  the  larger  part  of 
the  litigation  in  this  branch  of  the  law. 

Standard  Forms. 

An  early  writer  on  insurance  says:  "The  common  course  appears 
to  be  the  better  one,  namely,  to  leave  parties  to  make  such  stipulations 
and  in  such  terms  as  they  may  choose."  «^  The  principle  so  stated  is 
correct  when  applied  to  strictly  private  contracts.  But  the  contract  of 
insurance  contains  a  quasi  public  element.  The  public  interest  in 
having  responsible  insurers  and  certain  and  fair  contracts  imposes 
some  limitation  upon  the  individual's  right  to  contract  as  he  may 
choose.**  Further,  insurance  is  primarily  a  contract  of  the  law  mer- 
chant, and  therefore  powerfully  affected  by  the  custom  of  merchants. 
Custom  tends  necessarily  to  uniformity;  and  just  as  the  custom  of 
merchants  prescribed  certain  terms  for  all  instruments  that  were  to 
possess  the  quality  of  negotiability,  so  the  custom  of  underwriters 
gradually  fixed  the  terms  of  insurance  contracts,  and  wrought  power- 
fully to  establish  a  standard  form  for  the  expression  of  these  terms. 
The  ultimate  result  of  the  operation  of  these  influences  has  been  the 
adoption  by  legislative  enactment,  as  heretofore  explained,® •  of  stand- 
ard forms  for  fire  policies  in  many  of  the  states  of  the  American  Union, 
and  of  a  standard  marine  policy  in  England.  In  the  other  branches 
of  insurance  there  is  still  no  limit  to  the  number  of  forms  in  which 
policies  may  be  written  save  th^  desires  of  the  insured  and  the  in- 
genuity of  the  insurers. 

Execution  of  the  Policy. 

A  policy  of  insurance  may  be  validly  executed  with  or  without  a 
i^eal.  Policies  under  seal,  however,  are  few,  and  executed  only  by  such 
ancient  corporations  as  began  to  insure  during  the  time  when  it  was 
assumed  that  corporations  could  contract  only  by  seal.**     In  the  case 

«i  1  Marsh.  Ins.  (Ed.  1810). 

62  Daggs  V.  Insurance  Co.,  136  Mo.  382,  38  S.  W.  85,  35  L.  R.  A.  227,  58 
Am.  St.  Rep.  638;  Orient  Ins.  Co.  v.  Daggs,  172  TJ.  S.  557,  19  Sup.  Ct.  28 1. 
43  L.  Ed.  552.    See  supra,  p.  76. 

«8  See  ante,  p.  29.  The  construction  of  the  Standard  fire  policy  is  fully 
considered  in  chapters  12  and  13. 

8*  Clark,  Corp.  156  et  seq.;  Bank  of  Columbia  v.  Patterson,  7  Cranch  (U.  S.) 


I 


166 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


of  corponte  insurers,  policies  are  necessarily  executed  by  agents.  In 
the  absence  of  limitation  brought  to  the  notice  of  third  parties,  any 
officer  or  agent  of  a  corporate  insurer  who  is  authorized  to  contract 
on  its  behalf  is  capable  of  executing  its  written  policies.  In  practice, 
however,  it  is  usual  that  these  instruments  shall  bear  the  signatures  of 
high  executive  officers,  as  of  the  president  or  secretary. 

But  such  a  mode  of  execution  may  be  prescribed  as  will  constitute 
a  limitation  upon  the  apparent  powers  of  the  agent.  There  may  be 
a  requirement  that  the  policy  shall  be  signed  by  one  agent  and  counter- 
signed by  another  as  a  condition  precedent  to  its  validity.  The  effect 
of  executing  a  policy  without  complying  with  such  requirement?  de- 
pends largely  upon  the  source  of  the  requirements.  (1)  If  found  in 
the  charter  of  the  corporation,  the  limitation  is  presumed  to  be  known 
to  the  public ;  and  while  an  oral  contract  may  be  valid,  yet  a  written 
policy  will  be  invalid  unless  executed  in  the  mode  prescribed.*'  (2) 
If  found  in  the  by-laws  of  the  corporation,  with  knowledge  of  which 
the  public  is  not  charged,'*  the  limitation  restricts  the  apparent  powers 
of  agents  only  when  actually  known  to  the  iijsured.'^  (3)  When  the 
policy  itself  prescribes  a  mode  of  execution,  the  insured  has  notice  of 
the  limitation  thereby  imposed  upon  the  powers  of  the  insurer's  agents, 
and,  in  the  absence  of  circumstances  estopping  the  insurer,  cannot 
claim  that  a  policy  not  executed  in. the  manner  prescribed  is  valid  '• 
unless  an  agent,  authorized  under  the  policy  to  make  the  policy  effect- 
ive in  one  way,  adopts  another  with  clear  contractual  intent ;  for  such 

299,  8  L.  Ed.  351;  Mitchell  v.  Insurance  Ck).,  45  Me.  104,  71  Am.  Dec.  529. 
In  many  states  there  are  statutes  providing  that  insurance  contracts  need 
not  be  under  seal.  These  are  merely  declaratory  of  the  law  as  it  now  ex- 
ists. In  Lindauer  v.  Insurance  Co.,  13  Ark.  461,  it  seems  that  It  is  held  that 
where  the  charter  provides  that  policies  issued  by  the  company  shall  be  un- 
der seal  the  company  cannot,  in  a  suit  to  recover  the  premium,  introduce  in 
evidence  an  unsealed  policy. 

•»  Dayton  Ins.  Ck).  v.  Kelly,  24  Ohio  St.  345,  15  Am.  Rep.  612;  Head  v.  In- 
surance Co.,  2  Cranch  (U.  S.)  127-169,  2  L.  Ed.  229,  holding  that  a  contract 
to  cancel  a  policy  is  as  much  an  instrument  as  the  policy  itself,  and  can 
only  be  executed  in  the  manner  prescribed  by  the  charter  of  the  company. 
See,  also,  Couch  v.  Insurance  Co.,  38  Conn.  181,  9  Am.  Rep.  375,  holding  that 
a  waiver  of  a  provision  in  a  policy  executed  in  any  manner  save  that  re- 
quired by  its  charter  is  invalid. 

•e  Clark,  Corp.  460. 

•T  See  infra,  chapter  9.  That  members  of  mutual  associations  are  bound 
by  the  by-laws  and  regulations,  see  Mutual  Assur.  Soc.  v.  Korn,  7  Cranch 
(U.  S.)  396  (at  page  399),  3  L.  Ed.  383 ;  Clark  v.  Association,  14  App.  D.  0. 
154,  43  L.  R.  A.  390;  Sulz  v.  Association,  145  N.  Y.  563,  40  N.  E.  242,  28  L. 
R.  A.  379;  Nickels  v.  Association,  93  Va.  380,  25  S.  B.  8;  Supreme  Command- 
ery  K.  G.  R.  v.  Ainsworth,  71  Ala.  436,  46  Am.  Rep.  332. 

es  Globe  Ace.  Ins.  Co.  v.  Reid,  19  Ind.  App.  203,  47  N.  E.  947;  Lynn  v.  Bur 
goyne,  13  B.  Mon.  (Ky.)  400;  Badger  v.  Insurance  Co.,  103  Mass.  244,  4  Am. 
Rep.  547. 


§65) 


WHEN   THE  POLICY  BECOMES  BINDING. 


1G7 


agent,  being  authorized  to  make  the  contract,  may  waive  that  provi- 
sion of  the  policy  requiring  a  particular  mode  of  executing  it."  So, 
where  a  policy  which  provides  that  it  shall  not  become  operative  until 
countersigned  by  a  designated  agent  is  delivered  as  a  contract  by  that 
agent  without  being  countersigned,  the  insurer  will  be  estopped  to 
claim  that  the  contract  is  not  binding.''®  It  seems,  however,  that  when 
the  insured  is  the  agent  whose  countersignature  is  required  for  the 
completion  of  the  contract,  an  uncountersigned  policy  in  the  posses- 
sion of  the  agent  is  not  enforceable  against  the  insurer.''^ 

The  mode  of  execution  of  the  Lloyd's  marine  policy  in  England  is 
peculiar.  Instead  of  being  subscribed  by  the  society  which  is  incorpo- 
rated, or  by  any  agent  in  its  behalf,  it  is  underwritten  by  individual 
insurers,  members  of  the  society.  Each  underwriter  concerned  sub- 
scribes his  initials,  with  the  amount  of  the  risk  assumed  by  him  set 
opposite,  and  is  individually  liable  to  the  amount  of  his  subscription. 

The  insurance  policy  does  not  ordinarily  receive  the  signature  of 
the  party  insured,  who,  however,  is  fully  bound  by  all  the  terms  of 
the  contract  upon  his  acceptance  of  the  policy,  whether  he  actually 
knows  what  they  are  or  not."  In  some  instances,  however,  mutual 
benefit  societies  require  their  benefit  certificates  to  be  signed  by  the  in- 
sured before  giving  them  legal  effect.^* 


1^, 


WHEN  THE  POLICY  BECOMES  BINDIHG. 

65.  The   polley  becomes  binding  as  a   contract   only  when   delivered 
and  all  conditions  precedent  have  been  satisfied. 

The  reader  must  keep  in  mind  that  the  question  as  to  the  validity 
of  a  policy  of  insurance  upon  which  an  action  is  brought  is  very  dif- 
ferent from  the  question  whether  a  binding  contract  of  insurance  has 
been  made  in  any  given  case.  As  has  been  heretofore  shown,  a  bind- 
ing contract  of  insurance  or  to  insure  can  be,  and  often  is,  made  whol- 
ly by  parol,  and  without  delivery  of  any  policy  whatsoever,  even 
though  the  parties  may  have  contemplated  the  execution  and  de- 
livery of  a  policy.  But  in  such  cases  the  action  is  upon  the  parol 
agreement,  and  not  on  the  policy  which  the  insurer  had  failed  to  de- 
liver.''* 


ir 


«»  Myers  v.  Insurance  Co.,  27  Pa.  268,  67  Am.  Dec.  462. 

TO  Myers  v.  Insurance  Co.,  27  Pa.  268,  67  Am.  Dec.  462;  HIbemla  Ins.  Co. 
▼.  O'Connor,  29  Mich.  241. 

Ti  Badger  v.  Insurance  Co.,  103  Mass.  244,  4  Am.  Rep.  547.  But  see  Nor- 
ton V.  Insurance  Co.,  36  Conn.  503,  4  Am.  Rep.  98,  contra,  by  a  divided  court 

"  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct 
837,  29  L.  Ed.  934;  Richardson  v.  Insurance  Co.,  46  Me.  394,  74  Am.  Dec.  459. 

T8  Somers  v.  Protective  Union,  42  Kan.  619,  22  Pac.  702 

T*  HICKS  V.  ASSURANCE  CO.,  162  N.  Y.  2Si,  56  N.  E.  743,  48  L.  R.  A. 


168 


THE   MAKING   OF    THE    CONTRACT. 


(Ch.5 


■4 


When  the  validity  of  a  policy  is  put  in  issue,  the  question  is  not 
whether  some  contract  has  been  made,  but  whether  the  parties  have 
agreed  upon  this  particular  writing  as  the  repository  of  the  terms  of 
their  contract.  No  written  instrument  is  binding  upon  the  parties  un- 
til it  is  either  signed  by  both  of  the  parties,  or,  if  signed  by  one,  de- 
livered by  him  and  accepted  by  the  other ;  or  it  may  be  accepted  by  both 
parties  without  signing.  Or,  as  the  rule  is  ordinarily  stated,  delivery 
is  necessary  to  the  validity  of  a  written  instrument.  It  is  plain,  how- 
ever, that  the  real  meaning  of  the  rule  is  that  parties  cannot  be  bound 
upon  a  contract,  whether  written  or  unwritten,  unless  they  have 
both  consented  to  be  bound ;  and  that  any  satisfactory  evidence  of  this 
consent  in  the  case  of  contracts  in  writing  will  constitute  a  "delivery."'' 

With  reference  to  what  constitutes  such  a  delivery  as  will  put  into 
effect  a  written  agreement,  we  must  note  a  distinction  that  exists  be- 
tween sealed  and  unsealed  instruments.  A  specialty  is  a  solemnly  ex- 
ecuted agreement  into  which  parties  are  not  supposed  lightly  to  enter. 
Hence  the  law  requires  more  formal  evidence  of  the  intention  to  be 
bound  under  a  specialty  than  in  the  case  of  a  simple  writing;  and  a 
delivery  of  a  specialty,  being  recognized  as  the  last  solemn  act  requisite 
to  its  becoming  effective,  will  not  be  so  readily  inferred  from  equivocal 
conduct.''*  Therefore,  as  we  shall  presently  see,  the  cases  do  not  re- 
quire such  clear  proof  of  delivery  of  an  insurance  policy  as  of  a  deed. 

Having  thus  determined  that  delivery  is  a  prerequisite  to  the  validity 
of  every  policy,  we  have  next  to  note  that  the  parties  may  further  im- 
pose such  additional  conditions  precedent  to  its  validity  as  a  contract 
as  they  see  fit;  such  as,  for  example,  that  the  first  premium  shall  be 
paid."     These  conditions  may  be  set  forth  (1)  in  the  instrument  itself, 

424;  Ruggles  v.  Insurance  Co.,  114  N.  Y.  415.  21  N.  E.  1000,  11  Am.  St  Rep. 
674;  Van  Loan  v.  Association,  90  N.  Y.  281;  Angell  v.  Insurance  Co.,  59  N. 
Y.  171,  17  Am.  Rep.  322;  Commercial  Mut.  Marine  Ins.  Co.  v.  Union  Mut 
Ins.  Co.,  19  How.  (U.  S.)  321,  15  L.  Ed.  636;  Franklin  Fire  Ins.  Co.  v.  Colt, 
20  Wall.  (U.  S.)  567,  22  L.  Ed.  423;  Security  Fire  Ins.  Co.  of  New  York  v. 
Kentucky  Marine  &  Fire  Ins.  Co.,  7  Busli  (Ky.)  81,  3  Am.  Rep.  301;  Western 
Assur.  Co.  V.  McAlpin,  23  Ind.  App.  220,  55  N.  E.  119,  77  Am.  St.  Rep.  423. 

T6  New  York  Life  Ins.  Co.  v.  Babcock,  104  Ga.  67,  30  S.  B.  273,  42  L.  R. 
A.  88,  69  Am.  St.  Rep.  134,  and  note,  143-153;  Xenos  v.  Wickham,  L.  R.  2 
Eng.  &  Irish  App.  Cas.  296;  Newark  Mach.  Co.  y.  Kenton  Ins.  Co.,  50  Ohio 
St.  549,  35  N.  E.  1060,  22  L.  R.  A.  768. 

If  an  oflScer  of  the  company  Indorses  an  acceptance  upon  the  application 
of  the  insured,  and  fills  out  the  policy  with  intent  to  have  it  take  immediate 
effect,  and  causes  it  to  be  mailed  to  the  applicant  as  of  force  and  effect  at 
that  time,  the  company  cannot  successfully  claim  that  there  was  no  deliv- 
ery, although  the  policy  did  not  reach  its  destination  until  after  the  death  of 
the  applicant  Dailey  v.  Association,  102  Mich.  289,  57  N.  W.  184,  26  L.  R. 
A.  171;   same  case  on  rehearing,  102  Mich.  299,  60  N.  W.  694,  26  L.  E.  A 

171. 
T«  See  Xenos  v.  Wickham,  L.  R.  2  Eng.  &  Irish  App.  Cas.  296. 

T7  Infra,  §  67. 


^6Q) 


DELIVERY. 


169 


when  they  may  be  inoperative  because  waived  by  a  competent  agent, 
or  because  a  binding  preliminary  contract  may  have  been  made  by 
parol,  irrespective  of  such  conditions ;  or  (2)  such  conditions  may  have 
been  agreed  upon  outside  of  the  policy,  as  in  the  application,  in  which 
case  they  preclude  the  existence  of  any  valid  contract  whatever,  wheth- 
er oral  or  written,  until  such  conditions  have  been  performed  or  au- 
thoritatively waived.*" 

The  usual  conditions  to  be  found  in  the  applications  for  insurance 
are  that  the  contract  shall  not  become  binding  until  the  policy  is  de- 
livered and  the  first  premium  paid.  These  conditions  are  valid  and 
enforceable/'  and  are  of  such  importance  as  to  require  discussion  in 
detaiL 

DEIiIVERT, 

66.  Any  aet«  or  words  elearly  sliowingr  an  intention  on  tlie  part  of 
the  insurer  to  be  bound  by  a  fully  executed  policy  will  con- 
stitute a  sufBlcient  delivery  of  tbe  policy.  Actual  possession  of 
tbe  policy  is  evidential  only,  not  essential. 

A  policy  may  be  delivered  subject  to  conditions,  whioli  may  be  sbown 
by  parol. 

i 

In  General. 

Delivery  is  largely  a  question  of  intention,  as  evidenced  by  words  or 
acts.  The  requisites  of  a  valid  delivery  may  be  said  to  be  three :  (1) 
There  must  be  an  intention  on  the  part  of  the  person  executing  the 
liolicy  to  give  it  legal  effect  as  a  completed  instrument ;  (2)  this  inten- 
tion must  be  evidenced  by  some  word  or  act  indicating  that  the  in- 
surer has  put  the  instrument  beyond  his  legal  control,  though  not  nec- 
essarily beyond  his  physical  control;  and  (3)  the  insured  must  acqui- 
esce in  this  intention.*® 


li 


I 


T8  Since  the  law  does  not  favor  forfeitures,  stipulations  with  reference  to 
an  insurance  contract  will  not  be  considered  conditions  precedent  unless  it  be 
clear  that  they  were  so  intended  by  the  parties.  See  Hartford  Steam  Boiler 
Inspection  &  Ins.  Co.  v.  Lasher  Stocking  Co.,  66  Vt  439,  29  Ati.  629,  44  Am. 
St  Rep.  859;   ^tna  Ins.  Co.  v.  Webster,  6  Wall.  (U.  S.)  129,  18  L.  Ed.  888. 

7  9  Oliver  v.  Insurance  Co.,  97  Va.  134,  33  S.  B.  536;  Misselhom  v.  Associa- 
tion (0.  C.)  30  Fed.  545;  Union  Cent.  Life  Ins.  Co.  v.  Pauly,  8  Ind.  App.  85, 
35  N.  E.  190;  McCully's  Adm'r  v.  Insurance  Co.,  18  W.  Va.  782. 

80  New  York  Life  Ins.  Co.  v.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A. 
88,  69  Am.  St  Rep.  134,  and  note;  Xenos  v.  Wickham,  L.  R.  2  Eng.  &  Irish 
App.  Cas.  296;  Newark  Mach.  Co.  v.  Kenton  Ins.  Co.,  50  Ohio  St  549,  35 
N.  E.  1060,  22  L.  R.  A.  768;  St.  Louis  Mut  Life  Ins.  Co.  v.  Kennedy,  6  Bush 
(Ky.)  450;  McCully's  Adm'r  v.  Insurance  Co.,  XS  W.  Va.  782;  Heiman  v. 
Insurance  Co.,  17  Minn.  153  (Gil.  127),  10  Am.  Rep.  154;  Folb  v.  Insurance 
Co.,  109  N.  C.  568,  13  S.  B.  798.  Actual  manual  delivery  is  not  essential. 
Home  Ins.  Co.  v.  Curtis,  32  Mich.  402.    For  example,  where  it  is  expressly 


i' 


I 


u , 
1: 


170 


THE  MAKING  OP  THE  CONTRACT. 


(Ch.5 


Intention — Fraudulently  Procured  Delivery, 

A  delivery  procured  by  the  fraud  of  the  insured  is  of  no  effect  in 
validating  the  policy.®^  Thus,  in  New  York  Life  Ins.  Co.  v.  Bab- 
cock,**  where  a  third  party  induced  the  agent  of  the  insurer  to  sur- 
render a  policy  by  concealing  the  death  of  the  insured,  the  court  con- 
sidered the  case  as  if  the  policy  had  never  left  the  hands  of  the  in- 
surer's agent.  But  the  delivery  of  a  policy  procured  by  the  insured 
without  disclosing  the  fact  that  a  loss  has  already  occurred  is  not 
fraudulent  if  the  contract  was  complete,  and  the  insured  entitled  to  a 
policy,  before  loss.*' 

Same^-Conditional  Delivery. 

A  policy  may  be  delivered  upon  condition.  In  such  cases  the  policy 
is  of  no  binding  effect  until  the  condition  is  fulfilled.**  Such  condi- 
tions may  be  shown  by  parol  without  violating  the  well-known  rule 
prohibiting  the  varying  of  written  agreements  by  parol  testimony. 
The  condition  so  shown  goes  to  the  existence  of  the  policy,  and  not  to 
its  terms.     An  interesting  case  illustrating  this  principle  has  recently 

stipulated  that  the  policy,  when  filled  up,  shall  be  held  by  the  agent  in  his 
safe  for  the  assured,  no  actual  transfer  to  the  assured  is  necessary.  Frank- 
lin Fire  Ins.  Co.  v.  Colt,  87  U.  S.  560,  22  L.  Ed.  423.  See  infra,  p.  172,  note 
90.  Proof  of  intent  to  cause  the  policy  to  become  effective  must  be  strong. 
Union  Cent.  Life  Ins.  Co.  v.  Pauly,  8  Ind.  App.  85,  35  N.  B.  190;  Cronkhite 
V.  Insurance  Co.  (C.  C.)  35  Fed.  26. 

81  Merchants'  Mut  Ins.  Co.  v.  Lyman,  15  WalL  (U.  S.)  664,  21  L.  Ed. 
246.  In  this  case  it  was  shown  that  the  party  procuring  the  insurance  knew 
when  the  policy  was  issued  that  the  vessel  was  lost,  and  it  was  held  there 
could  be  no  recovery.  In  Piedmont  &  A.  Ins.  Co.  v.  Ewing,  92  U.  S.  377,  23 
L,  Ed.  610,  while  negotiations  were  still  pending  between  agent  and  appli- 
cant, a  friend  paid  the  premium  and  secured  the  policy,  concealing  from  the 
agent  the  fact  that  the  insured  was  in  extremis,  and  it  waa  held  that  the  de- 
livery thus  obtained  by  fraud  was  inoperative. 

8«  104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A.  88,  69  Am.  St.  Rep.  134. 

As  to  delivery  by  mistake,  see  Hartford  Fire  Ins.  Co.  v.  Wilson,  187  U.  S. 
467,  23  Sup.  Ct  189,  47  L.  Ed.  261. 

8»  Cory  V.  Patton,  L.  R.  9  Q.  B.  577;  Michigan  Pipe  Co.  v.  Michigan  Fire  & 
Marine  Ins.  Co.,  92  Mich.  482,  52  N.  W.  1070,  20  L.  R.  A.  277;  Mutual  Life 
Ins.  Co.  V.  Thomson,  94  Ky.  253,  22  S.  W.  87;  Commercial  Ins.  Co.  v.  Hal- 
lock,  27  N.  J.  Law  (3  Dutch.)  645,  72  Am.  Dec.  379;  Keim  v.  Insurance  Co., 
42  Mo.  38,  97  Am.  Dec.  291;  Baldwin  v.  Insurance  Co.,  56  Mo.  151,  17 
Am.  Rep.  671.  But  see  Merchants*  Mut  Ins.  Co.  v.  Lyman,  15  Wall.  (U.  S.) 
604,  21  L.  Ed.  246. 

8*  Hartford  Fire  Ins.  Co.  v.  Wilson,  187  U.  S.  467,  23  Sup.  Ct.  189,  47  L. 
Ed.  261;  Brown  v.  Insurance  Co.,  70  Iowa,  390,  30  N.  W.  647;  Millville  Mut 
Marine  &  Fire  Ins.  Co.  v.  Collerd,  38  N.  J.  Law,  480;  Hamickell  v.  Insurance 
Co.,  Ill  N.  Y.  390,  18  N.  E.  632,  2  L.  R.  A.  150. 

When  prepayment  is  a  condition  precedent  to  the  operation  of  the  policy, 
the  policy  may  be  delivered  to  the  agent  of  the  applicant  subject  to  such 
condition.    Heiman  v.  Insurance  Co.,  17  Minn.  153  (Gil.  127),  10  Am.  Rep.  154. 


^66) 


DELIVERY. 


171 


been  decided  in  the  Supreme  Court  of  the  United  States."  The  in- 
surance company  delivered  certain  policies  to  a  broker  on  condition 
that  they  should  not  be  considered  binding,  or  surrendered  to  the  in- 
sured, until  the  company  might  inspect  the  risk,  and  that,  in  case  the 
risk  should  be  rejected,  the  policies  should  be  at  once  canceled.  No 
premium  was  paid.  The  insurer  inspected  the  risk,  and  notified  the 
broker  of  its  rejection.  The  broker,  neglecting  to  return  the  policies 
to  the  insurer,  inadvertently  delivered  them  to  the  insured,  v^rho,  upon 
destruction  of  the  building  insured,  brought  suit  upon  the  policies. 
The  lower  court  held  that  the  insurer  could  not  be  allowed  to  show  by 
parol  such  condition  in  order  to  escape  liability,  since  each  policy  re- 
quired all  agreements  and  conditions  upon  which  it  was  "made  and 
accepted"  to  be  indorsed  on  the  policy.  But  the  Supreme  Court  held 
that  this  reasoning  applied  only  to  the  policies  themselves  after  they 
should  become  legally  executed  instruments  by  virtue  of  an  absolute  de- 
livery, and  did  not  prevent  the  insurer  from  showing  "that  at  the  time 
of  the  fire  there  was  no  subsisting  contract  of  indemnity  between  the 
company  and  the  insured."  The  principle  may  be  stated  in  brief  thus : 
While  a  parol  condition  cannot  be  shown  so  as  to  affect  the  meaning 
of  an  existing  written  contract,  yet  a  parol  condition  may  always  be 
shown  to  affect  the  existence  of  an  alleged  contract.'* 

Harnickell  v.  New  York  Life  Ins.  Co.,"  the  authority  chiefly  relied 
upon  in  the  Wilson  Case,  just  discussed,  presented  precisely  the  same 
question  with  the  parties  reversed.  In  the  New  York  case  the  insurer 
sought  to  recover  on  premium  notes  given  for  policies  delivered  sub- 
ject to  parol  conditions,  which  failed.  It  was  held,  and  with  undoubt- 
ed correctness,  that  these  conditions  could  be  shown  by  parol  in  order 
to  establish  the  invalidity  of  the  insurance  and  the  consequent  failure 
of  consideration  for  the  defendant's  notes. 

It  is  sometimes  the  case  that  a  condition  which  by  its  terms  appears 
to  be  a  condition  precedent  imposed  upon  the  delivery  of  the  policy 
will  be  found,  in  view  of  all  the  facts  of  the  case,  to  be  a  condition 
subsequent,  rendering  the  contract  defeasible  in  accordance  with  the 
terms  of  the  condition.  Thus,  in  ^tna  Ins.  Co.  v.  Webster,"  the 
plaintiff  received  a  duly  executed  policy  of  insurance,  and  shortly  aft- 
erwards signed  an  application  for  the  insurance  just  granted.  In  this 
application  was  a  provision  that  the  insurance  granted  upon  this  appli- 
cation was  to  take  effect  when  approved  by  the  general  agent  of  the 

86  Hartford  Fire  Ins.  Co.  v.  Wilson,  187  U.  S.  467,  23  Sup.  Ct  189.  47  U 
Ed.  261. 

8«  Burke  v.  Dul&ney,  153  U.  S.  228,  14  Sup.  Ct.  816,  38  L.  Ed.  698;  Catt  v. 
Olivier,  98  Va.  580,  36  S.  E.  980;  Donaldson  v.  Uhlfelder  (D.  C.)  31  Wash. 
Law  Rep.  428. 

87  111  N.  Y.  390,  18  N.  E.  632,  2  L.  R.  A.  150. 
«8  6  WaU.  (U.  S.)  129,  18  L.    Ed.  888. 


I 


1 1 


I 


I 


;!   t 


7 


J! 


172 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


defendant.  The  plaintiff  heard  nothing  further  of  this  condition  un- 
til after  the  property  insured  was  lost,  when  he  was  told  that  the  in- 
surance had  not  been  approved  by  the  general  agent,  and  an  offer  was 
made  to  return  to  him  his  premium  note.  The  court,  considering  the 
application  as  a  part  of  the  same  transaction  with  the  policy,  held  that 
the  condition  did  not  go  to  the  delivery,  but  merely  gave  the  insurer  a 
right  to  terminate  the  contract  upon  the  disapproval  of  the  general 
agent,  and  notice  before  loss  to  the  insured.** 

Evidence  of  Intention  to  Deliver, 

Not  only  must  there  be  an  intention  to  deliver,  but  also  there  must 
be  acts  or  words  showing  this  intention.  It  is  plain  that  manual  tra- 
dition of  the  policy  is  not  required  for  this  purpose,  for  there  may  be 
a  valid  delivery  without  physical  transfer,'®  and  also  there  may  be  a 


H 


••  See,  on  this  general  subject,  Perkins  ▼.  Insurance  Co.,  4  Cow.  (N.  Y.) 
645;  Westchester  Fire  Ins.  Co.  v.  Earle,  33  Mich.  152. 

•0  Unless  agreed  upon  by  the  parties  as  a  condition  precedent,  actual  deliv- 
ery of  policy  is  not  necessary  to  its  binding  effect.  Xenos  v.  Wickham,  L.  R. 
2  H.  L.  Cas.  296;  Blanchard  v.  Waite,  28  Me.  (15  Shep.)  51,  48  Am.  Dec.  474; 
Bragdon  ▼.  Insurance  Co.,  42  Me.  259;  Michigan  Pipe  Co.  v.  Michigan  Fire 
&  Marine  Ins.  Co.,  92  Mich.  482,  52  N.  W.  1070,  20  L.  R.  A.  277;  City  of 
Davenport  v.  Peoria  Marine  &  Fire  Ins.  Co.,  17  Iowa,  276;  Franklin  Fire 
Ins.  Co.  v.  Colt,  20  Wall.  (XJ.  S.)  560,  22  L.  Eld.  423.  Thompson  v.  Adams, 
L.  R.  23  Q.  B.  Dlv.  361,  Richards,  Ins.  Cas.  295 ;  Newark  Mach.  Co.  v.  Kenton 
Ins.  Co.,  50  Ohio  St  549,  35  N.  E.  1060,  22  L.  R.  A.  768;  New  York  Life  Ins. 
Co.  V.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A.  88,  69  Am.  St.  Rep.  134. 

Where  agents  of  the  company,  under  an  agreement  with  the  assured,  hold  the 
policy  subject  to  the  order  and  control  of  a  third  person,  whose  mortgage 

interest  is  covered  by  it,  this  is  a  sufficient  delivery  to  give  validity  to  the 
policy,  though  such  third  person  does  not  call  for  or  receive  it  Home  Ins. 
Co.  V.  Curtis,  32  Mich.  402.  The  courts  of  Massachusetts  show  a  great  re- 
luctance to  recognize  the  contract  as  complete  until  there  has  been  actual 
manual  transfer  of  the  poUcy.  In  MARKEY  v.  INSURANCE  CO.,  118  Mass. 
178,  a  life  policy  was  handed  by  the  agent  to  the  insured,  who,  after  read- 
ing it,  handed  it  over  to  the  beneficiary  with  the  remark,  **There  is  your  pol- 
icy;" the  beneficiary  afterwards  returning  the  policy  to  the  agent,  to  en- 
able him  to  present  It  to  and  get  the  premium  from  a  third  person.  The 
agent  retained  the  policy  and  a  demand  for  the  policy  and  a  tender  of  the 
money  the  next  day  was  refused,  and  it  was  held  that  there  was  no  such  de- 
livery as  would  constitute  a  contract  binding  on  the  company.  See,  also, 
Wainer  v.  Insurance  Co.,  153  Mass.  335,  26  N.  E.  877,  11  L.  R.  A.  598,  and 
cases  cited  therein.  In  the  Wainer  Case,  plaintiff  filed  an  application  for  in- 
surance with  defendant's  agent,  and,  some  time  after  receiving  notice  that  his 
policy  was  ready,  called  for  it,  and  paid  the  premium.  There  was  no  agree- 
ment that  the  policy  should  take  effect  before  payment  of  the  premium,  and 
it  was  held  that  the  time  between  the  application  and  payment  of  the  pre- 
mium could  not  be  considered  in  determining  whether  the  premises  were  va- 
cant for  thirty  days,  contrary  to  a  provision  of  the  policy.  But  see  Wheeler 
V.  Insurance  Co.,  131  Mass.  1. 
When  the  application  contains  a  provision  that  the  policy  shall  not  become 


DELIVERY. 


173 


§66) 

physical  transfer  without  a  delivery.**  Possession  of  the  policy  is 
evidential,  but  not  conclusive.  Possession  by  the  insured  raises  a  pre- 
sumption of  delivery,®*  while  possession  by  the  insurer  is  prima  fade 
evidence  of  no  delivery.*' 

A  delivery  is  clearly  intended  when  the  policy  is,  without  condition, 
put  into  the  possession  of  the  insured  or  his  agent,  or  even  of  a  third 
party  for  the  benefit  of  the  insured.**  So,  when  the  insurer  properly 
mails  a  fully  executed  policy,  addressed  to  the  insured,  the  delivery  is 
sufficient  and  the  policy  binding,  even  though  it  may  be  received  by  the 
insured  after  loss,  or  may  never  be  received  at  all.** 

Same — Delivery  to  Agent  of  Insurer. 

Whether  a  policy  completely  executed  and  put  in  the  possession  of 
the  agent  of  the  insurer  to  be  delivered  to  the  insured  shall  be  deemed 
binding  upon  the  insurer  while  still  in  the  possession  of  the  agent  de- 
pends upon  the  nature  of  the  agent's  duty  with  reference  to  the  policy. 
If  the  insured  has  done  everything  necessary  to  entitle  him  to  posses- 
sion of  the  policy,  and  there  rests  upon  the  agent  the  simple  ministe- 
rial duty  of  transferring  the  policy  to  the  insured,  then  the  agent  of 
the  insurer  in  effect  holds  the  policy  for  the  insured,  and  it  is  binding 
on  the  parties  without  physical  transfer.**     If,  however,  the  agent  is 

binding  until  it  Is  actually  delivered,  it  seems  that  a  physical  transfer  is 
necessary.     See  Misselhorn  v.  Association,  30  Mo.  App.  589. 

»i  For  example,  delivery  procured  by  fraud  or  mistake  is  not  such  a  deliv- 
ery as  will  make  the  policy  operative.  Supra,  p.  170.  So,  the  policy  may  be 
delivered  on  condition.     Supra,  p.  170,  and  cases  cited. 

»2  Massachusetts  Ben.  Life  Ass'n  v.  Sibley,  158  111.  411,  42  N.  E.  137.  But 
such  possession  is  only  prima  facie  evidence  of  delivery— not  conclusive. 
Hartford  Fire  Ins.  Co.  v.  Wilson,  187  U.  S.  467  (at  page  478),  23  Sup.  Ot  189, 
193,  47  L.  Ed.  261. 

Mere  possession  by  the  assured  of  a  life  policy  which  recites  on  its  face 
that  it  Is  to  take  effect  only  when  countersigned  by  A.,  and  which  is  not  so 
^countersigned,  is  no  evidence  that  the  policy  was  ever  delivered  to  the  as- 
sured.    Prall  V.  Society,  5  Daly  (N.  Y.)  298,  affirmed  63  N.  Y.  608. 

88  Union  Cent.  Life  Ins.  Co.  v.  Pauly,  8  Ind.  App.  85,  35  N.  B.  190;  Cronk- 
hite  V.  Insurance  Co.  (C.  O.)  35  Fed.  26. 

»*Home  Ins.  Co.  of  Columbus  v.  Curtis,  32  Mich.  402;   Clark,  Cont.  (2d 

Ed.)  53. 

•B  Mailing  policy  is  sufficient  delivery.  Hartford  Steam-Boiler  Inspection 
^  Ins.  Co.  V.  Lasher  Stocking  Cto.,  66  Vt.  439,  29  Atl.  629,  44  Am.  St.  Rep.  859; 
Dailey  v.  Association,  102  Mich.  289,  57  N.  W.  184,  26  L.  R.  A.  171,  Elliott 
Cas.  Ins.  23. 

In  Yonge  v.  Society  (C.  O.)  30  Fed.  902,  the  policy  was  mailed  from  the 
home  office  July  28th,  and  received  by  the  local  agent  August  5th,  but  was 
never  actually  delivered  into  the  possession  of  the  applicant,  who  was  taken 
ill  August  6th,  and  died  September  9th.  Held  that,  as  between  the  applicant 
and  the  company,  the  policy  became  effective  and  binding  when  placed  in 
the  mail  July  28th,  and,  if  not  then,  certainly  when  it  reached  the  hands  of 
the  agent  on  August  5th. 

•e  Delivery  is  complete  when  the  agent  of  the  insurer  holds  the  policy 


•^ 
'» 


if 


174 


THE    MAKING   OF    THE    CONTRACT. 


(Ch.  5 


§67) 


PAYMENT   OF   FIRST   PJIEMIUINI. 


175 


M 


t 


vested  with  some  discretionary  power  in  regard  to  the  delivery,  as 
where  he  is  instructed  not  to  deliver  unless  the  insured  is  in  good 
health,*^  or  if  the  insured  is  not  entitled  to  claim  possession  of  the  pol- 
icy until  some  condition  has  been  fulfilled,  as  the  payment  of  the  first 
premium,"®  in  such  cases  the  possession  of  the  agent  does  not  inure 
to  the  benefit  of  the  insured,  and  there  has  been  no  sufficient  delivery.®" 
From  the  necessity  of  mutuality  in  all  contracts  it  follows  that  the  pol- 
icy in  the  hands  of  the  agent  cannot  be  binding  on  the  insurer  unless 
it  is  also  binding  on  the  insured.  If  the  insurer  is  liable  in  case  of 
loss,  the  insured  is  liable  to  pay  the  stipulated  premium.^**"  Hence, 
when  the  insured  has  the  right  of  rejecting  the  policy  upon  delivery, 
he  cannot  hold  the  insurer  liable  until  actual  delivery  and  acceptance 
of  the  policy.*®^ 

subject  to  the  Insured's  unconditional  right  to  demand  surrender.  Franklin 
Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  li.  Ed.  423;  New  York  Life  Ins. 
Co.  V.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R,  A.  88,  69  Am.  St  Rep.  134; 
Equitable  Fire  Ins.  Co.  v.  Alexander  (Miss.)  12  South.  25;  Phoenix  Ins.  Co. 
V.  Meier,  28  Neb.  124,  44  N.  W.  97;  Morrison  v.  Insurance  Co.,  64  N.  H.  137, 
7  Atl.  378;  Newark  Mach.  Co.  v.  Kenton  Ins.  Co.,  50  Ohio  St.  549,  35  N.  E. 
1060,  22  L.  R.  A.  768 ;  Sheldon  v.  Insurance  Co.,  25  Conn.  207,  65  Am.  Dec.  565 ; 
Mutual  Life  Ins.  Co.  of  New  York  v.  Thomson,  94  Ky.  253,  22  S.  W.  87 ;  Home 
Ins.  Co.  of  Columbus  v.  Curtis,  32  Mich.  402.  See,  also,  Wheeler  v.  Insurance 
Co.,  131  Mass.  1.  Dibble  v.  Assurance  Co..  70  Mich.  1,  37  N.  W.  704,  14  Am.  St. 
Rep.  470,  is  an  interesting  case  on  this  point.  There  an  insurance  agent, 
with  general  authority  from  the  owner  of  property  to  keep  it  insured,  can- 
celed one  policy  on  order  of  the  company  issuing  it,  and  immediately  re- 
insured it  in  another  company,  paid  the  premium,  notified  the  assured  of  the 
transaction,  and  deposited  the  policy  in  his  safe  for  the  assured.  This  was 
held  to  be  a  sufficient  delivery  of  the  policy  to  bind  the  company. 

•7  McClave  v.  Association,  55  N.  J.  Law,  187,  26  Atl.  78.  But  see  Fried  v. 
Insurance  Co.,  50  N.  Y.  243.  In  this  case,  however,  delivery  of  the  policy 
was  not  by  its  terms  necessary  to  its  validity. 

»8  Giddings  v.  Insurance  Co.,  102  U.  S.  108,  26  L.  Ed.  92;  Ormond  v.  Asso- 
ciation, 96  N.  C.  158,  1  S.  E.  796;  Heiman  v.  Insurance  Co.,  17  Minn.  153  (Gil. 
127),  10  Am.  Rep.  154;  Wainer  v.  Insurance  Co.,  153  Mass.  335,  26  N.  B.  877, 
11  L.  R.  A.  598. 

•»  When  the  agent  holds  the  policy  for  delivery  upon  payment  of  first  pre- 
mium, but  there  is  no  delivery  by  reason  of  default  of  the  agent,  the  insured 
standing  ready  to  pay,  it  seems  that  the  policy  is  valid.  New  York  Life 
Ins.  Co.  V.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R.  A.  88,  69  Am.  St  Rep. 
134. 

Where  there  was  no  payment  of  the  premium  due  upon  a  life  policy,  and 
payment  of  only  one-half  of  the  premium  due  had  been  waived,  it  was  held 
that  a  letter  by  the  agent  to  the  applicant  stating  that  "your  policy  has  ar- 
rived" did  not  show  such  a  state  of  facts  as  amounted  to  a  constructive 
delivery.    Union  Cent  Life  Ins.  Co.  v.  Pauly,  8  Ind.  App.  85,  35  N.  B.  190. 

100  Taylor  v.  Lowell,  3  Mass.  331,  3  Am.  Dec.  141;  Hendricks  v.  Insurance 
Co.,  8  Johns.  (N.  Y.)  1;  Lindauer  v.  Insurance  Co.,  13  Ark.  (8  Eng.)  461. 

101  Blue  Grass  Ins.  Co.  v.  Cobb  (Ky.)  72  S.  W.  1099;  Myers  v.  Insurance 
Co.,  27  Pa.  268,  67  Am.  Dec.  462;  Millville  Mut  Marine  &  Fire  Ins.  Co.  t» 
CoUerd,  38  N.  J.  Law  0  Yroom)  480. 


Same — Where  Insurer  Holds  Policy  for  Insured. 

By  extending  the  principle  just  considered,  it  becomes  apparent  that 
the  policy  may  become  effective -even  though  it  never  leaves  the  pos- 
session of  the  insurer.  If  the  instrument  is  completely  executed,  and 
held  by  the  insurer  either  subject  to  the  order  of  the  insured  or  ready 
for  transmission  to  him,  it  is  sufficiently  delivered  and  binding  upon 
the  parties,  the  assent  of  the  insured  having:  already  been  given  in 
the  application  submitted.^®*  This  principle  is  well  illustrated  by  the 
leading  case  of  Xenos  v.  Wickham,^®^  in  which  a  policy  of  insurance 
was  completely  executed,  purporting  on  its  face  to  have  been  signed, 
sealed,  and  delivered  by  the  proper  officers  of  the  insuring  company, 
the  premium  due  was  debited  to  the  broker,  in  accordance  with  whose 
instructions  the  policy  had  been  executed,  but  the  instrument  itself 
remained  in  possession  of  the  company  at  the  time  of  the  loss.  To 
quote  the  language  of  the  Lord  Chancellor  (Chelmsford) :  "Now,  al- 
though the  policy  was  thus  retained  by  the  officers  of  the  company 
when  formal  execution  of  it  had  taken  place,  they  held  it  for  the  plain- 
tiffs, whose  property  it  became  from  that  moment.  It  is  a  mistake  to 
suppose,  as  some  of  the  learned  judges  have  done,  that  the  policy 
wanted  its  complete  binding  effect  till  it  was  delivered  to  and  accepted 
by  Lascaridi.  The  usage  of  insurance  companies  to  keep  the  policy 
until  sent  for  by  the  assured  or  his  broker  is  not  for  the  purpose  of 
completing  the  instrument  by  a  delivery  personally  to  the  party  or  his 
agent,  but  merely  as  a  matter  of  convenience."  ^®* 

PAYMENT  OF  FIRST  PREMIUM. 

67.  Tlie  parties  may  make  such  asreement  concexmins  the  payment 
of  the  first  premium  as  they  may  desire,  and  snoh  agreement, 
i^hether  express  or  implied,  mnst  be  perfom&ed  or  x^aived. 
In  the  absence  of  express  agreement  it  is  generally  understood 
that  prepayment  of  the  first  premiun&  is  not  necessary  to  the 
validity  of  an  oral  preliminary  contract,  but  that  payment 
must  be  made  upon  delivery  of  the  policy.  When,  hourever, 
it  is  expressly  agreed  that  the  contract  shall  not  become  bind* 
ing  until  the  first  premium  has  been  paid,  no  contract,  oral 
or  written,  can  be  validly  n&ade  unless  such  prepayment  has 
been  n&ade  or  waived. 

The  great  number  of  cases  involving  questions  relating  to  the  pay- 
ment of  the  first  premium  arise  rather  out  of  the  difficulty  of  making 

10*  See  Xenos  v.  Wickham,  2  H.  L.  Cas.  296;    Baldwin  v.  Insurance  Co., 
56  Mo.  151,  17  Am.  Rep.  671;    Keim  v.  Insurance  Co.,  42  Mo.  38,  97  Am. 
Dec.  291;   Commercial  Mut  Marine  Ins.  Co.  v.  Union  Mut  Ins.  Co.,  19  How 
(U.  S.)  318,  16  li.  Ed.  636. 

108  L.  R.  2  Eng.  &  Irish  App.  Cas.  296. 

104  L.  R.  2  Eng.  &  Irish  App.  Cas.  296  (at  page  320). 


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176 


THE    MAKING   OP   THE   CONTRACT. 


(Ch.5 


^  ' 


proper  inferences  of  fact  than  of  determining  the  principles  of  law 
applicable.  It  is  clear  that,  as  a  matter  of  law,  any  agreement  made 
by  the  parties  with  reference  to  the  premium  will  be  enforced,  and 
that,  if  the  insured  has  failed  to  perform  his  promise  of  payment,  he 
is  in  no  position  to  demand  performance  of  the  insurer  in  case  of  loss. 
As  a  practical  matter,  however,  in  deciding  questions  as  to  the  payment 
of  the  first  premium,  three  serious  difficulties  present  themselves :  (1) 
In  any  given  case,  what  was  the  agreement  of  the  parties,  as  a  matter 
of  fact;  (2)  what  constitutes  payment;  and  (3)  what  amounts  to  a 
valid  waiver. 

The  Agreement  to  Pay  Premiums. 

The  express  agreement  presents  little  difficulty.  If  the  payment  of 
the  first  premium  is  made  a  condition  precedent  to  the  liability  of  the 
insurer,  the  party  insured  cannot  recover  either  on  a  preliminary  oral 
contract  or  on  the  written  policy  unless  such  condition  has  been  ful- 
filled or  waived.^®*  So,  if  the  premium  is  agreed  to  be  paid  at  some 
time  subsequent  to  the  making  of  the  contract,  the  insurer's  liability 
attaches  at  once.^°*  A  promise  to  pay  a  premium  will  support  a  prom- 
ise to  indemnify  as  well  as  a  cash  payment.  "Insurance  can  be  sold  on 
credit  as  well  as  anything  else."  ^®^ 

When,  however,  no  express  stipulation  is  made  as  to  the  time  or 
manner  of  payment,  and  the  intention  of  the  parties  must  be  inferred 

lOB  Oliver  v.  Insurance  Oo.,  97  Va.  134,  33  S.  K  536;  St  Louis  Mut  Life 
Ins.  Co.  V.  Kennedy,  69  Ky.  (6  Bush)  450;  Ormond  v.  Association,  96  N.  O. 
158,  1  S.  E.  796;  Heiman  v.  Insurance  Co.,  17  Minn.  153  (Gil.  127),  10  Am. 
Rep.  154.  Payment  by  a  third  party  with  the  money  of  the  insured,  but 
without  his  knowledge,  is  of  no  effect.  "Whiting  v.  Insurance  Co.,  129  Mass. 
240,  37  Am.  Rep.  317.  See  Giddings  v.  Insurance  Co.,  102  U.  S.  108,  26  U 
Ed.  92. 

.  In  Meyer  v.  Insurance  Co.,  73  N.  Y.  516,  29  Am.  Rep.  200,  plalntiflT  held  a 
participating  policy  on  the  life  of  her  husband.  The  custom  of  the  parties 
had  been  to  apply  the  dividends  on  the  premiums,  and,  their  amount  being 
thus  uncertain,  the  defendant  had  been  in  the  habit  of  furnishing  the  plain- 
tiff with  an  annual  statement  of  the  amount  required  to  renew  the  policy. 
Receiving  no  statement  for  1874,  the  plaintiff  wrote  for  it,  Inclosing  a  money 
order  for  the  amount  she  supposed  would  be  requisite.  If  the  defendant  had 
answered  her  letter  promptly,  the  plaintiff  would  have  had  time  enough  to 
make  the  payment,  but  she  received  no  answer  until  three  months  later,  when 
the  order  was  returned  with  the  statement  that  the  policy  was  canceled  for 
nonpayment  of  premium.  The  plaintiff  tendered  the  proper  amount,  which 
was  refused.  Held,  that  the  plaintiff  was  entitled  to  have  the  policy  de- 
clared in  force,  and  that  formal  annual  tender  of  premium  was  not  neces- 
sary, but  the  Judgment  should  provide  for  the  payment  of  premiums  due, 
v^ith  interest. 

io«  Franklin  Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  L.  Ed.  423;  First 
Baptist  Church  Trustees  v.  Brooklyn  Fire  Ins.  Co.,  28  N.  Y.  153. 

107  Croft  V.  Insurance  Co.,  40  W.  Va.  508,  21  S.  B.  854,  52  Am.  St  Rep.  902; 
Jones  V.  Insurance  Co.,  168  Mass.  245,  47  N.  B.  92. 


PAYMENT   OF   FIRST   PREMIUM. 


177 


^67) 

from  all  the  circumstances  of  the  transaction,  great  difficulty  is  ex- 
perienced and  much  confusion  has  arisen.  On  principle  and  authority 
it  would  seem  that  the  true  rule  should  be  derived  from  that  applying 
in  the  somewhat  analogous  case  of  a  sale  of  a  chattel,  when,  in  the  ab- 
sence of  agreement  to  the  contrary,  cash  is  to  be  paid  upon  the  deliv- 
ery of  the  article  sold.  So  a  preliminary  contract  of  insurance  will 
become  binding  without  payment  of  the  premium,^®*  but  the  premium 
is  payable  in  cash  upon  delivery  of  the  policy.^®*  In  other  words,  the 
payment  of  the  premium  and  the  delivery  of  the  policy  are  mutually 
dependent  upon  each  other.^^°  Of  course,  credit  may  be  given  at  the 
time  of  delivering  the  policy,  provided  the  agent  has  authority  so  to  do. 

What  Constitutes  Payment. 

Any  transaction  that  will  constitute  payment  of  any  premium  will 
be  sufficient  to  satisfy  the  condition  of  prepayment  of  the  first  pre- 
mium, so  as  to  make  the  contract  operative.  This  point  will  therefore 
be  treated  under  the  general  topic  of  payment  of  premiums.^**  It 
may  be  here  remarked,  however,  that  a  partial  payment  of  a  required 
premium  will  not  validate  a  policy  ^**  unless  the  acceptance  of  such 
sum  by  the  insurer  is  under  such  circumstances  as  to  show  a  waiver 
of  the  requirement  of  full  payment. ^^* 

108  Franklin  Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  L.  Ed.  423, 
Eames  v.  Insurance  Co.,  94  U.  S.  621,  627,  24  L.  Ed.  298;  Firemen's  Ins.  Co. 
V.  Kuessner,  164  111.  275,  45  N.  K  540. 

109  But  if  the  policy  is  delivered  to  the  assured,  nothing  being  said  about 
payment,  a  presumption  is  raised  that  a  short  credit  was  intended.  Boeben 
V.  Insurance  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787;  Miller  v.  Insurance  Co.,  12 
Wall.  (U.  S.)  285,  20  L.  Ed.  398. 

In  Fidelity  &  Casualty  Co.  v.  Chambers,  93  Va.  138,  24  S.  E.  896,  40  L.  R. 
A.  432,  it  was  held  that  possession  of  the  policy  by  the  assured  is  such  evi- 
dence of  the  payment  of  the  premium  as,  upon  a  demurrer  to  the  evidence, 
is  conclusive  upon  the  court 

110  Audubon  v.  Insurance  Co.,  27  N.  T.  216  (at  page  223),  Denlo,  C.  J.  If 
a  binding  preliminary  contract  has  been  made,  the  right  of  the  insured  to 
tender  the  premium  and  receive  the  policy  agreed  upon  is  in  no  wise  affected 
by  the  previous  destruction  of  the  property  insured.  Commercial  Mut.  Ma- 
rine Ins.  Co.  V.  Union  Mut.  Ins.  Co.,  19  How.  (U.  S.)  318,  15  L.  Ed.  636. 

Nor  is  the  insured  under  any  obligation  to  disclose  the  loss  occurring  after 
the  contract  has  been  completed  by  parol.  Baldwin  v.  Insurance  Co.,  56  Mo. 
151,  17  Am.  Rep.  671;«Keim  v.  Insurance  Co.,  42  Mo.  38,  97  Am.  Dec.  291. 
Merchants'  Miit.  Ins.  Co.  v.  Lyman,  15  Wall.  (U.  S.)  664,  21  L.  Ed.  246,  seems 
to  lay  down  a  different  rule.  In  that  case,  however,  the  remarks  of  Miller. 
J.,  should  be  regarded  as  obiter  dictum,  inasmuch  as  no  oral  contract  was 
proved. 

111  See  post,  p.  201. 

ii«  Barnes  v.  Insurance  Co.,  74  N.  C.  22,  5  Bigelow,  Ins.  Gas.  420;  Carlock 
V.  Insurance  Co.,  138  111.  210,  28  N.  E.  53;  Brown  v.  Insurance  Co.,  59  N.  H. 
298,  47  Am.  Rep.  205. 

118  Nebraska  &  I.  Ins.  Co.  v.  Christiensen,  29  Neb.  572,  45  N.  W.  924,  26 

Tanck  Ins. — 12 


(i:|{ 


I 


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f' 


I 


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178 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


Waiver  of  Agreement  for  Prepayment. 

Even  though  the  parties  may  have  expressly  agreed  that  the  con- 
tract shall  not  be  deemed  complete  until  payment  of  the  premium  in 
cash  and  in  full,  this  stipulation  may  be  waived  by  the  insurer  or  any 
of  his  agents  having  competent  authority.^"  As  a  general  rule,  any 
agent  having  power  to  execute  and  issue  contracts  on  behalf  of  the 
insurer  has  power  to  waive  a  condition  of  prepayment.^  ^'^  And  an 
absolute  delivery  of  the  policy  by  such  an  agent,  without  payment  of 
the  premium,  under  such  circumstances  as  will  justify  an  inference 
that  credit  is  to  be  given,  will  constitute  a  waiver  of  a  condition  of 
prepayment."*  It  seems  that  an  intention  to  give  credit  may  be  in- 
ferred from  the  mere  fact  of  unconditional  delivery  without  requiring 
present  payment.^*^  Nor  do  the  courts  show  great  readiness  to  find 
that  a  delivery  was  made  subject  to  a  condition  of  immediate  payment. 


I, 


l;l 


Am.  St.  Rep.  407;  Cole  v.  Insurance  Co.,  22  Wash.  26,  60  Pac.  68,  47  L.  R.  A. 

201. 

114  Farnum  v.  Insurance  Co.,  83  Cal.  246,  23  Pac.  869,  17  Am.  St.  Rep.  233; 
Eagan  v.  Insurance  Co.,  10  W.  Va.  583;  O'Brien  v.  Insurance  Co.  (C.  C.)  22 
Fed.  586.  A  custom  of  collecting  premiums  on  the  first  of  each  month  for 
insurance  efiCected  during  the  previous  month  operates  as  a  waiver  of  im- 
mediate payment  when  no  special  demand  is  made.  Potter  v.  Insurance  Co. 
(C.  C.)  63  Fed.  382.  See,  also,  as  to  waiver  by  custom,  Peoria  Sugar  Refin- 
ery V.  Susquehanna  Mut.  Fire  Ins.  Co.  (C.  C.)  20  Fed.  480;  Long  v.  Insurance 
Co.,  137  Pa.  335,  20  Atl.  1014,  21  Am.  St  Rep.  879.  Failure  of  the  agent  to  urge 
applicant  to  pay  does  not  constitute  waiver.  Union  Cent  Life  Ins.  Co.  v. 
Pauly,  8  Ind.  App.  85,  35  N.  E.  190.  Waiver  may  be  shown  by  direct  proof 
that  credit  was  given,  or  may  be  inferred  from  the  circumstances.  Bodine 
v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566. 

Delivery  of  the  policy  may  constitute  waiver.  Wood  y.  Insurance  Co.,  32 
N.  Y.  619,  and  cases  cited  in  note  117,  infra. 

11*  See  cases  cited  in  note  U4,  supra;  also,  see:  Elkins  v.  Insurance  Co., 
113  Pa.  386,  6  Atl.  224 ;  Newark  Mach.  Co.  v.  Kenton  Ins.  Co.,  50  Ohio  St  549, 
35  N.  B.  1060,  22  L.  R.  A.  768;  Mississippi  Valley  Life  Ins.  Co.  v.  Neyland, 
9  Bush  (Ky.)  430.  In  Bowman  v.  Insurance  Co.,  59  N.  Y.  521,  it  was  held  that 
the  condition  requiring  prepayment  could  be  waived  by  agent,  even  though 
the  policy  in  terms  provided  otherwise.  A  mutual  company  is  not  bound  by 
waiver  of  its  officer  contrary  to  its  by-laws  and  regulations.  Baxter  v. 
Insurance  Co.,  1  Allen  (Mass.)  297,  79  Am.  Dec.  730;  Mulrey  v.  Insurance 
Co.,  4  Allen  (Mass.)  116,  81  Am.  Dec.  689.  As  to  waiver  by  mutual  compa- 
nies, see,  also,  Susquehanna  Mut.  Fire  Ins.  Co.  v.  Elkins,  124  Pa.  484,  17  Atl. 
24,  10  Am.  St.  Rep.  608.     See  note  24,  p.  81,  supra. 

116  Miller  v.  Insurance  Co.,  12  Wall.  (U.  S.)  285,  20  L.  Ed.  398;  Boehen 
T.  Insurance  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787;  Wytheville  Insurance  & 
Banking  Co.  v.  Telger,  90  Va.  277,  18  S.  E.  195;  Southern  Life  Ins.  Co.  v. 
Booker,  9  Heisk.  (Tenn.)  606,  24  Am.  Rep.  344;  Wood  v.  Insurance  Co.,  32 
N.  Y.  619;  McAllister  ▼.  Insurance  Co.,  101  Mass.  558,  3  Am.  Rep  404, 
Woodruff,  Ins.  Gas.  140. 

iiT  Boehen  v.  Insurance  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787;  Miller  v. 
Insurance  Co.,  12  Wall.  (17.  S.)  285,  20  L.  Ed.  398.  and  note;  Sheldon  v.  In- 
•urance  Co.,  26  N.  Y.  460,  84  Am.  Dec  231, 


§67) 


PAYMENT   OF   FIRST   PREMIUM. 


no 


Thus,  in  Sheldon  v.  Atlantic  Fire  &  Marine  Ins.  Co.,"»  the  agent  of 
the  insurer  mailed  to  the  plaintiff  a  policy  containing  the  usual  condi- 
tion that  it  should  not  be  considered  binding  until  the  premium  was 
actually  paid.     With  the  policy  was  sent  a  letter  in  which  the  agent 
wrote:     "Should  you  decline  the  policy,  please  return  it  by  return 
mail ;  if  you  retain  it,  please  send  me  the  amount,  $29.50."    The  plain- 
tiff neither  returned  the  policy  nor  paid  the  premium,  but  upon  de- 
struction of  the  property  covered  by  the  policy  he  sought  to  enforce 
payment  by  the  insurer.     The  court  held  that  the  delivery  was  uncon- 
ditional, thus  waiving  the  condition  of  prepayment,  and  that  the  ac- 
ceptance of  the  plaintiff,  by  retaining  the  policy,  completed  the  con- 
tract.    It  would  seem  that  the  opinion  of  the  dissenting  judges,  that 
the  delivery  was  conditioned  upon  payment  of  the  premium  specified, 
was  the  more  correct.     Indeed,  in  a  later  case  "»  very  similar  in  its 
facts,  but  seemingly  presenting  clearer  proof  of  an  intention  to  waive 
prepayment,  it  was  held  that  the  delivery  was  upon  condition  of  im- 
mediate payment."<>     It  would  seem,  on  principle,  that  in  all  cases 
where  policies  are  put  into  the  hands  of  applicants  for  the  purpose  of 
examination,  or  subject  to  rejection,  such  delivery  should  be  consid- 
ered conditional,  and  not  as  constituting  a  waiver  of  conditions  of  pre- 
payment.*** 

Delivery  of  Policy  Containing  Receipt  for  Premium, 

An  interesting  question,  closely  related  to  the  one  just  discussed,  is  as 
to  the  effect  of  an  acknowledgment  on  the  face  of  a  policy  that  the  first 

118  26  N.  Y.  460,  84  Am.  Dec.  231. 

1"  Wood  v.  Insurance  Co.,  32  N.  Y.  619.  In  this  case  the  agent  of  the  In- 
surance  company  filled  up  two  policies  and  left  them  with  the  plaintiff's 
clerk,  m  the  plaintiff's  absence,  with  the  understanding  that  when  the  plain- 
tiff returned  he  should  pay  the  premium  if  he  accepted,  and  return  the  poli- 
cies If  he  declined  them.  It  was  proved  that  the  agent  sent  a  messenger 
three  tames  to  the  plaintiff,  with  instructions  to  ask  for  the  premiums  or 
the  policies.  The  first  time  the  plaintiff  was  out.  The  next  time  the  mes- 
senger  asked  him  for  the  premium,  and  he  told  him  to  call  again.  The  last 
time  he  at  first  directed  his  clerk  to  draw  a  check  for  the  premium,  but 
afterwards  countermanded  his  direction,  and  said  he  would  call  on  the 
agent  and  see  him  about  another  loss,  as  to  which  he  expressed  some  dissaUs- 
tactaon.  The  next  day  the  fire  occurred.  The  plaintiff  claimed  that  by  his 
not  returning  the  policies  he  accepted  them,  but  the  court,  by  a  majority  of 
nve  to  three,  refused  to  sustain  such  contention. 

"0  But  see  Boehen  v.  Insurance  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787:   Miller 
T.  Insurance  Co.,  12  Wall.  (U.  S.)  285,  20  L.  Ed.  398. 

121  A  waiver  may  be  shown  by  any  other  facts  clearly  indicating  an  in- 
^ntion  on  the  part  of  the  insurer  not  to  insist  upon  the  condition.    Thus 
wbere  the  insured  paid  the  first  premium  to  an  agent  who  had  no  authority 
w  receive  it,  and  who  never  accounted  for  it  to  the  insurer,  it  was  held  that 
a  subsequent  recognition  of  the  policy  as  valid  by  the  insurer  amounted  to 

Si,I!l'7^1  ?f,  *^.o  ^°^^^^°^  ^^  prepayment    Mauck  v.   Insurance  Co  (Del. 
ouper.)  04  AtL  952. 


r 


w 


Ida 


THE   MAKING   OF   THB   CONTRACT. 


(Ch.5 


premium  has  been  paid,  when  in  fact  the  policy  has  been  dehvered 
without  such  payment.  Although  there  is  some  conflict  of  opmion 
among  the  authorities,^"  the  prevailing  opinion  seems  to  be  that  sucn 
a  receipt  concludes  the  insurer  as  far  as  the  validity  of  the  policy  is 
concerned,  but  is  only  prima  facie  evidence  of  payment  m  so  far  as 
the  premium  itself  is  concerned;^"  that  is,  the  insurer  cannot  deny 
the  truth  of  the  receipt  in  an  action  against  him  on  the  policy,  but  may 
do  so  in  an  action  against  the  insured  for  the  purpose  of  recovering- 
the  premium  due.^^*     In  most  of  the  cases,  however,  in  which  this 


III 

! 


I 


< 


122  See  1  Joyce,  Ins.  §  86.  «,       v  ««»    oj    »«,    t>«t> 

123  Southern  Life  Ins.  Co.  v.  Booker,  9  Helsk.  (Tenn.)  606,  24  Am.  Rep. 
344;   Phil.  Ins.  §  512  et  seq.;  3  Kent,  Comm.  260.     In  Ormond  v.  Association, 
96  N.  C.  158,  1  S.  E.  796,  the  policy  provided  that  it  should  not  be  in  force 
until  actual  payment  of  the  annual  dues.    The  policy  was  delivered  with  a 
receipt  attached  acknowledging  the  payment  of  the  dues,  signed  by  the  pres- 
ident but  the  receipt  stated  that  it  must  be  countersigned  by  the  agent.    The 
dues  were  not  in  fact  paid  until  after  loss,  and  the  receipt  was  not  counter- 
siffned  by  the  agent    The  insured  had  notice  of  this  stipulation  by  the  appli- 
cation, and  it  was  held  that  payment  of  the  dues  was  a  condition  precedent 
to  make  the  policy  effectual,  and  the  company  could  set  up  the  ^onpayment 
to  ^eat  policy.    In  Kline  v.  Association,  111  Ind.  462,  11  N.  E.  620,  60  Am. 
Rep.  703,  the  policy  was  by  its  terms  incontestable  except  for  fraud,  and  con- 
tained a  receipt  for  the  premium.    The  premium  was  not  paid,  but  the  in- 
sured gave  an  order  for  same  on  his  employer,  who,  at  his  request,  refused 
to  pay  it    This  order  expressly  stipulated  that,  if  it  was  not  Paid,  the  in- 
sured's rights  should  be  forfeited,  but  nevertheless  it  was  held  that,   as 
against  the  beneficiary,  the  company  was  estopped  to  deny  the  payment  of 
the  premium  and  forfeit  the  policy.    See,  also.  Brooklyn  Life  InsL  Co.  v^ 
Miller   12  Wall    (U.  S.)  285,  20  L.  Ed.  398;   Union  Life  Ins.  Co.  v.  Winn,  8< 
iT Ipp  25V;  Uhen  v^  Insurance  Co.,  35  N.  Y.  131,  90  Am.  Dec.  787;    Far- 
num  V   Insurance  Co.,  83  Cal.  246,  23  Pac.  869,  17  Am.  St  Rep.  233;    Sheldon 
V.  Insurance  Co.,  26  N.  Y.  460.  84  Am.  Dec.  231;   Basch  v.  Insurance  Co.   35 
N  J    Law   429.  5  Benn.  Fire  Ins.  Cas.  421;   Dobyns  v.  Association,  144  Mo. 
95   45  S   W   HOT.    In  Brown  v.  Insurance  Co.,  59  N.  H.  298,  47  Am.  Rep. 
205,  it  was  held  that  there  was  no  estoppel.    The  receipt  was  separate  from 

*^!,r^^f  Basch  v.  Insurance  Co..  35  N.  J.  Law.  429.  5  Benru  Fire  Ins.  Cas. 
421  where  it  is  said  in  an  able  opinion  by  Beasley.  C.  J.:  "This  policy,  exe- 
cuted by  the  president  and  secretary  of  the  company,  contains  a  formal  ac- 
knowledgment of  the  payment  of  the  premium  in  question,  and,  in  my  opin- 
ion this  should  prevent  the  defendants  from  averring  or  showing  nonpay- 
ment for  the  purpose  of  denying  that  the  contract  ever  had  any  legal  exist- 
ence What  does  this  receipt,  in  its  connection  with  the  delivery  of  the  in- 
strument, import,  if  it  does  not  mean  that  the  payment  of  the  premium  is 
conclusively  admitted  to  the  extent  that  such  payment  is  necessary  to  give 
validity  to  the  contract?  Unless  this  be  its  meaning,  it  serves  no  legal  office, 
for  it  does  not  mean  that  the  money  has  been  actually  received.  It  is  true 
that  there  is  an  express  declaration  that  the  policy  is  to  have  no  effect  until 
the  premium  shall  have  been  paid;  but  in  this  same  instrument  is  an  equally 
express  statement  that  the  act  on  which  the  contract  is  to  become  efficacious 
has  been  done.    •    •    •    The  usual  legal  rule  is  that  a  receipt  is  only  prima 


§68) 


WHAT   PAPERS   FORM   THE   WRITTEN   CONTRACT. 


181 


statement  is  made,  the  facts  show  a  waiver  of  the  condition  of  pre- 
payment, upon  which  the  judgment  is  based,  rather  than  on  any  estop- 
pel arising  out  of  the  acknowledgment  of  payment  made  in  the  policy. 
In  fact,  some  of  the  most  extreme  cases  allowing  the  insured  to  re- 
cover without  complying  with  the  condition  of  prepayment  of  the  pre- 
mium are  to  be  found  in  New  York,  where  the  doctrine  is  not  ac- 
cepted/^* 

WHAT  PAPERS  FORM  THE  WRITTEN  CONTRACT. 


68.   IN  GENERAL— The  contract  of  insurance,  as  nsnally  made,  con- 
tains the  following  elements  t 
(a)   All  terms  legally  set  forth  on  the  face  of  the  policy,  or  on  the 
back  thereof,  if  properly  referred  to. 
All  separate  papers  expressly  designated  and  made  part  of  the 
contract  by  the  terms  of  the  policy,  such  as  applications  and 
surveys. 
All  riders  attached  to  the  policy  with  the  consent  of  both  parties. 
In  case  of  corporate  insurers,  all  provisions  of  the  insurer's  char- 
ter, 
(e)   All  statutes  applicable,  as  well  as  the  fixed  rules  of  the  common 
Imw, 


(b) 


(c) 
(d) 


Any  discussion  of  the  component  elements  of  the  insurance  contract 
is  but  the  application  to  the  peculiar  phases  of  this  subject  of  two 
well-known  rules  of  law:  (1)  All  prior  negotiations  or  agreements 
are  merged  in  any  written  memorial  to  which  the  parties  may  have 
reduced  their  agreement;  and  (2)  all  persons  are  presumed  to  know 
the  law  of  their  jurisdiction,  and  to  contract  with  reference  to  it. 

The  first  problem  that  confronts  us,  then,  is  to  determine  what  pa- 
pers go  to  make  up  this  written  memorial,  behind  which  the  parties  are 
estopped  to  go.  The  basis  of  this  "integration,"  to  use  Prof.  Wig- 
more's  word,^'*  is  the  policy.  Every  contractual  term  on  the  face  of 
tliis  instrument  at  the  time  of  its  deliver\',  or  written  in  thereafter  with 
the  consent  of  both  parties,  is  a  part  of  the  written  agreement     It  is 


r,:T 


fncie  evidence  of  payment,  and  may  be  explained;  but  this  rule  does  not 
apply  when  the  question  involved  is  not  only  as  to  the  fact  of  payment,  but 
as  to  the  existence  of  rights  springing  out  of  the  contract.  With  a  view  of 
defeating  such  rights  the  party  giving  the  receipt  cannot  contradict  it.  An 
acknowledgment  of  an  act  done,  contained  in  a  written  contract,  and  which 
act  is  requisite  to  put  it  in  force,  is  as  conclusive  against  the  party  making  it 
as  is  any  other  part  of  the  contract.  It  cannot  be  contradicted  or  varied  by 
parol." 

125  Sheldon  v.  Insurance  Co.,  26  N.  Y.  460,  84  Am.  Dec.  231;  Baker  v.  In- 
surance Co.,  43  N.  Y.  283,  287;  How  v.  Insurance  Co.,  80  N.  Y.  32. 

!>•  1  GreenL  Ev.  (16th  Ed.)  S  305b. 


182 


THE  MAKING  OF  THB  CONTRACT. 


(Ch.5 


!i 


I 


I 


II 


IJ 


immaterial  whether  such  terms  are  written  or  printed;  ^*^  whether  they 
appear  in  the  body  of  the  policy  or  on  the  margin  thereof;  ***  they  are 
equally  binding  if  consented  to. 

But  this  is  not  true  of  conditions  or  other  indorsements  appearing 
on  the  back  of  the  policy  unless  reference  is  made  to  them  on  its 
face.**'  And  it  has  been  held  recently  by  the  Supreme  Court  of  the 
United  States  "°  that  the  words,  "See  back,"  printed  on  the  face  of  a 
contract,  are  not  such  a  reference  as  will  make  conditions  printed  on 
the  back  binding  terms  of  the  agreement.  When,  however,  additional 
terms  are  written  on  the  other  half  of  the  sheet  containing  the  policy 

i«T  Where  there  are  both  printed  and  written  terms,  they  should,  if  pos- 
sible, be  so  construed  as  to  stand  together,  but  where  there  is  repugnance 
the  written  provisions  prevail  over  those  printed.  Minnock  v.  Insurance  Co., 
90  Mich.  236,  51  N.  W.  367;  Reynolds  v.  Insurance  Co.,  47  N.  Y.  597;  Nelson 
V.  Insurance  Co.,  71  N.  Y.  453;  NICOLBT  v.  INSURANCE  CO.,  3  La.  366,  23 
Am.  Dec.  458;  Kratzenstein  v.  Assurance  Co.,  116  N.  Y.  54,  22  N.  B.  221,  5 
L.  R.  A.  799;  Fire  Ins.  Ass'n  v.  Merchants'  &  Miners*  Transp.  Co.,  66  Md. 
339,  7  Atl.  905,  59  Am.  Rep.  162;  Plinsky  v.  Insurance  Co.  (C.  C.)  32  Fed. 
47;  FAUST  v.  INSURANCE  CO.,  91  Wis.  158,  64  N.  W.  883,  30  L.  R.  A.  783, 
51  Am.  St  Rep.  876.  An  indorsement  exempting  the  company  from  liability, 
except  in  case  of  total  loss,  conti-ols.  Chadsey  v.  Guion,  97  N.  Y.  333; 
Burt  V.  Insurance  Co.,  78  N.  Y.  400.  Where,  on  issuing  the  policy,  the  insur- 
ers write  across  the  policy  "Privilege  for  $4,500  additional  insurance," 
such  indorsement  is  a  waiver  of  notice  of  additional  insurance  within  the 
amount  specified,  although  the  printed  part  of  the  policy  requires  notice  to 
be  given  of  any  additional  insurance.  Benedict  v.  Insurance  Co.,  31  N.  Y. 
389.  Where  a  printed  condition  released  the  company  from  liability  for  loss  by 
lightning,  written  indorsement,  "Covering  loss  by  lightning,"  will  prevail  over 
printed  clause.  Haws  v.  Insurance  Co.,  130  Pa.  113,  15  Atl.  915,  2  L.  R.  A. 
52.  In  many  states  It  is  provided  that  no  condition  in  a  policy  shall  operate 
to  defeat  it  unless  printed  in  type  of  certain  size  or  written  in  pen  and  ink; 
e.  g..  Code  V'a.  1887,  §  3252. 

128  Guerlain  v.  Insurance  Co.,  7  Johns.  (N.  Y.)  527;  Burt  v.  Insurance  Co., 
78  N.  Y.  400;  WRIGHT  v.  ASSOCIATION,  118  N.  Y.  237,  23  N.  E.  186,  6  L. 
R.  A.  731,  16  Am.  St.  Rep.  749. 

The  clause  in  a  marine  policy  relating  to  the  perils  of  the  seas,  men  of 
war,  enemies,  etc.,  is  controlled  by  the  marginal  statement  in  the  policy, 
"Warranted  free  from  loss  or  expense  arising  from  capture,  seizure,  or  de- 
tention, etc.,"  which  constitutes  a  warranty  on  the  part  of  the  assured. 
Swinnerton  v.  Insurance  Co.,  37  N.  Y.  174,  93  Am.  Dec.  560.  For  illustra- 
tion of  the  varying  force  given  to  marginal  "catchwords"  in  different  jurisdic- 
tions, see  McQuitty  v.  Insurance  Co.,  15  R.  I.  573,  10  Atl.  635,  and  Bruce  v. 
Insurance  Co.,  58  Vt.  253,  2  Atl.  710. 

i2»  Planters*  Mut  Ins.  Co.  v.  Rowland,  66  Md.  236,  7  Atl.  257;  Ford  v. 
Relief  Co.,  148  Mass.  153,  19  N.  E.  169,  1  L.  R.  A.  700;  Blackerby  v.  Insur- 
ance Co.,  83  Ky.  574. 

In  the  following  cases  the  Indorsements  on  the  back  were  referred  to  on 
the  face  of  the  policy,  and  were  held  binding:  Kensington  Nat.  Bank  v. 
Yerkes,  86  Pa.  227;  Porter  v.  Insurance  Co.,  160  Mass.  183,  35  N.  K  678; 
HARRIS  V.  INSURANCE  CO.,  5  Johns.  (N.  Y.)  368. 

ISO  The  Majestic,  166  U.  S.  375,  17  Sup.  Ct  597,  41  U  Ed.  1039. 


§68) 


WHAT  PAPEKS  FORM   THE   WRITTEN   CONTRACT. 


18a 


pnj,  er,  or  on  a  sheet  of  paper  attached  thereto,  they  are  presumed  to 
form  part  of  the  contract,  even  in  the  absence  of  reference.**^ 

Separate  Papers — Application  and  Survey. 

It  is  not  necessary  that  a  writing  of  any  kind  shall  be  fully  set  forth 
in  the  body  of  any  given  contract  in  order  to  become  a  part  of  it.  By 
proper  reference  indicating  clearly  that  the  parties  intend  to  be  bound 
by  the  terms  of  a  separate  paper,  it  can  be  made  a  part  of  the  written 
contract  just  as  completely  as  if  copied  in  full  on  its  face.^'*  It  is  not 
easy  to  state  just  what  reference  to  such  separate  papers  is  sufficient 
to  incorporate  them  in  the  policy,^*®  and  there  seems  to  be  no  little  con- 
fusion in  the  cases  on  this  point,  resulting,  usually,  from  the  efforts 


i«i  Roberts  v.  Insurance  Co.,  3  Hill  (N.  Y.)  501;  Murdock  v.  Insurance  Co., 
2  N.  Y.  210;  Duncan  v.  Insurance  Co.,  6  Wend.  (N.  Y.)  488,  22  Am.  Dec.  539; 
Goldman  v.  Insurance  Co.,  48  La.  Ann.  223,  19  South.  132. 

132  CLARK  V.  INSURANCE  CO.,  8  How.  (U.  S.)  235,  12  L.  Ed.  1061;  Stand- 
ard Life  &  Accident  Ins.  Co.  v.  Martin,  133  Ind.  376,  33  N.  E.  105;  Jennings 
V.  Insurance  Co.,  2  Denio  (N.  Y.)  75;  BURRITT  v.  INSURANCE  CO.,  5  Hill 
(N.  Y.)  188,  40  Am.  Dec.  345;  KENTUCKY  &  L.  MUT.  INS.  CO.  v.  SOUTH- 
ARD, 8  B.  Mon.  (Ky.)  634;  Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  423, 
59  Am.  Dec.  192;  Holmes  v.  Insurance  Co.,  10  Mete.  (Mass.)  211,  43  Am. 
Dec.  428;  Day  v.  Insurance  Co.,  1  McArthur  (D.  C.)  41,  29  Am.  Rep.  5Go; 
Bobbitt  V.  Insurance  Co.,  66  N.  C.  70,  8  Am.  Rep.  494;  Weinberger  v.  Insur- 
ance Co.,  41  La.  Ann.  31,  5  South.  728;  Sun  Fire  Office  v.  Wich,  6  Colo.  App. 
103,  39  Pac.  587. 

133  See  cases  cited  supra,  note  131.  In  Vilas  v.  Insurance  Co.,  72  N.  Y. 
500,  28  Am.  Rep.  186,  "As  per  application  No.  1234"  was  held  insufficient. 
In  BURRITT  v.  INSURANCE  CO.,  5  Hill  (N.  Y.)  188,  40  Am.  Dec.  ^45,  the 
application  was  referred  to  "as  forming  a  part  of  this  policy,"  and  this  was 
held  sufficient.  In  Throop  v.  Insurance  Co.,  19  Mich.  423,  the  policy  provided 
"that  if  this  policy  be  made  and  issued  upon,  or  refer  to,  an  application,  such 
application  shall  be  considered  a  part  of  the  contract  and  a  warranty  by 
the  insured,"  and  it  was  held  that  this  did  not  make  the  application  a  part 
of  the  contract,  so  as  to  render  it  necessary  that  it  should  be  set  forth  in 
stating  the  contract,  unless  its  terms  were  such  as  to  be  capable  of  being 
impressed  with  the  character  of  warranties  by  force  of  the  stipulations  it 
contained.  There  was  a  strong  dissenting  opinion.  In  ACCIDENT  INS. 
CO.  V.  CRANDAL,  120  U.  S.  527,  7  Sup.  Ct.  685,  30  L.  Ed.  740,  the  only  men- 
tion of  the  application  in  the  policy  was,  "In  consideration  of  the  warranties 
made  in  the  application  for  this  insurance,"  and  it  was  said  that  the  appli- 
cation was  not  a  part  of  the  policy,  but  only  those  statements  in  the  appli- 
cation which  were  warranties;  but  in  Standard  Life  &  Accident  Ins.  Co. 
V.  Martin,  133  Ind.  376,  33  N.  K  105,  where  there  was  the  statement  in  the 
policy,  "In  consideration  of  the  statement  of  facts  warranted  to  be  true 
in  the  application  for  this  policy,  and  of  the  payment,"  etc.,  it  was  held  that 
the  application  so  referred  to  in  the  policy  was  a  part  of  the  contract 

In  a  recent  important  case  in  the  Supreme  Court  of  the  United  States,  it 
was  held  that,  where  the  application  states  that  it  is  subject  to  the  charter 
of  the  company  and  laws  of  the  state  of  New  York,  but  the  policy  is  executed 
and  delivered  in  the  state  of  Washington,  referring  to  the  application  as  the 
consideration  for  the  policy,  the  application  is  no  part  of  the  policy,  and  the 


'^Tl 


;  / 


'♦ 


184 


THE  MAKING  OF  THE  CONTRACT, 


(Ch.  5 


made  by  the  courts  to  avoid  the  forfeitures  that  are  often  worked  by 
making  the  application  part  of  the  policy,  and  the  statements  therein 
warranties.^'*  Thus,  in  a  Michigan  case  ^*'  the  broad  statement  is 
made  that:  "The  written  application  for  insurance,  the  policy  issued 
thereon,  and  the  note  g^ven  by  the  assured,  being  all  but  parts  of  one 
and  the  same  transaction,  must  be  resorted  to  and  treated  as  but  one  in- 
strument for  the  purpose  of  ascertaining  and  determining  the  rights 
of  the  parties."  In  Phoenix  Mut.  Life  Ins.  Co.  v.  Raddin,**®  the  ap- 
plication was  held  to  be  no  part  of  the  policy,  which  contained  the  fol- 
lowing term :  "This  policy  is  issued  and  accepted  by  the  assured  upon 
the  following  express  conditions:  *  *  *  jf  any  of  the  declara- 
tions or  statements  made  in  the  application  for  this  policy,  upon  the 
faith  of  which  this  policy  is  issued,  shall  be  found  in  any  respect  un- 
true, this  policy  shall  be  null  and  void." 

The  separate  papers  thus  incorporated  in  the  policy  are  most  fre- 
quently the  application  and  the  survey  *'^  that  sometimes  accompanies 
the  application  for  property  insurance.  Premium  notes  given  upon 
delivery  of  the  policy  or  thereafter  are  also  often  thus  made  parts  of 
the  contract.^'*     But  it  has  been  held  that  a  receipt  given  for  the  first 


I 


II 


laws  of  Washington  must  govern  the  rights  of  the  parties.     Mutual  Life 
Ins.  Co.  V.  Cohen,  179  U.  S.  262,  21  Sup.  Ct.  106,  45  L.  Ed.  181. 

See  dictum  In  Lycoming  Fire  Ins.  Co.  v.  Jackson,  83  111.  302,  25  Am.  Rep. 
386,  to  effect  that  insured  is  not  bound  by  unauthorized  application,  though 
made  a  part  of  the  contract  by  the  policy  which  is  received  by  him. 

184  In  AMERICAN  POPULAR  LIFE  INS.  CO.  v.  DAY,  39  N.  J.  Law  (10 
Vroom)  89»  23  Am.  Rep.  198,  the  application  contained  an  agreement  that  the 
answers  and  statements  should  "be  the  basis  and  form  part  of  the  contract 
or  policy,  and,  if  the  same  be  not  in  all  respects  true  and  correctly  stated, 
the  said  policy  shall  be  void,  aecprding  to  the  terms  thereof."  The  policy 
declared  that  the  insurance  was  **ln  consideration  of  the  representations," 
etc.  The  court  said  the  application  was  not  a  part  of  the  contract,  and  the 
policy  would  be  void  only  in  case  of  fraud  or  intentional  misrepresentation. 

To  do  away  with  the  uncertainty  on  this  point,  and  to  prevent  the  hard- 
ships that  have  often  resulted  from  forfeitures  due  to  working  warranties 
into  the  policy  by  reference  to  an  unseen  application  or  to  unknown  by-laws, 
statutes  have  been  passed  in  many  states  declaring  that  the  application  or 
by-laws  shall  not  be  considered  a  part  of  the  contract  between  the  parties 
unless  copies  of  these  papers  shall  be  attached  to  the  policy.  See  Laws  Pa. 
1881,  p.  20;  RITTER  v.  INSURANCE  00.,  169  U.  S.  139,  18  Sup.  Ct.  300,  42 
L.  Ed.  693:  Manhattan  Life  Ins.  Co.  v.  Myers,  109  Ky.  372,  59  S.  W.  30. 

185  American  Ins.  Co.  v.  Stoy,  41  Mich.  385,  1  N.  W.  877. 

i««  PHCENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U.  S.  183,  7  Sup.  Ct 
500,  30  L.  Ed.  644. 

187  Sheldon  v.  Insurance  Co.,  22  Conn.  235,  58  Am.  Dec.  424;  Farmers'  Ins. 
&  Loan  Co.  v.  Snyder,  16  Wend.  (N.  Y.)  481,  30  Am.  Dec.  118. 

188  American  Ins.  Co.  v.  Story,  41  Mich.  385,  1  N.  W.  877;  Continental  Ins. 
Co.  V.  Dorman,  125  Ind.  189,  25  N.  E.  213;  Laughlln  v.  Association,  8  Tex. 
av.  App.  448,  28  S.  W.  411. 


§GS) 


WHAT   PAPERS   FOKM   THE   WllITTEN    CONTRACT. 


185 


premium  before  the  issue  of  the  policy  was  no  part  of  the  policy,  which 
did  not  refer  to  it.^^" 

Advertising  Circulars  and  Prospectuses, 

It  would  seem  clear  on  principle  that  prospectuses  and  circulars  is- 
sued by  insurers  for  the  purpose  of  securing  business  cannot  be  parts 
of  written  contracts  subsequently  executed  unless  expressly  made  so 
by  reference,  as  in  the  case  of  other  papers.  They  may  contain  repre- 
sentations which,  if  false,  might  be  ground  for  an  action  in  deceit  or 
for  a  suit  for  rescission  or  reformation  of  a  policy  executed,  but  it  is 
difficult  to  see  how  such  loose  papers  could  be  admitted  as  evidence  to 
vary  the  terms  of  policies  which  make  no  reference  to  them.  Yet  in 
a  Kentucky  case  "®  a  party  to  a  policy,  which  by  its  terms  was  de- 
clared forfeited  upon  failure  to  pay  any  premium  at  maturity,  was 
given  paid-up  insurance  because  a  circular  shown  to  him  in  order  to 
induce  him  to  insure  had  stated  that  paid-up  insurance  would  be  given 
under  certain  conditions.  Other  authorities,  notably  the  English 
cases,***  can  be  found  supporting  this  view,  but  the  weight  of  authori- 
ty is  plainly  against  it.*** 

Riders  Binding  without  Reference, 

In  the  conduct  of  insurance  business  it  often  becomes  necessary  to 
add  a  new  term  to  a  policy,  or  to  modify  or  waive  an  existing  term. 
For  this  purpose  insurers  are  accustomed  to  use  little  printed  slips  con- 
taining the  desired  writing,  which  are  attached  to  the  policy  with  muci- 
lage, and  termed  "riders."  By  reason  of  being  annexed  to  the  policy, 
these  riders  are  equally  binding  on  the  parties  as  if  written  on  the 
face  of  the  policy,  and  hence  require  no  reference  to  be  made  a  part  of 
the  contract.*** 


188  New  York  Life  Ins.  Co.  v.  Babcock,  104  Ga.  67,  30  S.  E.  273,  42  L.  R. 
A.  88,  69  Am.  St.  Rep.  134. 

1*0  Southern  Mut.  Life  Ins.  Co.  v.  Montague,  84  Ky.  653,  2  S.  W.  443,  4 
Am.  St.  Rep.  218. 

141  Wood  V.  Dwarris,  11  Bxch.  (Hurl.  &  G.)  493;  Collett  v.  Morrison,  9 
Hare,  162;  Salvin  v.  James,  6  East,  571.  But  see  the  later  case  of  Wheelton 
V.  Hardisty,  8  El.  &  B.  285,  92  Eng.  C.  L.  231. 

142  RUSE  V.  INSURANCE  CO.,  23  N.  Y.  516,  24  N.  Y.  653;  Clemmitt  v.  In- 
surance Co.,  76  Va.  355;  Fowler  v.  Insurance  Co.,  116  N.  Y.  389,  22  N.  E.  576, 
5  L.  R.  A.  805;  Mutual  Ben.  Life  Ins.  Co.  v.  Ruse,  8  Ga.  534;  Maclntyre  v. 
Insurance  Co.,  82  Ga.  478,  9  S.  E.  1124. 

i*«  Mascott  V.  Insurance  Co.,  68  Vt.  253,  35  Atl.  75;  Haws  v.  Association, 
U4  Pa.  431,  7  Atl.  159;  Jackson  v.  Assurance  Co.,  106  Mich.  47,  63  N.  W.  899, 
30  L.  R.  A.  636,  and  note;  Hardy  v.  Insurance  Co.,  166  Mass.  210,  44  N.  E. 
209.  33  L.  R.  A.  241,  55  Am.  St.  Rep.  395;  Gunther  v.  Insurance  Co.  (C.  C.) 
VA  Fed.  501;  Phenix  Ins.  Co.  v.  Wilcox  &  Gibbs  Guano  Co.,  65  Fed.  724,  13 
C.  C.  A.  88,  25  U.  S.  App.  201;  St.  Paul  Fire  &  Marine  Ins.  Co.  v.  Kidd,  55 
Fed.  238,  5  C.  C.  A.  88,  14  U.  S.  App.  201;    Mark  v.  Insurance  Co.  (D.  C.) 


I 


1  . 


II 


I 


111 


186 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


Charter  Provisions. 

All  persons  are  charged  with  knowledge  of  public  acts.***  There- 
fore, when  the  insurer  is  a  corporation  created  by  public  act,  all  par- 
ties are  conclusively  presumed  to  contract  with  reference  to  the  pro- 
visions of  its  charter,  which  thereby  become  terms  of  any  contract 
made  by  it,  and  prevail  over  any  other  terms  that  may  be  repugnant.^*' 
The  by-laws  of  a  corporation,  however,  are  not  presumed  to  be  known 
to  the  public,  and  do  not  form  any  part  of  the  ordinary  contract  of  in- 
surance,^ *•  except  by  proper  reference. 

Public  Statutes  as  Parts  of  Contract, 

The  law  with  reference  to  which  a  policy  is  executed  governs  abso- 
lutely the  rights  of  the  parties  thereto.  Neither  can  the  parties  by 
their  stipulations  either  change  or  subvert  the  purpose  of  the  law.^*^ 
Therefore  it  is  properly  said  that  the  law  writes  into  every  contract 

52  Fed.  170;  Pool  v.  Insurance  Co.,  91  Wis.  530,  65  N.  W.  54,  51  Am.  St.  Rep. 
919. 

An  early  Texas  case  (GODDARD  v.  INSURANCE  CO.,  67  Tex.  69,  1  S.  W. 
906,  60  Am.  Rep.  1)  merely  said  that  the  provisions  in  the  rider  were  not  war- 
ranties. See  Kelley-Goodfellow  Shoe  Co.  v.  Liberty  Ins.  Co.,  8  Tex.  Civ. 
App.  227,  28  S.  W.  1027;  American  Fire  Ins.  Co.  v.  First  Nat  Bank  (Tex. 
Civ.  App.)  30  S.  W.  3S4;  Home  Ins.  Co.  v.  Cary,  10  Tex.  Civ.  App.  300,  31 
S.  W.  321;  American  Fire  Ins.  Co.  v.  Center  (Tex.  Civ.  App.)  33  S.  W.  551. 

14*  Clark,  Corp.  174;  McCormick  v.  Bank,  165  U.  S.  550,  17  L.  Ed.  433,  41 
L.  Ed.  821;  De  La  Vergne  Refrigerating  Mach.  Co.  v.  German  Sav.  Inst.,  175 
U.  S.  59,  20  Sup.  Ct.  20,  44  L.  Ed.  62. 

This  rule  does  not  apply  to  foreign  corporations.  The  terms  of  their  char- 
ters do  not  bind  insured  unless  brought  to  his  notice.  City  Fire  Ins.  Co.  v. 
Carrugi,  41  Ga.  660. 

The  discussion  of  this  question  necessarily  involves  a  consideration  of  the 
difficult  subject  of  ultra  vires  contracts  of  corporations.  See  Clark,  Corp. 
pp.  170-187. 

148  But  see  Denver  Fire  Ins.  Co.  v.  McClelland,  9  Cblo.  11,  9  Pac.  771,  59 
Am.  Rep.  134,  holding  that,  the  insured  having  performed  his  part  of  the 
contract,  the  company  was  estopped  to  set  up  its  want  of  power  to  issue 
the  policy.  See.  also,  to  same  effect:  Bloomington  Mut.  Ben,  Ass'n  v.  Blue, 
120  111.  121,  11  N.  E.  331,  60  Am.  Rep.  558. 

i4«  But  members  of  a  mutual  company  are  bound  by  the  by-laws  of  such 
company.     Infra,  p.  191. 

147  Pietri  V.  Seguenot,  96  Mo.  App.  258,  69  S.  W.  1055;  Union  Cent.  Life 
Ins.  Co.  V.  Pollard,  94  Va.  146,  26  S.  E.  421,  36  L.  R.  A.  271,  64  Am.  St.  Rep. 
715;  Hermany  v.  Association,  151  Pa.  17,  24  Atl.  1064;  Queen  Ins.  Co.  v. 
Leslie,  47  Ohio  St.  409,  24  N.  B.  1072,  9  L.  R.  A.  45;  White  v.  Society,  163 
Mass.  108,  39  N.  E.  771,  27  L.  R.  A.  398;  Knights  Templar  &  Masons'  Life 
Indemnity  Co.  v.  Jarman,  187  U.  S.  197,  23  Sup.  Ct  108,  47  L.  Ed.  139;  Wall 
V.  Society  (C.  C.)  32  Fed.  273;  Fletcher  v.  Insurance  Co.  (C.  0.)  13  Fed.  528: 
(NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct.  837, 
29  L.  Ed.  934,  on  another  point);  Washington  Cent  Bank  v.  Hume,  128  U.  S. 
195,  9  Sup.  Ct  41,  32  L.  Ed.  370;  Manhattan  Life  Ins.  Co.  v.  Warwick,  20 
Grat  (Va.)  614,  3  Am.  Rep.  218;  Germania  Ins.  Co.  v.  Rudwig,  80  Ky.  223: 
BRADY   Y.   INSURANCE   CO.,  11   Mich.   425  (ordinance  of  town   council); 


§QS) 


WHAT   PAPERS   FORM   THE    WKITTEN    CONTRACT. 


187 


all  existing  statutes  that  are  applicable  to  the  transaction,  and  they 
become  parts  of  the  contract  as  completely  as  if  the  parties  had  copied 
them  in  full  on  its  face.  And  further,  these  terms  render  null  and 
void  any  other  provisions  agreed  upon  by  the  parties  which  may  be 
in  conflict  with  these  terms  written  by  the  hand  of  the  law.^*«  Thus, 
in  a  striking  case  decided  by  the  Virginia  Court  of  Appeals,^*^  the 
policy  in  suit  made  all  the  statements  of  the  application  warranties, 
breach  of  which,  whether  material  or  immaterial,  would  avoid  the  poli- 
cy. But  the  policy  also  provided  that  it  should  be  construed  as  hav- 
ing been  made  in  the  city  of  Cincinnati,  Ohio.  The  law  of  Ohio  there- 
fore governed  the  contract,  and  among  the  Ohio  statutes  was  an  act 
declaring  that  no  misstatement  in  an  application  for  insurance  should 
bar  the  right  of  the  insured  to  recover  on  a  policy  issued  upon  such 
application  unless  proved  to  be  fraudulent  or  material.  The  court  held 
the  Ohio  statute  a  part  of  this  Ohio  contract,  and  the  insurer  therefore 
liable  despite  the  untruth  of  an  immaterial  statement  in  the  applica- 
tion, which  under  the  terms  of  the  policy  would  have  avoided  the  con- 

OSHKOSH  GASLIGHT  CO.  v.  GERMANIA  FIRE  INS.  CO.,  71  Wis.  454   37 
N.  W.  819,  5  Am.  St.  Rep.  233. 

1*8  This  raises  the  question  as  to  wliat  law  governs  the  construction  of  the 
contract.    Any  extended  discussion  of  such  question  would  be  out  of  place 
in  an  elementary  work,  but  the  following  principles  may  be  taken  as  estab 
lished: 

(1)  In  absence  of  express  stipulation  the  law  of  the  place  where  the  con- 
tract is  consummated  applies.  The  contract  is  usually  completed  by  the 
delivery  of  the  policy.  Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  416,  59 
Am.  Dec,  192;  Manhattan  Life  Ins.  Co.  v.  Warwick,  20  Grat  (Va.)  614,  3  Am. 
Rep.  318;   Knights  Templar  &  Masons'  Life  Indemnity  Co.  v.  Berry,  50  Fed. 

^n^*r}^  ^'  ^'  ^'  ^^^'  **  ^'  ^'  ^^^'  ^^^'  Mutual  Ben.  Ufe  Ins.  Co.  v.'  Robison 
(C.  C.)  54  Fed.  580;  Heebuer  v.  Insurance  Co.,  10  Gray  (Mass.)  131,  69  Am. 
Dec.  308;  King  Brick  Mfg.  Co.  v.  Phoenix  Ins.  Co.,  164  Mass.  291.  41  N.  E. 
2/7;  Seamans  v.  Knapp-Stout  &  Co.  Company,  89  Wis.  171,  61  N.  W.  757,  27 
L  R.  A.  362,  46  Am.  St.  Rep.  825;  Marden  v.  Insurance  Co.,  85  Iowa,  584, 
52  N.  W.  509,  39  Am.  St.  Rep.  316;  note  to  McGarry  v.  Nicklin,  55  Am.  St 
Rep.  40,  pp.  51-53;  Mutual  Life  Ins.  Co.  v*  Cohen,  179  U.  S.  262.  21  Sup.  Ct. 
106,  45  L.  Ed,  181. 

(2)  But,  where  there  Is  no  principle  of  public  policy  involved,  the  parties 
nmy  make  an  agreement  that  their  contract  shall  be  construed  by  the  laws 
of  another  jurisdiction.  Union  Ont.  Life  Ins.  Co.  v.  Pollard,  94  Va  140  26 
S.  E.  421,  36  L.  R.  A.  271,  64  Am.  St.  Rep.  715;  Washington  Cent.  Bank  v 
Hume,  128  U.  S.  195,  9  Sup.  Ct.  41,  32  L.  Ed.  370;  PENNSYLVANIA  MUT 
LIFE  INS.  CO.  V.  MECHANICS'  SAV.  BANK  &  TRUST  CO..  72  Fed  413* 
19  C.  C.  A.  286,  37  U.  S.  App.  692.  38  L.  R.  A.  33. 

(3)  Where  a  principle  of  public  policy  has  been  declared  by  statute,  the 
law  of  the  forum  will  prevail  over  conflicting  provisions  in  the  policy  Pietri 
y.  Seguenot,  96  Mo.  App.  258,  69  S.  W.  1055;  Cravens  v.  Insurance  Co  US 
Mo.  583,  50  S.  W.  519,  53  L.  R.  A.  305,  71  Am.  St.  Rep.  628. 

i*»  Union  Cent.  Life  Ins.  Co.  v.  Pollard,  94  Va.  146,  26  S.  E.  421   36  L  R 
-A..  271,  64  Am.  St  Rep.  715. 


188 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


} 


tract.""  So  in  Hartford  Fire  Ins.  Co.  v.  Bourbon  County  Court,"^ 
very  recently  decided  in  Kentucky,  it  was  held  that,  under  a  statute 
fixing  the  liability  of  the  insurer,  in  case  of  total  loss,  at  the  estimated 
value  of  the  property  insured  as  written  in  the  policy,  the  insurers 
were  liable  for  $50,000,  the  entire  sum  written  in  policies  upon  a  court 
house  that  had  been  totally  destroyed  by  fire,  notwithstanding  stipu- 
lations in  the  policies  that  the  insurers  should  be  liable  only  for  the 
actual  cash  value  of  the  property  at  the  time  of  loss,  which  the  insurers 
offered  to  prove  was  only  some  $34,000. 

A  three-fourths  value  clause  in  a  policy  is  inoperative  when  opposed 
by  a  statute  making  the  insurer  liable  for  the  full  amount  of  the  insur- 
ance; ^"^^  and,  where  a  statute  requires  notice  before  forfeiture  of  in- 
surance for  nonpayment  of  premiums,  an  agreement  in  the  policy  that 
it  shall  be  forfeited  without  notice  upon  failure  to  pay  any  premium 
is  of  no  effect.^'*'  Nor  is  an  express  waiver  of  the  benefit  of  the  stat- 
ute binding,  since  a  public  interest  is  involved.  *•* 

The  same  principle  makes  all  marine  policies  subject  not  only  to  the 

180  For  a  somewhat  similar  case,  see  Nielsen  v.  Society,  139  Oal.  332,  73 
Pac.  168,  96  Am.  St.  Rep.  146,  in  wliich  a  policy  delivered  in  California  was 
held  subject  to  a  statute  of  New  York,  in  which  state  the  insuring  corpora- 
tion had  its  domicile. 

i»i  72  S.  W.  739. 

i»2  Germania  Ins.  CJo.  v.  Ashby,  112  Ky.  303,  65  S.  W.  611,  23  Ky.  Law 
Rep.  1564;  Home  Fire  Ins.  Co.  v.  Bean,  42  Neb.  537,  60  N.  W.  907,  47  Am.  St. 
Rep.  711;  Hickerson  v.  Insurance  Co.,  96  Tenn.  193,  33  S.  W.  1041,  32  L.  R. 
A.  172;  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St  409,  24  N.  E.  1072,  9  L.  R.  A. 
45;    Reilly  v.  Insurance  Co.,  43  Wis.  449,  28  Am.  Rep.  552. 

158  Warner  v.  Association,  100  Mich.  157,  58  N.  W.  667;  Wall  ▼.  Society 
(C.  C.)  32  Fed.  273;  Griffith  v.  Insurance  Co.,  101  Cal.  627,  36  Pac.  113,  40 
Am.  St  Rep.  96;  Equitable  Life  Assur.  Soc.  v.  Nixon,  81  Fed.  796,  26  C.  a 
A.  620;  Same  v.  Trimble,  83  Fed.  85,  27  C.  C.  A.  404.  In  CaflPery  v.  Insur- 
ance Co.  (C.  C.)  27  Fed.  25,  it  was  held  that  an  act  of  the  Legislature  pro- 
viding that  upon  the  payment  of  the  first  premium  the  policy  should  remair 
in  force  for  a  certain  time  for  the  full  amount  thereof,  "anything  in  the  pol 
icy  to  the  contrary  notwithstanding,"  might  be  waived  by  the  express  agree- 
ment of  the  parties  for  the  substitution  of  a  nonforfeitable  policy  of  a  dif- 
ferent character. 

154  "The  statute  in  question  is  regarded  as  Indicative  of  the  legislative 
will  that,  as  a  matter  of  public  policy,  life  insurance  companies  should  be 
deprived  of  the  power  to  declare  policies  forfeited  for  nonpayment  of  pre- 
miums, except  in  the  prescribed  mode,  and  that,  being  deprived  of  the  power 
so  to  do,  a  waiver  on  the  part  of  the  insured  cannot  be  construed  to  confer 
such  power  in  the  face  of  the  law  which  has  taken  it  away.'*  Per  Searles, 
C,  in  Griffith  v.  Insurance  Co.,  101  Cal.  627,  36  Pac.  113,  40  Am.  St  Rep.  96. 

As  to  the  right  of  the  insured  to  waive  a  statute  intended  for  his  sole  benefit, 
the  authorities  are  by  no  means  harmonious.  It  would  seem  that  the  in- 
sured should  be  allowed  to  waive  the  provisions  of  a  statute,  where  such 
waiver  is  not  prohibited,  and  there  is  no  principle  of  public  policy  or  morals 
concerned. 

The  provisions  of  an  act  against  avoidance  of  the  policy  on  account  of  iii- 


§68) 


WHAy   PAPERS   FORM  THE   WRITTEN   CONTRACT. 


189 


public  acts  of  the  sovereignty  under  which  they  are  written,  but  also 
to  all  treaty  regulations  to  which  that  sovereignty  is  a  party.  As  said 
by  Lord  Stowell  :^^^  "Every  treaty  is  part  of  the  private  law  of  each 
of  the  countries  which  are  parties  to  it,  and  is  as  binding  on  the  sub- 
jects of  each  as  any  part  of  their  own  municipal  laws."  Consequently, 
any  term  in  a  marine  policy  contrary  to  a  provision  of  any  such  treaty 
is  necessarily  void.^**® 

Common-Law  Rule^. 

The  rules  of  the  common  law,  when  fixed  by  proper  authority,  are 
not  less  to  be  read  into  a  contract  of  insurance  than  are  the  provisions 
of  statutes,  though  such  rules,  perhaps,  are  more  apt  to  yield  to  the 
expressed  contrary  intention  of  the  parties,  and,  in  the  nature  of  things, 
are  somewhat  less  certain  in  their  application.  Thus  the  policy  of  the 
law  will  not  allow  a  recovery  that  otherwise  might  be  had  under  the 
terms  of  a  contract  of  insurance,  when  the  insured  intentionally  burns 
the  property  insured,  ^*^^  or,  according  to  some  authorities,  when  the 
insured  takes  his  own  life,^*^®  or  commits  a  crime  that  is  the  occasion 
of  his  coming  to  an  unexpected  death  by  the  hand  of  the  law,***»  or 
when  the  beneficiary  feloniously  causes  the  death  of  the  insured.^'*^ 


correct  statements  in  application,  unless  fraudulently  made  or  material  to 
the  risk,  cannot  be  waived.    Hermany  v.  Association,  151  Pa.  17,  24  Atl.  1064. 
158  The  Eenrom,  2  C.  Rob.  1,  6. 

156  Bird  V.  Appleton,  8  T.  R.  562,  2  Am.  Ins.  (Ed.  1901)  {  746;  Hughes, 
Admiralty,  63. 

157  Citizens'  Ins.  Co.  v.  Marsh,  41  Pa.  386. 

Where  the  property  is  burned  by  the  agent  of  the  insured,  the  company 
will  not  be  released  from  liability,  unless  it  is  shown  that  the  insured  was 
particeps  criminis.  Henderson  v.  Insurance  Co.,  10  Rob.  (La.)  164,  43  Am. 
Dec.  176;  Feibelman  v.  Assurance  Co.,  108  Ala.  180,  19  South.  540;  Perry  v. 
Insurance  Co.  (C.  C.)  11  Fed.  485;  Plinksky  v.  Insurance  Co.  (C.  C.)  32  Fed. 
47.  See,  also,  Hartford  Fire  Ins.  CJo.  v.  WilUams,  63  Fed.  925,  11  C.  C.  A. 
503,  27  U.  S.  App.  493. 

Burning  by  assured  while  insane  will  not  relieve  company  from  liability. 
Karow  v.  Insurance  Co.,  57  Wis.  56,  15  N.  W.  27,  46  Am.  Rep.  17. 

In  an  action  on  a  policy  of  insurance  on  a  mare,  where  it  appeared  that 
plaintifC  beat  her  violently  with  an  iron  rod,  and  that  she  died  from  the 
effects  of  such  beating,  it  was  held  he  could  not  recover.  Western  Horse  & 
Cattle  Ins.  Co.  v.  O'Neill,  21  Neb.  548,  32  N.  W.  581. 

158RITTER  V.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct.  300,  42  L. 
^id.  693.  But  there  Is  a  conflict  of  authority  on  this  point,  for  which  see 
infra,  p.  516. 

169  Burt  V.  Insurance  Co.,  187  U.  S.  362,  23  Sup.  Ct  139,  47  L.  Ed.  216; 
AMICABLE  SOC.  v.  BOLLAND,  4  Bligh  (N.  S.)  194,  2  Bigelow,  Ins.  Cas.  240. 

160  New  York  Mut  Life  Ins.  Co.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct. 
877,  29  L.  Ed.  997;  Schmidt  v.  Association,  112  Iowa,  41,  83  N.  W.  800,  51  L. 
R.  A.  141,  84  Ahl  St  Rep.  323.  For  a  full  discussion  of  these  questions,  see 
post,  chapter  14^ 


190 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


§6y) 


MUTUAL  BENEFIT  INSURANCE. 


191 


iif 


I 


^Ji 


Usage  as  Part  of  the  Contract, 

It  is  sometimes  said  by  the  authorities  that  a  well-established  usai^e 
may  become  a  part  of  a  contract  of  insurance.^*^  However  true  this 
may  be  of  parol  contracts,  it  can  be  true  only  in  a  limited  sense  of  writ- 
ten policies.  A  formal  written  contract  merges  all  previous  parol  agree- 
ments or  understandings  of  any  kind  whatsoever,  and  there  is  no  rea- 
son whatever  for  allowing  the  terms  of  a  written  contract  to  be  altered 
or  enlarged  by  parol  proof  of  a  usage.''^  It  is  therefore  well  settled 
that  a  usage  cannot  be  proved  that  is  in  contravention  of  any  term  in  a 
policy,  or  that  adds  to  it  any  term.^««  Thus,  a  custom  among  insurers 
to  give  notice  of  the  maturity  of  premiums  cannot  give  to  the  insured 
any  right  to  such  notice  not  conferred  by  the  policy.^"  But  a  usage 
may  always  be  shown  in  order  to  make  clear  the  intention  of  the  par- 
ties, and  the  sense  in  which  ambiguous  terms  have  been  used.^'* 

SAME— MUTUAIi  BENEFIT  INSURANCE. 

69.   The  constituent  elements  of  the  contract  made  by  a  member  of 
a  mntnal  benefit  society  are: 

(a)  The  charter  and  constitution,  or  articles  of  association,  in  ac- 

cordance xrith  which  the  society  has  its  being. 

(b)  The   certificate    of   membership,    so   far   as   consistent   with   the 

charter  and  constitution,  and  the  application  if  expressly  so 
made* 

(c)  The  by-laws  of  the   society,   provided  they  have  been  properly 

adopted  and  do  not  conflict  with  the  terms  of  the  certificate. 

161  Connelly  r.  Association,  58  Conn.  552,  20  Atl.  671,  9  L.  R.  A.  428,  18 
Am.  St.  Rep.  296. 

i«2  Harris  v.  Carson,  7  Leigh  (Va.)  632,  30  Am.  Dec.  510. 

i«8  Richardson  v.  Insurance  Co.  (Ky.)  18  S.  W.  165;  Grace  v.  Insurance 
Co.,  109  U.  S.  283,  3  Sup.  Gt.  207,  27  L.  Ed.  932;  Hearne  v.  Insurance  Co.,  20 
Wall.  (U.  S.)  488,  22  L.  Ed.  395;  Ripley  v.  Insurance  Co.,  30  N.  Y.  136,  86 
Am.  Dec.  362. 

i«4  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765. 

A  mere  usage  of  the  company  to  accept  past  due  premiums  is  not  binding 
on  the  company.    Easley  v.  Insurance  Co.,  91  Va.  161,  21  S.  B.  235. 

But  a  usage  may  be  shown  to  prove  a  subsequent  parol  modification  of  the 
terms  of  the  policy,  and,  In  view  of  the  tendency  of  the  courts  to  construe 
a  contract  so  as  to  avoid  forfeitures,  it  seems  but  very  little  evidence  is 
needed.  See  Sweetser  v.  Association,  117  Ind.  97,  17  N.  E.  722;  MAYER  v. 
INSURANCE  CO.,  38  Iowa,  304,  18  Am.  Rep.  34.  See,  also.  Union  Cent.  Life 
Ins.  Co.  V.  Pottker,  33  Ohio  St.  459,  31  Am.  Rep.  555;  Meyer  v.  Insurance 
Co.,  73  N.  Y.  516,  29  Am.  Rep.  200;  Hartford  Ufe  &  Annuity  Ins.  Co.  v.  Un- 
sell,  144  U.  S.  439,  12  Sup.  Ct.  671,  36  L.  Ed.  496;  New  York  Life  Ins.  Co.  v. 
Eggleston,  96  U.  S.  572,  24  L.  Bd.  841. 

i«6Renner  v.  Bank,  9  Wheat.  (U.  S.)  581,  6  L.  Ed.  166;  Allegre  v.  Insur- 
ance Co.,  6  Har.  &  J.  (Md.)  408,  14  Am.  Dec.  289;  Whitmarsh  v.  Insurance 
Co.,  16  Gray  (Mass.)  359,  77  Am.  Dec.  414;    Mooney  v.  Insurance  Co.,  138 


In  General. 

While  the  contracts  made  by  benevolent  and  fraternal  organizations 
with  their  members,  so  far  as  they  grant  indemnity  for  loss  by  reason 
of  death,  sickness,  or  other  misfortune,  are  clearly  contracts  of  insur- 
ance, yet  in  their  form  and  effect  they  differ  largely  from  the  contracts 
of  regular  old-line  insurers.  Organized  for  the  purpose  of  relieving 
distress  among  its  members,  the  benefit  society  owes  a  duty  to  each 
member,  the  measure  of  which  is  ordinarily  to  be  found  primarily  in 
its  constitution  or  articles  of  association.  The  provisions  of  the  con- 
stitution, or  the  articles  of  association,  must  be  consistent  with  the 
law  of  the  land,  and  also  with  the  law  of  the  society's  being— its  char- 
ter.^««  These  may  be  said  to  be  a  part  of  the  constitution  in  the  same 
sense  in  which  the  act  of  incorporation  and  public  statutes  are  said 
to  be  a  part  of  the  policy  issued  by  regular  insurance  corporations. 
Nothing  further  is  required  in  order  to  complete  a  contract  between 
the  society  and  its  members  upon  the  basis  of  its  constitution  than  the 
mere  admission  to  membership. ^«^  But  in  the  administration  of  the 
affairs  of  such  societies,  many  of  which  are  large  and  extend  ovei 
wide  areas,  it  is  found  necessary  for  the  governing  body  to  adopt, 
from  time  to  time,  rules  of  administration,  called  "by-laws."  Since 
these  by-laws  are  adopted  by  the  agents  of  the  members  of  the  society, 
they  are  binding  upon  all  such  members  unless  they  are  contrary  to 
its  constitution  or  are  unreasonable.  Accordingly,  in  such  cases  the 
contract  of  the  member  with  his  society  is  to  be  found  in  the  properly 
adopted  by-laws,  and  in  the  society's  charter  and  constitution.^ «» 
Many  of  these  organizations  conduct  their  business  on  this  plan,  no 
personal  or  individual  contract  being  executed. 

The  Certificate  as  a  Contract. 

With  the  higher  organization  of  these  societies,  however,  as  well  as 
for  convenience  in  the  conduct  of  business,  it  was  found  advantageous 
to  issue  to  members  certificates  of  membership.  These  certificates, 
tirst  intended,  doubtless,  to  be  used  as  vouchers,  soon  began  to  be  used 

Mass.  375,  52  Am.  Rep.  277;  Fabbrl  v.  Insurance  Co.,  55  N.  Y.  129.  But  see 
Orient  Mut.  Ins.  Co.  v.  Wright  1  Wall.  (U.  S.)  456,  17  L.  Ed.  505. 

i«e  Railway  Passenger  &  Freight  Conductors'  Mut.  Aid  &  Ben.  Ass'n  v. 
Robinson,  147  111.  138,  35  N.  E.  168;  Metropolitan  Safety  Fund  Ace.  Ass'n  v. 
Windover,  137  111.  417,  27  N.  E.  538;  Supreme  Lodge  K.  P.  v.  La  Malta,  95 
Tenn.  157,  31  S.  W.  493,  30  L.  R.  A.  838;  Rosenberger  v.  Insurance  Co.,  87 
Pa.  207;  Golden  Rule  v.  People,  118  111.  492,  9  N.  E.  342;  Chicago  Mut.  Life 
Indemnity  Ass'n  v.  Hunt,  127  111.  257,  20  N.  E.  55,  2  L.  R.  A.  549. 

167  Bishop  V.  Grand  Lodge,  112  N.  Y.  627,  20  N.  E.  562. 

The  society  may  require  initiation  to  make  the  membership  complete. 
Matkin  v.  Supreme  Lodge,  82  Tex.  301,  18  S.  W.  306,  27  Am.  St.  Rep.  886. 

i«8  Dolan  V.  Court  of  Good  Samaritan,  128  Mass.  437;  Baldwin  v.  Fra- 
ternity, 47  N.  J.  Law.  Ill;  Nibl.  Ben.  Soc.  &  Ace.  Ins.  §  136,  Bac.  Ben.  Soc. 
§  161. 


192 


THE  MAKING  OF  THE  CONTRACT. 


(Ch.5 


§69) 


MUTUAL  BENEFIT  INSURANCE. 


193 


il 


as  vehicles  of  contract,  showing  the  particular  benefits  which  the  hold- 
ers were  entitled  to  receive  at  the  hands  of  the  society.  Manifestly, 
such  certificates  are  very  different  instruments  from  insurance  poli- 
cies. They  are  but  imperfect  expressions  of  the  contract,  which  is  to 
be  found  in  its  complete  form  only  by  reading  the  certificate  in  con- 
nection with  the  charter,  constitution,  and  by-laws  of  the  society.^** 
So  these  certificates  are  not  ordinarily  assignable,^  ^°  nor  can  a  benefi- 
ciary take  any  vested  right  in  them.^^*  The  terms  of  benefit  certificates, 
however,  are  binding  on  the  society  in  so  far  as  they  are  authorized. 
Necessarily  any  agreement  in  the  certificate  inconsistent  with  the  char- 
ter or  constitution  is  absolutely  void.^'* 

Conflict  between  Certificate  and  By-Law, 

The  law  applicable  when  a  certificate  is  issued  containing  terms  in- 
consistent with  the  by-laws  is  well  stated  by  Marshall,  J.,  in  McCoy  v. 
Northwestern  Mut.  Relief  Ass'n :  *"  "While  the  decisions  are  not 
numerous  on  this  subject,  there  is  no  substantial  conflict,  and  we  un- 
derstand the  general  principle  to  be  firmly  established  that  though, 

i«»  Hellenberg  v.  I.  O.  B.  B.,  94  N.  Y.  580;  Supreme  Commandery  Knights 
of  Golden  Rule  v.  Ainsworth,  71  Ala.  436,  46  Aul  Rep.  332;  Masonic  Mut 
Ben.  Soc.  v.  Burkhart,  110  Ind.  192,  10  N.  E.  79,  11  N.  E.  449;  American 
Legion  v.  Smith,  45  N.  J.  Bq.  466,  17  Atl.  770;  Railway  Passenger  &  Freight 
Conductors'  Mut.  Aid  &  Ben.  Ass'n  v.  Robinson,  147  111.  138,  35  N.  E.  168; 
Holland  v.  Taylor,  111  Ind.  121,  12  N.  E.  116;  Gray  v.  Supreme  Lodge,  118 
Ind.  293,  20  N.  E.  833;  Sabin  v.  National  Union,  90  Mich.  177,  51  N.  W.  202; 
Laker  v.  Fraternal  Union,  95  Mo.  App.  353,  75  S.  W.  705. 

170  Briggs  V.  Earl.  139  Mass.  473,  1  N.  E.  847;  Basye  v.  Adams,  81  Ky.  368. 

But  where  the  charter  provided  for  its  organization  for  the  benefit  of  wid- 
ows, etc.,  or  legatees  of  deceased  members,  it  was  held  that,  as  a  creditor 
was  capable  of  becoming  a  beneficiary  as  legatee,  an  assignment  of  the  cer- 
tificate by  the  member  in  his  lifetime  to  the  creditor,  as  security  for  the  debt, 
was  but  an  irregularity  in  the  mode  of  designation,  which  could  not  be  ques- 
tioned by  the  widow,  the  society  having  recognized  it  as  valid.  Martin  v. 
Stubbings,  126  111.  387,  18  N.  E.  657,  9  Am.  St  Rep.  620. 

171  "Most  of  the  decisions  seem  to  concur  in  holding  that  in  case  of  mutual 
benefit  societies  the  beneficiary  named  in  the  certificate  of  membership  ac- 
(luires  no  vested  right  to  the  benefit  to  accrue  upon  the  death  of  the  member 
until  the  death  occurs."  Martin  v.  Stubbings,  126  111.  387,  18  N.  B.  657,  9  Am. 
St.  Rep.  020.  See  Nibl.  Ben.  Soc.  &  Ace.  Ins.  §  201  et  seq.  And  see  post, 
j).  400,  chapter  11. 

A  certificate  in  a  fraternal  beneficiary  society  is  a  mere  expectancy  and 
the  beneficiary  has  no  vested  right  therein.  Fisher  v.  Donovan,  57  Neb.  361, 
77  N.  W.  778,  44  L.  R.  A.  383;  Schmidt  v.  Association,  112  Iowa,  41,  83  N. 
W.  800,  51  L.  R.  A.  141,  84  Am.  St.  Rep.  323,  and  note,  page  331.  Holland 
V.  Taylor,  111  Ind.  125,  12  N.  E.  116.  But  see,  contra,  Pittinger  v.  Pittinger, 
28  Colo.  308,  64  Pac.  195,  89  Am.  St  Rep.  193. 

172  Golden  Rule  v.  People,  118  111,  492,  9  N.  E.  342;  Bockhold  T.  Society, 
129  111.  440,  21  N.  E.  794,  2  L.  R.  A.  420. 

i7»  92  Wis.  577,  66  N.  W.  697,  47  L.  R.  A.  681. 


generally  speaking,  a  member  of  a  mutual  benefit  association  or  in- 
surance company  is  bound  to  take  notice  of  its  by-laws,  even  if  not  re- 
cited or  referred  to  in  the  certificate  of  membership  or  poHcy,  yet, 
when  such  certificate  or  policy  and  the  by-laws  conflict,  so  long  as  the 
contract  as  written  is  within  the  power  of  the  association  under  *its 
charter  or  articles  of  organization,  it  will  prevail  over  the  by-laws,  and 
by  it  the  rights  and  liabilities  of  the  parties  must  be  determined."  ^^* 

Indeed,  in  the  light  of  recent  decisions  this  statement  of  the  law 
can  be  still  further  extended.  If  the  parties  so  desire,  they  may  agree 
that  the  by-laws  shall  be  no  part  of  their  contract,  confining  it  to  the 
certificate  and  the  application."*^  The  same  result  may  be  accom- 
plished by  the  failure  to  attach  a  copy  of  the  by-laws  to  the  certificate 
when  required  by  statute.^^* 

By-Laws  Subsequently  Adopted  or  Changed. 

Incident  to  the  right  to  make  by-laws  for  the  conduct  of  its  business 
is  the  right  to  change  or  repeal  those  by-laws  and  to  adopt  others."^ 
Such  amendments  and  changes  will,  in  general,  be  binding  upon  all 
members  of  the  association,  provided  they  are  reasonable,  if  made  after 
notice  to  all  members."^  This  is  especially  true  if  the  society's  consti- 
tution or  by-laws  existing  at  the  time  of  the  member's  admission  pro- 
vided a  method  of  amendment  which  had  been  followed;  ^^*  or  if,  as 
is  usually  the  case,  the  member  had  agreed  to  be  bound  by  all  existing 
by-laws  and  those  thereafter  to  be  adopted.  But,  even  when  the  mem- 
ber has  so  bound  himself,  the  presumption  is  strong  that  new  by-laws 
are  intended  to  be  only  prospective,  and  only  a  clearly  manifested  in- 
tent will  extend  them  to  previously  issued  certificates.*®* 

174  See,  to  the  same  eflfect,  Laker  v.  Fraternal  Union,  95  Mo.  App.  353,  75 
S.  W.  705;  Davidson  v.  Society,  39  Minn.  303,  39  N.  W.  803,  1  L.  R.  A.  482; 
Failey  v.  Fee,  83  Md.  83,  34  Atl.  839,  32  L.  R.  A.  311,  55  Am.  St.  Rep.  326; 
Morrison  v.  Insurance  Co.,  59  Wis.  162,  18  N.  W.  13;  Nibl.  Ben.  Soc.  &  Ace. 
Ins.  §  147. 

17  5  Purdy  v.  Association,  101  Mo.  App.  91,  74  S.  W.  486. 

176  Mooney  v.  Grand  Lodge  (Ky.)  72  S.  W.  288.    But  see,  contra,  Dickinson 
V.  A.  O.  U.  W.,  159  Pa.  258,  28  Atl.  293;   Lithgaw  v.  Supreme  Tent  165  Pa 
292,  30  Atl.  830. 

177  Supreme  Lodge  K.  P.  v.  Knight,  117  Ind.  489,  20  N.  B.  479,  3  L.  R.  A. 
409;   Nibl.  Ben.  Soc.  &  Ace.  Ins.  §  28;    Bac.  Ben.  Soc.  §  91a. 

178  Nibl.  Ben.  Soc  &  Ace.  Ins.  §  24;  Supreme  Lodge  K.  P.  v.  Knight,  117 
Ind.  489,  20  N.  E.  479,  3  L.  B.  A.  409. 

i7»  Metropolitan  Safety  Fund  Ace.  Ass'n  v.  Windover,  137  111.  417  27  N 
B.  538;   Bac.  Ben.  Soc.  §  185. 

180  Benton  v.  Brotherhood,  146  111.  570,  34  N.  E.  939;  Strauss  v.  Association 
126  N.  C.  971,  36  S.  B.  352,  128  N.  C.  465,  39  S.  B.  55,  54  L.  R.  A.  605,  83  Am. 
St.  Rep.  699.  Appended  to  this  case  (83  Am.  St  Rep.,  at  page  706),  is  an  ex- 
tensive note  on  "The  eflfect  of  changes  of  by-lawa  of  beneficial  associatioa* 
as  against  pre-existing  members." 

Vancs  Ins. — 13 


jl 


194 


THE  MAKING  OP  THE  CONTRACT. 


(Ch.5 


m 


Moreover,  such  changes  or  new  by-laws  must  be  reasonable;  and 
they  will  be  held  unreasonable  if  they  take  away  a  property  right,^" 
or  if,  without  knowledge  or  consent  of  the  member,  the  right  of  notice 
before  forfeiture  for  nonpayment  of  assessments  was  taken  away,* 
or  if  the  member  is  deprived  of  the  right  to  engage  in  certain  occu- 
pations not  prohibited  at  the  time  of  his  admission."*  By-laws 
that  are  reasonable  as  to  members  admitted  after  their  adoption  may 
be  held  unreasonable  as  to  those  whose  rights  as  members  have  become 
fixed  under  prior  regulations.*®* 

181  Weber  v.  Supreme  Tent,  1T2  N.  Y.  490,  65  N.  B.  258,  92  Am.  St  Rep. 
753;    Wist  V.  Grand  Lodge,  22  Or.  271,  29  Pac.  610,  29  Am.  St.  Rep.  603. 

Even  when  the  insured  has  expressly  agreed  to  be  governed  by  all  the  by- 
laws of  the  society  then  existing  or  thereafter  to  be  adopted,  a  subsequently 
adopted  by-law  reducing  the  amount  to  be  paid  to  the  insured  is  unreasonable 
as  to  him,  and  void.  Russ  v.  Sup.  Ck)uncil,  110  La.  588,  34  South.  697 ;  New- 
hall  V.  Supreme  Council,  181  Mass.  Ill,  63  N.  E.  1;  Knights  Templar  & 
Masons*  Life  Indemnity  Co.  v.  Jarman.  104  Fed.  638,  44  0.  C.  A.  93.  See, 
also.  Miller  v.  Tuttle  (Kan.)  73  Pac.  88.  ^  „„^   ^^  t    «    *    loe 

182  Thibert  v.  Supreme  Lodge,  78  Minn.  448,  81  N.  W.  220,  47  L.  R.  A.  136, 

iss^Tebo  V.  Supreme  Council,  89  Minn.  3,  93  N.  W.  513;  Hobbs  v.  Associa- 
tion  82  Iowa,  107,  47  N.  W.  983,  11  L.  R.  A.  299,  31  Am.  St.  Rep.  466. 

184  «it  is  possible  that,  as  an  original  by-law,  a  provision  of  this  charac- 
ter would  be  held  reasonable  and  operative  on  the  ground  that,  if  persons 
chose  to  become  members  of  an  association  with  such  drastic  rules,  theirs 
was  the  right  to  do  so."  Thibert  v.  Supreme  Lodge,  78  Minn.  448,  81  N.  W. 
220,  47  L.  R.  A.  136,  79  Am.  St.  Rep.  412. 


58  70-71)   THE   CONSIDERATION — PREMIUMS  AND  ASSESSMENTS.        195 


CHAPTER  VI. 

THE  CONSIDBRATION— PREMIUMS  AND  ASSESSMENTS, 

70-71.  In  General— The  Nature  of  the  Obligation. 

72-73.  When  the  Premium  is  a  Debt 

74^75.  Payment  of  Premiums. 

.76.  Consequences  of  Nonpayment  of  Premiums, 

77.  Forfeiture. 

78.  Excuses  for  Nonpayment. 
79-80.  Notice  of  Premiums  Due. 

81.  Paid-up  Policies  and  Extended  Insurance. 

82.  Effect  of  Nonpayment  of  Premium  Notes. 

83-84.  Dues  and  Assessments  in  Mutual  Benefit  SodetleOi 

85-86.  When  Premiums  may  be  Recovered. 


IN  GENERAL— THE  NATURE  OF  THE  OBLIGATION. 

70.  The  consideration  for  the  insurer's  promise  to  indenudfy  is  the 

insured's  payn&ent  of  a  premium,  or  his  promise  to  pay  a  pre- 
mium or  assessment.  The  insurer's  liability  attaches  only 
when  the  insured  has  paid,  or  is  liable  to  pay,  a  premium  or 
assessnient. 

71.  IN  LIFE  INSURANCE  there  is  usually  no  liability  assumed  by  the 

insured  for  the  payment  of  premiums  subsequent  to  the  first. 
The  contract  ordinarily  provides  that  nonpayment  of  premiums 
•  shall  be  a  condition  that  will  tenninate  or  diminish  the  liabil- 

ity of  the  insurer.  Unless  otherwise  agreed,  ho^rever,  assess- 
ments properly  levied  are  legally  enforceable  obligatioiui  upon 
the  insured. 

No  authority  need  be  cited  for  the  proposition  that  the  insurance 
contract  requires  the  support  of  a  valuable  consideration.  The  con- 
tract cannot  stand  unless  each  party  has  given  value  or  become  liable 
to  the  other.  The  value  given  by  the  insured  is  usually  in  the  form 
of  the  payment  of  a  stun  of  money,  called  a  "premium,"  *  when  the 

1  The  premium  rate  must  be  fixed  expressly  or  by  implication  in  order  that 
the  contract  shair  be  valid  (Western  Assur.  Go.  v.  McAlpin,  23  Ind.  App. 
220,  55  N.  B.  119,  77  Am.  St  Rep.  423);  and  this  rate  should  be  set  forth  in 
the  policy.  In  many  states  statutes  have  been  enacted  prohibiting  discrim- 
ination in  rates  charged  to  **insurants"  of  the  same  class,  negroes  being  es- 
pecially mentioned  in  some  states  as  persons  not  to  be  discriminated  against. 
See  How.  Ann.  St  Mich.  Supp.  1883-90,  p.  3420,  §  4244. 

To  prevent  discriminations  in  rates  it  is  frequently  provided  that  no  re- 
bates upon  premiums  shall  be  given,  and  some  of  the  statutes  make  it  a 
misdemeanor  tn  an  insurance  agent  to  give  such  rebates.  See,  for  examples, 
1  Mills'  Ann.  St  Colo.  1891,  p.  1341,  §  2232;   Laws  Md.  1890,  p.  275,  c.  254. 

Such  statutes  are  constitutional,  and  do  not  improperly  restrict  the  right 


1^1 


It  '< 


I 


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196  THE  CONSIDERATION— PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 

consideration  is  executed ;  and  the  liability  assumed  is  to  pay  a  post- 
poned premium,  or  an  assessment,  when  the  consideration  is  executory. 

In  insurance  policies  it  is  usually  stated  that  the  insurance  is  made 
"in  consideration  of  the  representations  made  in  the  application  tor 
this  poUcy,"  and  of  certain  sums  paid  and  payable  as  premiums.  1  his 
does  not  mean,  however,  that  the  statements  in  the  application  are 
any  part  of  the  consideration  in  the  technical  sense,  such  as  requires  to 
be  pleaded  in  an  action  on  the  policy.^  ^ 

In  the  discussion  of  the  nature  of  the  contract  in  a  previous  chapter, 
it  was  explained  that  in  theory  all  payments  of  premiums  and  assess- 
ments were  but  contributions  from  all  members  of  the  insuring  organi- 
zation to  make  good  the  losses  of  individual  members,  and  that  the 
chief  distinction  between  "premiums"  and  "assessments  lay  in  the 
fact  that  the  former  were  levied  and  paid  to  meet  anticipated  osses, 
while  the  latter  were  collected  in  order  to  make  good  actual  losses. 
Out  of  this  distinction  grow  important  differences  as  to  the  liabihty 
of  the  insured,  especially  in  life  insurance,  which  must  now  be  exam- 
ined. 

Liability  for  Life  Insurance  Premiums. 

The  life  insurance  contract  does  not  become  binding  upon  the  in- 
surer until  the  insured  has  either  paid  or  promised  to  pay  the  first  pre- 
mium.* But  when  the  contract  has  thus  gone  into  effect,  some  pecul- 
iarities about  it  become  noticeable,  and  these  have  given  nse  to  some 
difference  of  opinion  as  to  its  nature.  In  so  far  as  it  is  executory,  the 
ordinary  life  policy  is  purely  unilateral.  The  insured  is  not  positively 
bound  to  do  anything  whatsoever ;  he  nowhere  promises  to  pay  *iy 
premium  that  may  fall  due;  *  he  merely  agrees  that,  if  he  fails  to  pay, 
his  rights  under  the  policy  shall  be  forfeited  or  otherwise  affected. 
Even  though  the  policy  may  state  that  the  premium  is  payable  annual- 
ly no  promise  to  pay  will  be  implied,  such  an  implication  being  incon- 
sistent  with  the  penaUzing  spirit  of  the  whole  contract    But  what 

of  contracting  freely  or  prevent  competition.    Equitable  Life  ^s^^-  Soc.  v. 
Sr^y.)  67  S.  W.  389;   Ck)m.  v.  Equitable  Life  Assur.  Soc,  100  Ky.  341, 

^.  P^N?k  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U.  S.  183.  7  Sup.  Ct 
'jfto   ^0  L.   E3d   644.   Woodruff,  Ins.  Cas.  92. 

"^  Helman^:  L^^nce  Co.,  17  Minn.  153  (Gill27)   10  Am.  Rep.  154;  Wai 
ner  v.  Insurance  Co.,  153  Mass.  335,  26  N.  E.  877.  11  L.  R.  A.  598.   Bradley 
V.  Insurance  Co.,  32  Md.  108,  3  Am.  Rep.  121. 

/oLwln  V.  insurance  Co..  73  N.  Y.  480;  Worthington  v.  Insurance  Co., 
41  Conn.  372,  19  Am.  Rep.  495.  510. 

.In  Goodwin  v.  Insurance  Co..  73  N.  Y.  480.  an  unpaid  Premium  upon  a 
Dolicy  of  life  insurance  was  held  not  to  be  an  "indebtedness,"  withm  the 
meaning  of  the  statute  of  Massachusetts,  providing  for  the  continuance  and 
validity  of  such  a  policy  for  a  limited  period  after  failure  to  pay  the  pre- 
mium, and  for  ascertaining  the  period  in  each  case.    Therefore  the  unpaid  pre- 


70-71)      IN   GENERAL — THE   NATURE  OF  THE   OBLIGATION.  197 


is  the  promise  made  by  the  insurer?  Is  it  a  contract  of  insurance  for 
one  year,  coupled  with  an  agreement  to  renew  from  year  to  year  upon 
the  payment  of  the  stipulated  premium  as  a  condition  precedent?  Or 
is  it  a  single  contract  for  insurance  during  the  lifetime  of  the  insured, 
subject,  however,  to  defeasance  by  nonpayment  of  any  premium,  when 
due,  as  a  condition  subsequent?  The  former  view,  upheld  by  a  few 
courts,®  is  thus  clearly  stated  by  Carpenter,  J.,  in  Worthington  v.  Char- 
ter Oak  Life  Ins.  Co. :  ^  "A  contract  of  life  insurance  is  a  peculiar 
contract.  It  has  no  parallel,  and  few  analogies,  in  all  the  business 
transactions  of  life.  An  ordinary  life  policy,  like  the  one  in  suit,  re- 
quiring the  payment  of  annual  premiums,  consists  of  two  parts,  and 
is  divisible.  The  applicant,  upon  the  payment  of  the  first  premium, 
effects  an  insurance  upon  his  life  for  one  year,  and  purchases  a  right 
to  continue  that  insurance  from  year  to  year,  during  life,  at  the  same 
rate.  Whether  he  will  continue  it  or  not  is  optional  with  him.  The 
premium  for  the  first  year  pays  for  the  risk  during  that  year,  and  for 
the  right  to  subsequent  insurance.  The  rate  of  insurance  for  a  single 
year  is  less  than  the  annual  premiums  on  a  life  policy.  The  difference, 
continued,  as  it  is  supposed  it  will  be,  from  year  to  year  through  life, 
may  be  regarded  as  the  consideration  for  the  right  to  continue  the  in- 
surance.'' The  other  view,  which  is  supported  by  the  clear  weight  of 
authority,®  and  seemingly  by  clear  reason,  may  be  best  presented  in 
the  words  of  Mr.  Justice  Bradley,  in  New  York  Life  Ins.  Co.  v.  Stat- 
ham :  ®  "We  agree  with  the  court  below  that  the  contract  is  not  an 
assurance  for  a  single  year,  with  a  privilege  of  renewal  from  year  to 
year  by  paying  the  annual  premium,  but  that  it  is  an  entire  contract 
of  assurance  for  life,  subject  to  discontinuance  and  forfeiture  for  non- 
pa}Tnent  of  any  of  the  stipulated  premiums.  Such  is  the  form  of  the 
contract,  and  such  is  its  character.  It  has  been  contended  that  the 
payment  of  each  premium  is  the  consideration  for  insurance  during 

mium  could  not  be  deducted  from  the  net  value  of  the  policy,  in  determining  the 
amount  of  pr'^mium  for  temporary  insurance.  In  this  case  the  court  said: 
"According  to  the  terms  of  the  policy,  there  is  no  promise  to  pay,  and  it 
rests  with  the  insured  to  say  how  long  he  will  continue  it.  He  can  stop  it  at 
the  end  of  the  year,  and  determine  when  the  policy  shall  cease.  When  he 
refuses  to  pay,  the  policy  lapses,  and  the  insured  has  no  further  claim,  ex- 
cept what  is  conferred  by  the  nonforfeiture  clause." 

•Worthington  v.  Insurance  Co.,  41  Conn.  372,  19  Am.  Rep.  495;  Dillard 
v.  Insurance  Co.,  44  Ga.  119,  9  Am.  Rep.  167;  Want  v.  Blunt,  12  East,  183. 

T  41  Conn.  372,  379,  19  Am.  Rep.  495-497. 

•  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24,  23  L.  Ed.  789; 
KLEIN  V.  INSURANCE  CO.,  104  U.  S.  90,  26  L.  Ed.  663;  People  v.  Insurance 
Co.,  78  N.  Y.  114,  34  Am.  Rep.  528,  holding  an  insolvent  company  liable  in 
damages  to  holders  of  current  policies;  Abell  v.  Insurance  Co.,  18  W.  Va 
400,  at  page  426;  Mutual  Benefit  Life  Ins.  Co.  v.  Robertson,  59  111.  123,  14 
Am.  Rep.  8;  Pritchard  v.  Society,  3  C.  B.  (N.  S.)  622. 

•  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24.  80,  23  L.  Ed.  789. 


fi 


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198  THE   CONSIDERATION — ^PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 

the  next  following  year,  as  in  fire  policies.  But  the  position  is  unten- 
able. It  often  happens  that  the  assured  pays  the  entire  premium  in 
advance,  or  in  five,  ten,  or  twenty,  annual  installments.  Such  install- 
ments are  clearly  not  intended  as  the  consideration  for  the  respective 
years  in  which  they  are  paid,  for,  after  they  are  all  paid,  the  policy 
stands  good  for  the  balance  of  the  life  insured,  without  any  further 
payment.  Each  installment  is,  in  fact,  part  consideration  of  the  entire 
insurance  for  life.  It  is  the  same  thing  where  the  annual  premiums 
are  spread  over  the  whole  life.  The  value  of  assurance  for  one  year 
of  a  man's  life  when  he  is  young,  strong,  and  healthy  is  manifestly  not 
the  same  when  he  is  old  and  decrepit.  There  is  no  proper  relation  be- 
tween the  annual  premium  and  the  risk  of  assurance  for  the  year  in 
which  it  is  paid.  This  idea  of  assurance  from  year  to  year  is  the  sug- 
gestion of  ingenious  counsel.  The  annual  premiums  are  an  annuity, 
the  present  value  of  which  is  calculated  to  correspond  with  the  present 
value  of  the  amount  assured,  a  reasonable  percentage  being  added  to 
the  premiums  to  cover  expenses  and  contingencies.  The  whole  pre- 
miums are  balanced  against  the  whole  insurance." 

It  may  be  further  said  in  elaboration  of  what  is  intimated  by  the 
words  of  Mr.  Justice  Bradley,  just  quoted,  that  the  theory  of  the  Con- 
necticut case  wholly  ignores  the  fact  that  the  ordinary  life  insurance 
contract  possesses  certain  investment  features,  which  render  it  radical- 
ly different  from  the  fire  policy,  which  is  a  contract  of  pure  insurance 
from  year  to  year. 

Liability  for  Assessments, 

But  the  member  of  the  mutual  assessment  organization  makes  a  very 
different  contract.  The  consideration  for  the  organization's  promise 
to  indemnify  the  member  is  the  member's  promise  to  pay  all  assess- 
ments that  are  legally  made  during  the  term  of  his  membership,  and  the 
fact  that  his  contract  provides  for  a  forfeiture  of  all  his  rights  as  a 
member  of  the  society  as  a  penalty  for  failure  to  pay  any  assessment 
does  not  prevent  the  member  from  being  liable  for  the  amount  of  such 
assessment  in  an  action  maintained  by  the  society.***  The  payment  of 
the  assessment  may  be  enforced  even  though  the  defendant's  certificate 
is  already  forfeited  and  the  society  is  insolvent**     Of  course,  it  is  com- 

10  Ellerbe  v.  Bamey,  119  Mo.  632,  25  S.  W.  384,  23  L.  R.  A.  435;  New  Era 
Ute  Ass'n  V.  Rossiter,  132  Pa.  314,  19  Atl.  140;  Akers  v.  Hite,  94  Pa.  394,  39 
Am.  Rep.  792.    See,  also,  McDonald  v.  Ross-Lewin,  29  Hun  (N.  Y.)  87. 

On  principle  these  cases  are  clearly  correct.  The  member,  having  received 
protection  during  his  membership,  cannot  escape  liability  on  assessments 
levied  during  such  membership. 

n  Such  assessments  may  be  levied  by  the  receiver  of  an  insolvent  associa- 
tion under  the  instructions  of  the  court.  Bacon  v.  Clyne,  70  Mich.  188,  38  N. 
W.  207.  But,  of  course,  a  member  who  has  secured  the  cancellation  of  his 
certificate,  paying  all  existing  liabilities  to  the  association,  is  not  liable  to 


§§  72-73) 


WHEN   THE  PREMIUM   IS  A   DEBT. 


199 


petent,  however,  for  the  parties  to  agree  that  forfeiture  of  rights  under 
the  membership  certificate  shall  be  the  only  consequence  of  nonpay- 
ment," and  in  practice  the  penalty  of  forfeiture  is,  in  effect,  the  sole 
means  rehed  on  by  the  society  to  enforce  payment  of  assessments. 

WHEN  THE  PREMIUM  IS  A  DEBT. 

72*  In  fire  and  marine  insurance  the  prenLinm  payable  becomes  a  debt 
as  soon  as  the  risk  attaches,  and  niay,  by  provision  of  the  policy 
or  by  statute,  be  made  a  lien  upon  the  property  insured. 

73.  In  life  insurance  the  premium  becomes  a  debt  only  -when,  in  the 
case  of  the  first  premium,  the  contract  has  beconie  binding,  and, 
in  the  case  of  subsequent  premiums,  when  the  insurer  has 
continued  the  insurance,  after  niaturity  of  the  premium,  in 
consideration  of  the  insured's  express  or  implied  promise  to 
pay.  An  assessment  properly  levied,  unless  otherwise  expressly 
agreed,  is  a  debt* 

Fire  Insurance  Premiums, 

In  marine  and  fire  insurance,  prepayment  of  the  premium  is  not  so 
strictly  required  as  a  condition  to  the  validity  of  the  contract.  Conse- 
quently, the  contract  being  usually  deemed  entire  for  the  whole  term 
agreed  upon,  the  whole  premium  becomes  an  obligation  as  soon  as  the 
risk  attaches.  And  this  is  held  to  be  the  rule  even  when  installment 
notes  are  given  for  insurance  extending  over  a  number  of  years,  when 
it  is  stipulated  that  nonpayment  of  any  installment  shall  avoid  the 
policy.^'     Hence  the  whole  premium  is  due  and  payable  even  though 

pay  assessments  subsequently  made  by  a  receiver.  Tolford  v.  Church,  66 
Mich.  431,  33  N.  W.  913. 

12  See  Tolford  v.  Church,  66  Mich.  431,  33  N.  W.  913. 

18  Where  a  policy  is  issued  for  a  term  of  years,  and  premium  notes,  pay- 
able in  annual  installments,  are  taken,  there  seems  to  be  some  confusion  as 
to  whether,  in  case  the  policy  is  avoided  before  the  expiration  of  the  term, 
the  whole  amount  can  be  collected  by  the  insurance  company.  The  cases 
seem  to  lay  down  the  following  rules: 

(1)  Where  there  is  a  distinct  provision  that  upon  failure  to  pay  any  in- 
stallment the  policy  shall  become  void,  but  the  whole  amount  shall  be  con- 
sidered as  earned,  such  provision  will  be  given  full  force,  and  the  contract 
will  be  construed,  as  entire.  Cauffield  v.  Insurance  Co.,  47  Mich.  447,  11 
N.  W.  264;  St  Paul  Fire  &  Marine  Ins.  Co.  v.  Coleman,  6  Dak.  458,  43  N.  W. 
693,  6  L.  R.  A.  87;  Continental  Ins.  Co.  v.  Boykin,  25  S.  0.  323.  See,  also, 
American  Ins.  Go.  v.  Klink,  65  Mo.  78;  American.  Ins.  Co.  v.  Henley,  60 
Ind.  515  (provision  in  company's  charter  held  part  of  the  contract). 

(2)  But  where  there  is  no  such  provision  in  the  contract,  it  seems  that  the 
contract  will  be  construed  as  severable,  and  the  company  cannot  sue  on  the 
notes  for  the  entire  amount  American  Ins.  Co.  v.  Stoy,  41  Mich.  385,  1  N. 
W.  877. 

Where  a  policy  insured  defendant's  property  for  a  period  of  five  years.  In 
consideration  of  $41.50  cash,  and  a  note  for  an  additional  sum,  of  even  date 


0 


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M 


200 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


the  insurance  may  terminate  before  the  expiration  of  the  whole  period 
agreed  upon/*  provided  such  termination  be  not  brought  about  in  ac- 
cordance with  the  terms  of  the  policy  or  by  the  wrong  of  the  insurer.^' 
Of  course,  however,  it  is  competent  for  the  parties  to  make  a  contract 
of  fire  insurance  from  year  to  year  during  an  agreed  term  of  years, 
in  which  case  the  whole  premium  will  not  be  considered  as  due  upon 
the  commencement  of  the  risk,  but  from  year  to  year,  in  annual  in- 
stallments, as  earned  by  the  insurer.^' 

Statutes  sometimes  give  to  mutual  fire  insurance  companies  a  lien 
upon  the  property  insured,  to  secure  the  payment  of  premium  debts, 
and  not  infrequently  the  policies  of  such  companies  charge  the  insured 
property  with  a  lien  for  premiums  due.^^ 

Life  Insurance  Premiums. 

As  explained  above,  a  life  insurance  premium  due  is  not  ordinarily 
a  debt,  nonpayment  being  made  merely  a  condition  of  forfeiture.  But 
in  case  the  insurer  has  incurred  liability,  without  requiring  prepay- 
ment of  the  first  premium,  in  consideration  of  the  insured's  promise  to 
pay,  the  premium  due  becomes  a  debt.  So  the  promise  of  the  insured 
to  pay  any  subsequent  premium  may  be  implied  from  the  mere  exten- 
sion of  the  time  of  payment,  or  made  express  by  his  giving  a  premium 
note.** 

As  shown  above,  an  assessment,  when  once  legally  levied,  and  notice 
thereof  given,  is  a  binding  obligation  upon  the  insured,  unless  some 
term  of  the  contract  expressly  stipulates  that  forfeiture  of  existing 
rights  shall  be  the  only  consequence  of  nonpayment** 


' 


with  the  policy,  and  dne  10  months  after  date,  the  note  providing  that  If  It 
was  not  paid  at  maturity  the  policy  should  be  null  and  void,  "and  so  remain 
until  the  same  shall  be  fully  paid,"  in  an  action  on  the  note  it  was  held  that, 
the  contract  being  an  entirety,  the  note  was  as  much  the  consideration  there- 
for as  the  cash  payment,  and,  having  had  the  benefit  of  the  contract  for  10 
months,  the  defendant  could  not  avoid  paying  the  entire  consideration.  Rob- 
inson V.  Insurance  Co.,  51  Ark.  441,  11  S.  W.  686,  4  L.  R.  A.  251. 

1*  Tyrie  v.  Fletcher,  Cowp.  666;  Richards,  Ins.  Cas.  265;  Plymton  v.  Dunn, 
148  Mass.  523,  20  N.  K  180;  Schimp  v.  Insurance  Co.,  124  IlL  354,  16  N.  E. 
229. 

15  Supreme  Council  Catholic  Knights  of  America  v.  Gambati,  29  Tex.  Civ. 
App.  80,  69  S.  W.  114. 

le  American  Ins.  Co.  v.  Stoy,  41  Mich.  385,  1  N.  W.  877. 

IT  People's  Fire  Ins.  Co.  v.  Hartshorne,  84  Pa.  453  ;  Bangs  v.  Skidmore, 
21  N.  Y.  136. 

As  to  rights  of  bona  fide  purchasers  of  property  burdened  with  such  lien, 
see  Mutual  Assur.  Soc.  v.  Watts,  1  Wheat.  (IJ.  S.)  279,  4  L.  Ed.  91;  Mut 
Assur.  Soc.  V.  Faxon,  6  Wheat.  (U.  S.)  606,  5  L.  Ed.  342;  Mut  Assur.  Soc. 
V.  Stone,  3  Leigh  (Va.)  218;  Kentucky  Farmers*  Mut  Ins.  Oo.  v.  Mathers, 
7  Bush  (Ky.)  23,  3  Am.  Rep.  286. 

i«  See  Sebring  v.  Hazard,  128  Mich.  330,  87  N.  W.  257. 

i»  See  supra,  p.  196. 


i 


6§  74-75) 


PAYMENT  OF  PREMIUMS. 


201 


PAYMENT  OF  PREMIUMS. 

74.  TIME  AND  PLACE— The  preminm  must  be  paid  by  tbe  inrared 
or  otber  person  interested  in  tbe  insurance,  or  by  some  one  oa 
bis  bebalf,  to  tbe  insurer  or  bis  agent  authorized  to  accept 
payment,  at  the  place  and  on  the  day  specified  in  the  contract, 
unless  a  further  day  be  agreed  upon.  In  the  absence  of  stipu* 
lation  for  payment  before  a  certain  hour,  the  payment  may  be 
made  at  any  time  before  midnight  of  the  day  on  which  it  is  due. 
If  the  premiuni  is  due  on  Sunday,  payment  on  the  following 
secular  day  is  sufficient. 

76.  MODE— The  insurer  is  entitled  to  paynient  in  money,  but  may 
consent  to  payment  by  check,  draft,  or  note,  or  by  the  transfer 
of  other  valuable  property,  or  even  by  services  rendered.  An 
agent  authorized  to  collect  premiums  has,  however,  ordinarily^ 
no  authority  to  accept  in  pasrment  anything  but  cash. 

Time  is  usually  of  the  essence  of  the  promise  to  pay  premiums,  and 
failure  to  pay  on  the  day  specified  in  the  policy  constitutes  such  a  breach 
of  the  contract  as  to  discharge  the  insurer,  unless  the  latter  has  ex- 
pressly or  impliedly  agreed  to  an  extension  of  time.  For  the  purpose 
of  sustaining  the  policy,  payment  by  any  person,  even  a  stranger,*®  is 
sufficient;  but  only  persons  having  an  interest  in  the  insurance,  as  a 
mortgagee,  assignee,  or  beneficiary,  or  those  paying  at  the  request  of 
any  such  interested  persons,  have  a  lien  upon  the  policy  for  premiums 
paid.**  A  mere  stranger  by  paying  a  premium  due  secures  no  inter- 
est in  the  proceeds  of  the  policy.** 

Where  Paid  and  to  Whom 

The  premium  must  be  paid  at  the  place  specified  in  the  policy,  if 
any,  and  to  the  designated  agent.*®    Usually  it  is  required  to  be  paid 

*o  See  the  cases  cited  In  notes  21  and  22,  infra. 

In  the  case  of  Whiting  v.  Insurance  Co.,  129  Mass.  240,  37  Am.  Rep.  317, 
which  is  sometimes  cited  to  the  contrary,  payment  of  the  first  premium  was 
a  condition  precedent  to  the  contract,  and  it  was  decided  upon  the  familiar 
principle  that  the  insured  must  consent  to  insurance,  otherwise  it  is  void. 

«i  The  amount  of  recovery  is  limited  to  the  amount  actually  advanced. 
Roller  V.  Moore's  Adm'r,  86  Va.  512,  10  S.  E.  241,  6  L.  R.  A.  136;  McDonald 
V.  Humphries,  56  Ai:k.  63,  19  S.  W.  234;  Connecticut  Mut.  Life  Ins.  Co.  v. 
Burroughs,  34  Conn.  305,  91  Am.  Dec.  725;  Weisert  v.  Muehl,  81  Ky.  336. 

22  Meier  v.  Meier,  88  Mo.  566;  Burridge  v.  Row,  1  Younge  &  C.  Ch.  183; 
Leslie  v.  French,  23  Ch.  Div.  552 ;  Lef twich  v.  Wells,  101  Va.  255,  43  S.  E. 
364. 

23  The  mere  fact  that  the  certificate  or  policy  may  designate  the  person 
appointed  to  receive  payment  of  assessments  or  premiums  as  the  "agent  of 
the  insured"  does  not  change  the  legal  effect  of  a  payment  to  such  agent 
when  he  is  in  fact  the  agent  of  the  insurer.  Thus  in  Supreme  Lodge  K.  P.  v. 
Withers,  177  U.  S.  260,  20  Sup.  Ct.  611,  44  L.  Ed.  762,  the  insured  had  paid 
his  dues  to  the  secretary  of  his  local  section  of  the  insuring  order,  to  whom 


2U2 


THE  CONSIDERATION — PREMIUMS   AND    ASSESSMENTS.         (Ch.  6 


at  the  home  office,  or  to  the  agent  in  possession  of  a  properly  executed 
receipt.  Such  stipulations  must  be  strictly  complied  with,^*  but  the 
payment  of  a  premium  to  an  agent  not  authorized  to  receive  it  will  be 
sufficient  if  the  premium  money  actually  comes  to  the  hands  of  the  in- 
surer.*" When  no  place  of  payment  is  designated,  and  no  person  speci- 
fied as  solely  authorized  to  receive  payments  of  premiums,  the  insured 
may  pay  to  any  authorized  agent  of  the  insurer.* •  It  is  the  duty  of  the 
insured,  however,  to  seek  the  agent  to  whom  payment  is  to  be  made, 
and  not  that  of  the  agent  to  seek  the  insured.*^  It  has  been  held  *®  that, 
when  the  policy  is  silent  as  to  both  the  place  where  and  the  person  to 
whom  payment  is  to  be  made,  a  previous  parol  agreement  between  the 
agent  of  the  insurer  and  the  insured  can  be  shown,  to  the  effect  that 
the  insured  would  be  informed  how  and  to  whom  payments  were  to  be 
made,  and  that  he  should  not  pay  in  any  other  manner.  No  such  in- 
formation having  been  given,  it  was  held  that  the  policy  was  not  sus- 
pended in  accordance  with  its  terms  by  reason  of  the  fact  that  a  pre- 
mium was  due  and  unpaid.  This  decision  is  based  on  the  theory  that 
the  contract  of  the  parties  was  only  partially  reduced  to  writing,  but  it 
can  scarcely  be  sound,  since  the  prior  parol  agreement  clearly  altered 
the  effect  of  the  written  policy.** 

Time  of  Payment — Sundays  and  Legal  Holidays, 

The  policy  may  stipulate  that  the  premium  shall  be  paid  at  a  certain 
hour  of  the  day  on  which  it  falls  due,***  as  at  noon,  but  in  the  absence 

payments  were  required  to  be  made  by  the  general  laws  of  the  order,  which, 
however,  declared  that  the  local  secretary  should  be  regarded  as  agent  of  the 
members,  and  not  of  the  order.  The  money  paid  in  due  time  to  the  secretary 
was  not  transmitted  by  him  to  the  general  officers  of  the  order  within  the 
time  specified  by  its  general  laws,  and  the  defendant  order  insisted  that  the 
rights  of  the  insured  were  forfeited  because  of  the  default  of  the  local  secre- 
tary. But  the  court  held  the  payment  sufficient,  and  the  insurer  liable.  But 
see  Wilber  v.  Insurance  Co.,  122  N.  Y.  439,  25  N.  E.  926. 

24  New  York  Life  Ins.  Co.  v.  Davis,  95  U.  S.  425,  24  L.  Ed.  453. 

Such  provisions  may  be  waived,  of  course.  McNeilly  v.  Insurance  Co.,  66 
N.  Y.  23. 

25  Mauck  V.  Insurance  Co.  (Del.  Super.)  54  Atl.  952  [1903]. 

26  Southern  Life  Ins.  Oo.  v.  McCain,  96  U.  S.  84,  24  L.  Ed.  653. 

The  payment  is  binding  even  though  the  company  never  in  fact  receives 
the  premiums.    American  Fire  Ins.  Co.  v.  Brooks,  83  Md.  22,  34  Atl.  373. 

27  Mclntyre  v.  Insurance  Co.,  52  Mich.  188,  17  N.  W.  781. 

28  Blackerby  v.  Insurance  Co.,  83  Ky.  574. 

29  See  Union  Mut  Life  Ins.  Co.  v.  Mowry,  96  U.  S.  545,  24  L.  Ed.  674. 

30  Penn  Plate  Glass  Co.  v.  Insurance  Co.,  189  Pa.  255,  42  Atl.  138,  69  Am. 
St  Rep.  810. 

A  great  many  interesting  questions  arise  as  to  the  computation  of  time. 
In  the  absence  of  clearly  expressed  intention  to  the  contrary,  it  seems  that, 
where  the  insurance  is  to  be  "from"  a  certain  day,  that  day  is  to  be  ex- 
cluded in  computing  the  time.     Thus  a  policy  insuring  against  fire  "from 


§§  74-75) 


PAYMENT  OP  PREMIUMS. 


203 


j(.  «i 


of  such  stipulation  the  insured  has  the  whole  day  in  which  to  make  pay- 
ment, and  is  not  in  default  until  midnight." 

If  the  premium  falls  due  on  Sunday,  the  insured  has  the  whole  of  the 
^ext  day  in  which  to  make  payment,  unless,  of  course,  it  was  due  at 
noon  on  Sunday,  when  payment  would  be  made  at  or  before  noon  on 
Monday.*^  Thus,  where  the  insured  died  Monday  afternoon,  a  recov- 
ery was  allowed  on  a  policy  the  premium  on  which  had  become  due  on 
the  Sunday  preceding,  and  remained  unpaid  at  the  time  of  the  insured's 
death." 

But  the  same  rule  does  not  apply  to  legal  holidays,  unless  insurance 
business  is  suspended  on  such  days  by  the  statute,  as  well  as  transac- 
tions with  commercial  paper,  which  is  rarely  the  case.  Therefore  it 
has  been  held  that,  when  an  assessment  became  payable  on  Thanksgiv- 
ing Day,  a  tender  of  the  amount  on  the  following  day  was  too  late  to 
avoid  a  forfeiture."  It  is  probable,  however,  that  a  tender  of  a  pre- 
mium payable  to  an  agent  having  a  customary  place  of  business  would 
be  validly  made  at  such  place  of  business  in  case  it  were  found  closed 
on  a  legal  holiday. 

When  the  premium  is  payable  at  a  distant  place,  money  sent  by  mail 
or  express  must  be  sent  so  as  to  be  received  at  the  place  of  payment  on 

the  14th  of  February  until  the  14th  of  August"  covers  a  loss  on  the  14th 
of  the  latter  month.  Isaacs  v.  Insurance  Co.,  L.  R.  5  E^ch.  296.  See,  also, 
South  Staffordshire  Tramways  Co.  v.  Assur.  Assoc.  [1891]  1  Q.  B.  402;  How- 
ard's Case,  2  Salk.  625;  Supreme  Council  American  Legion  of  Honor  v. 
Gootee,  89  Fed.  941,  32  O.  C.  A.  436,  61  U.  S.  App.  617;  Walker  v.  Insurance 
Co.,  167  Mass.  188,  45  N.  E.  89. 

An  insurance  policy  on  goods  to  be  shipped  "between"  two  designated 
days  does  not  cover  goods  on  either  of  such  days.  Atkins  v.  Insurance  Co., 
5  Mete.  (Mass.)  439,  39  Am.  Dec.  692. 

Where  a  policy  of  insurance  expired  at  12  o'clock  noon,  and  the  vessel 
was  lost  on  the  day  when  it  expired,  and,  the  time  of  the  two  places  differ- 
ing on  account  of  the  difference  of  their  longitude,  the  loss  occurred  before 
noon  by  the  time  of  the  place  where  the  contract  was  made,  and  after  noon 
by  the  time  of  the  place  of  the  loss,  it  was  held  that  the  time  must  be  reck- 
oned according  to  the  longitude  of  the  place  where  the  contract  was  made 
and  to  be  performed,  and  consequently  that  plaintiff  was  entitled  to  recover. 
Walker  v.  Insurance  Co.,  29  Me.  317. 

In  the  absence  of  statutory  provision,  the  presumption  is  that  the  parties 
contracted  with  reference  to  solar  time,  and,  where  either  party  claims  that 
the  intention  was  to  contract  with  reference  to  standard  railroad  time,  the 
burden  of  proof  is  on  him  to  show  that.  Jones  v.  Insurance  Co.,  110  Iowa, 
75,  81  N.  W.  188,  46  L.  R.  A.  860. 

81  Thomson  v.  Insurance  Co.,  4  Pa.  Dist.  R.  382,  52  Leg.  Int.  284. 

»2  HAMMOND  V.  INSURANCE  CO.,  10  Gray  (Mass.)  306;  Leigh  v.  In- 
surance Co.,  26  La.  Ann.  436.  See,  also,  Owen  v.  Insurance  Co..  87  Ky.  571. 
10  S.  W.  119. 

88  Leigh  V.  Insurance  Co.,  26  La.  Ann.  436. 

»*  National  Mut  Ben.  Ass'n  v.  Miller,  85  Ky.  88,  2  S.  W.  900. 


I 


h 


1 


2(M  THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 

or  before  the  day  of  maturity ;  but  if  the  instructions  of  the  insurer  or 
the  course  of  business  between  the  parties  have  authorized  the  use  of 
the  mail  or  express  service  in  making  payment,  mailing  or  expressing 
the  amount  of  the  premium  on  the  day  it  falls  due  is  a  payment  in  time 
to  prevent  a  forfeiture,  even  though  it  may  be  received  after  the  date  on 
which  the  policy  requires  its  payment,*''  or  not  received  at  all.** 

Mode  of  Payment 

The  premium  is  customarily  payable  in  legal  tender  money,*^  and 
the  insurer  can  decline  to  accept  anything  else  in  payment.  But  it  is 
also  competent  and  usual  for  the  insurer  to  consent  to  receive  in  pay- 
ment the  check  of  the  insured.^*    Ukewise  he  may  agree  to  receive  the 

•8  Kendrick  v.  Insurance  Co.,  124  N.  C.  315,  32  S.  B.  728,  70  Am.  St.  Rep. 
592 ;  Hollowell  v.  Insurance  Ck).,  126  N.  C.  398,  35  S.  E.  616 ;  Whitley  v.  In- 
surance Co.,  71  N.  C.  480. 

8«  Kenyon  v.  Association,  122  N.  Y.  247,  25  N.  E.  299;  Palmer  v.  Insurance 
Co.,  84  N.  Y.  63;   Currier  v.  Insurance  Co.,  53  N.  H.  538. 

Where  the  policy  holders  sent  their  renewal  premiums  by  mail  or  express 
direct  to  the  home  oflEice  of  the  company,  in  another  state,  it  was  held  that 
the  express  company  or  postal  authorities  were  the  agents  of  the  policy  hold- 
ers, and  not  of  the  insiu*ance  company,  so  that  the  company  would  not  have 
to  pay  a  tax  on  receipts  by  them.  State  v.  Insurance  Co.,  106  Tenn.  282,  61 
S.  W.  75. 

3  7  Quite  a  number  of  cases  have  arisen  since  the  Civil  War  as  to  the  effect 
of  payment  in  depreciated  currency — e.  g.,  notes  issued  by  the  Confederate 
States  government — and  it  has  been  held  that  payment  in  such  currency  w^as 
sufficient.  Robinson  v.  Society,  42  N.  Y.  54,  1  Am.  Rep.  490;  Sands  v.  In- 
surance Co.,  50  N.  Y.  626,  10  Am.  Rep.  535;  New  York  Life  Ins.  Co.  v. 
Clopton,  7  Bush  (Ky.)  179,  3  Am.  Rep.  290.  In  the  case  flist  cited  the  court, 
per  Hunt  J.,  said:  "It  is  quite  unreasonable  to  say  that  Cowardin  [agent  of 
New  York  company  at  Richmond,  Va.]  had  no  authority  to  receive  the  pay- 
ment in  Confederate  money  of  the  premiums  due  to  the  company,  and  that 
it  was  no  better  than  counterfeit  money.  It  was  a  currency  issued  by  the 
authority  of  an  existing,  de  facto  government,  which  had  adopted  a  consti- 
tutional form  of  government  and  was  fully  organized  under  it,  which  had  in 
the  field  large  armies,  had  won  many  battles,  had  invaded  the  states  of  the 
North,  had  besieged  the  national  capital,  was  recognized  as  a  belligerent 
power  soon  after  by  the  British  government,  and  which  had  from  the  outset 
been  treated  as  a  belligerent  by  the  government  of  the  United  States,  and 
which  was  itself  confident  of  maintaining  Its  existence.  It  is  true  that  these 
are  now  valuable  only  as  relics  of  a  past  existence.  It  was,  however,  nearly 
four  years  after  the  occurrences  we  are  considering  before  this  result  be- 
came certain,  and  we  cannot  transport  our  knowledge  backwards,  and  by  its 
use  condemn,  as  base  and  worthless,  a  currency  which  was  then  in  general 
use  and  might  have  become  permanently  valuable." 

38  Long  V.  Insurance  Co.,  137  Pa.  335,  20  Atl.  1014,  21  Am.  St.  Rep.  879; 
Northwestern  Life  Assur.  Co.  v.  Sturdivant,  24  Tex.  Civ.  App.  331,  59  S. 
W.  61. 

Where  the  policy  was  to  take  effect  only  upon  payment  of  first  premium, 
giving  a  worthless  check  was  held  not  to  be  payment  Brady  v.  Associa- 
tion, 190  Pa.  595,  42  Atl.  862. 


T; 


g§  74-75) 


PAYMENT  OF  PEEMIUMS. 


205 


check  of  a  third  party,*'  a  draft  *®  or  order  **  drawn  by  the  insured 
upon  another  person,  the  note  of  the  insured  or  of  another,**  or,  in 
fact,  any  valuable  property.*®  The  insured  may  even  be  allowed  to 
pay  his  premium  by  services  rendered,**  or  a  promise  of  services,  as  by 
advertising  the  business  of  the  insurer.***  The  consent  of  the  insurer 
to  payment  otherwise  than  in  cash  may  be  given  expressly  *®  by  a  prop- 
erly authorized  agent,  or  be  impHed  from  the  insurer's  course  of  busi- 
ness.*^ Thus,  if  the  insurer  has  been  accustomed  to  accept  the  check 
of  the  insured,  or  drafts  upon  third  parties,  in  payment  of  previous 
premiums,  a  tender  in  good  faith  of  such  a  check  or  draft  will  be  suffi- 
cient to  avoid  a  forfeiture.  Likewise  credit  may  always  be  given  by  an 
agent  having  competent  authority.*®  Hence  the  note  of  the  insured, 
when  accepted  by  such  an  agent,  will  satisfy  the  condition  of  the  policy 
requiring  payment,  even  though  payment  in  cash  at  the  insurer's  home 
office  be  stipulated  for.*®  But  the  fact  that  the  insurer  has  previously  ac- 
cepted the  insured's  note  for  premiums  due  does  not  give  to  the  insured 
any  right  to  demand  that  notes  shall  be  accepted  in  payment  of  subse- 
quent premiums.****     The  effect  of  nonpayment  of  such  notes  upon  the 

3»  Union  Central  Life  Ins.  Co.  v.  Duvall  (Ky.)  46  S.  W.  518. 

40  Knickerbocker  Life  Ins.  Co.  v.  Pendleton,  112  U.  S.  696,  5  Sup.  Ot  314, 
28  L.  Ed.  866. 

41  FIDELITY  &  CASUALTY  CO.  V.  JOHNSON,  72  Miss.  333,  17  South. 
2,  30  L.  R.  A.  206 ;  Eury  v.  Insurance  Co.,  89  Tenn.  427,  14  S.  W.  929.  10  L. 
R.  A.  534;  Pacific  Mut.  Life  Ins.  Co.  v.  Williams,  79  Tex.  633,  15  S.  W.  478; 
Gotten  V.  Casualty  Co.  (C.  C.)  41  Fed.  506;  Travelers'  Life  &  Accident  Ins. 
Co.  V.  Cash,  14  Ind.  App.  3,  42  N.  E.  246;  Bane  v.  Insurance  Co.,  85  Ky.  677, 
4  S.  W.  787;  Lyon  v.  Insurance  Co.,  55  Mich.  141,  20  N.  W.  829,  54  Am.  Rep. 
354.    See,  also,  Laudis  v.  Insurance  Co.,  6  Ind.  App.  502,  33  N.  B.  989. 

4  2  See  infra,  p.  209. 

43  It  seems  that  an  insurance  agent  may  take  property  corresponding  in 
amount  to  his  commissions  in  payment  of  premium.  John  Hancock  Ins.  Co. 
v.  Schlink,  175  111.  284,  51  N.  E.  795.  But  otherwise  he  has  ordinarily  no 
powet"  to  receive  property  as  payment.  See  Hoffman  v.  Insurance  Co.,  92 
U.  S.  161,  23  L.  Ed.  539;  Equitable  life  Assur.  Soc.  y.  Cole,  13  Tex.  Civ. 
App.  486,  35  S.  W.  720. 

44  Equitable  life  Assur.  Soc.  v.  Com.,  67  S.  W.  388,  23  Ky.  Law  Rep.  2359. 
46  Kentucky  Mut  Ins.  Co.  v.  Jenks,  5  Ind.  96. 

46  Tayloe  v.  Insurance  Co.,  9  How.  (U.  S.)  390,  13  L.  Ed.  187. 

47  Kenyon  v.  Association,  122  N.  Y.  247,  25  N.  E.  299. 

48  Franklin  Fire  Ins.  Co.  v.  Colt,  20  Wall.  (U.  S.)  560,  22  L.  Ed.  423;  Shel- 
don V.  Insurance  Co.,  25  Conn.  207,  65  Am.  Dec.  565;  Church  v.  Insurance 
Co.,  66  N.  Y.  222;  Croft  v.  Insurance  Co.,  40  W.  Va.  508,  21  S.  B.  854,  52  Am. 
St.  Rep.  902 ;  Baker  v.  Assurance  Co.,  162  Mass.  358.  38  N.  E.  1124 ;  Pythian 
Life  Ass'n  v.  Preston,  47  Neb.  374,  66  N.  W.  445. 

4  9  National  Life  Ins.  Co.  v.  Twiddell,  58  S.  W.  699,  22  Kj.  Law  Rep.  881; 
Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  Miller  v.  Insurance 
Co.,  12  Wall.  (U.  S.)  285,  20  L.  Ed.  398. 

^0  See  supra,  page  190,  and  note;  also,  infra,  chapter  on  "Waiver  and  Bs- 
loppeL** 


206 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


I 


I    . 


rights  of  the  insured  under  the  policy  will  be  discussed  in  a  later  sec- 
tion. 

Payment  by  Personal  Arrangement  between  Insured  and  Agent  of  In- 
surer, 
A  great  deal  of  confusion  has  crept  into  the  decisions  with  reference 
to  the  effect  of  a  personal  arrangement  made  between  the  insured  and 
the  agent  of  the  insurer  for  the  payment  of  premiums  due  to  the  in- 
surer whereby  the  insured  pays  no  money  which  the  agent  may  transmit 
to  his  principal,  but  gives  his  note  to  the  agent  individually,  or  cancels  a 
debt  due  from  the  agent,  or  furnishes  the  agent  goods  for  his  personal 
use  to  the  amount  of  the  premitun,  while  the  agent  assumes  liability  for 
the  payment  of  the  premium  to  his  principal.  Much  of  this  confusion 
springs  from  a  failure  to  distinguish  cases  that  involve  different  prin- 
ciples of  law,  though  somewhat  similar  in  fact,  and  a  consequent  mis- 
leading use  of  precedents.  For  the  purpose  of  simplifying  the  problem 
it  will  be  well  to  state  succinctly  some  well-settled  principles  that  are 
applicable : 

(1)  An  agent  authorized  merely  to  collect  money  due  has  presump- 
tively authority  to  receive  in  payment  only  cash. 

(2)  An  agent  having  general  powers  of  contracting  can  make  such 
arrangement  for  the  payment  of  premiums  as  he  sees  fit,  so  long  as  it  is 
not  ultra  vires  of  the  insurer. 

(3)  An  actual  payment  made  to  the  insurer  by  any  one  on  behalf  of 
the  insured  will  be  valid  if  accepted. 

(4)  The  insurer  may  always  accept  in  payment  of  the  premium  the 
liability  of  a  third  party,  and  therefore,  if  the  insurer  debits  the  pre- 
mium to  the  agent,  and  looks  to  him  ultimately  for  payment,  then,  as 
between  the  insured  and  insurer,  the  premium  is  paid,  and,  as  between 
the  insured  and  the  agent,  such  arrangement  may  be  made  for  settling 
accounts  as  is  convenient. 

Applying  these  principles  to  the  conditions  most  frequently  found 
existing  in  the  cases  now  under  consideration,  we  reach  the  following 
conclusions : 

The  agent  authorized  by  the  insurer  to  collect  premiums  cannot  ac- 
cept in  payment  anything  but  cash.  He  cannot,  for  instance,  accept  in 
lieu  of  payment  the  promise  of  the  insured  to  render  certain  services  as 
medical  examiner  for  the  insurer,**  although  a  general  agent  might  do 
so.**  So,  plainly,  an  agent,  even  if  possessed  of  general  powers,  could 
not  bind  the  insurer  by  accepting  a  horse  in  payment  of  a  premium.** 

•1  Carter  v.  Insurance  CJo.,  56  Ga.  237. 

82  See  Kentucky  Mut  Ins.  Co.  v.  Jenks,  5  Ind.  96,  where  a  contract  of  this 
kind  was  entered  Into  by  the  board  of  directors  of  the  company. 
»«  Hoffman  ▼.  Insurance  Co.,  92  U.  S.  161,  23  L.  Ed.  539;   Equitable  Life 


PATMENT  or  PBEMinM& 


207 


§§  74-76) 

The  acceptance  of  the  note  of  a  third  party,  or  an  order  upon  a  debtor 
of  the  insured,  would  be  dearly  beyond  the  usual  powers  of  a  collecting 
agent,  and  would  not  bind  the  insurer  unless  consented  to,  when  a 
novation  would  arise,  the  liability  of  such  third  party  being  taken  in 
discharge  of  that  of  the  insured.    By  parity  of  reasoning,  the  agent 
cannot  accept  in  discharge  of  the  premium  debt  owed  to  his  principal  a 
claim  of  the  insured  upon  himself,  unless  the  insurer  accepts  the  liabil- 
ity of  the  agent  thus  tendered  in  payment,  as  he  may  do.    Therefore  it 
tollows  that  a  premium  payment  made  by  canceling  a  debt  owed  by  the 
agent  to  the  insured,  or  partly  made  by  offsetting  such  a  debt,  is  not 
binding  upon  the  insurer.'*    As  between  the  insured  and  the  agent,  the 
cancellation  of  the  latter's  debt  is  a  good  consideration  for  his  promise 
to  pay  a  premium  due  from  the  former,  and  the  agent  may  be  liable  to 
the  insured  for  his  failure  to  perform  his  promise;  but,  as  between  the 
insured  and  msurer,  it  is  difficult  to  see  how  the  policy's  requirement  of 
Msh  payment  is  met  by  the  mere  promise  of  the  insurer's  agent  to  pay. 
A  fortiori,  payment  by  furnishing  to  the  agent  goods  for  his  own  per- 
sonal use  will  not  be  sufficient  to  answer  the  requirements  of  the  pol- 

Alany  statements  made  in  text-books  and  judicial  opinions  that  ap- 
pear to  lay  down  a  rule  of  law  different  from  that  above  stated,  to  the 
effect  that  a  premium  may  be  validly  paid  by  offsetting  a  debt  owed  by 
the  agent,  will  be  found  upon  close  examination  to  involve  some  of  the 
other  pnnciples  stated  above.     Thus  when  the  agent  actually  pays  to 
the  insurer,  either  by  remittance  or  settlement  of  accounts,  the  premium 
due  from  the  insured,  certainly  the  insurer  cannot,  after  accepting  the 
money  so  paid,  complain  because  the  payment  was  induced  by  the  in- 
sured s  cancellation  of  a  debt  owed  by  the  agent.**     Likewise  when  an 
agent  took  the  note  of  the  insured  for  the  amount  of  the  premium,  and 
out  of  the  proceeds  of  the  note,  when  discounted,  paid  over  to  the  in- 
surer that  portion  of  the  premium  remaining  after  the  reservation  of 
the  agent  s  commission,  the  insurer  was  estopped  to  claim  that  the  pre- 
mium had  not  been  paid  in  cash  as  required  by  the  policy.*^    In  fact,  it 

Assur.  Soc.  v.  Cole.  13  Tex.  Civ.  App.  486,  35  S.  W.  720.    But  see  John  TT«n 
cock  Ins.  Co.  V.  Schlink,  175  111.  284;  51  N.  B.  795  ^" 

oJl^!^^^^^^  °^  ^^®  ^°s-  §  ^4;   Tomsecek  v.  Insurance  Co    113  Wis   114 

«  Hoffman  v.  Insurance  Co.,  92  U.  S.  161,  23  L.  Ed.  539;   Equitable  Life 

r    "^L^W  ^""^^^  ^^  ^^^-  ^^'  ^PP-  486,  35  S.  W.  720.    Se^  aC  Crawfo^^ 
County  Mut  Ins.  Co.  v.  Cochran,  88  Pa.  230.  v^rawrord 

66  Home  Ins.  Co.  v.  Oilman,  112  Ind.  14,  13  N.  B.  121 
«.i,7  ?.  '^^  ^®®®  ^^^  transaction  amounts  to  a  loan  made  by  the  aeent 
Which  is  the  consideration  for  the  note  given  by  the  insured.    HenceS 
is  no  failure  of  consideration  that  may  be  pleaded  in  defense  of  an  action  on 


208 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


§§  74-75) 


PAYMENT  or  PREMIUMS. 


209 


i 


'I 


seems  to  be  held  without  dissent  that,  so  far  as  that  part  of  the  premium 
which  the  agent  is  entitled  to  retain  in  his  settlement  with  the  insurer 
is  concerned,  the  agent  may  make  such  terms  with  the  insured  as  he 
deems  best  for  his  own  interest.  He  may  accept  for  it  goods  or  serv- 
ices, or,  in  the  absence  of  anti-rebate  statutes,  he  may  forego  the  collec- 
tion of  part  or  all  of  it,  and  the  premium  must  still  be  regarded  as  paid 
if  the  insurer  has  accepted  the  portion  remitted.**® 

So  the  course  of  business  between  the  insurer  and  his  agent  may  be 
such  that  the  insurer  looks  for  payment  of  the  first  premiums  of  all  pol- 
icies delivered  to  the  agent  through  whom  they  have  been  negotiated, 
and  not  to  the  party  insured;  that  is  to  say,  the  insurer  charges  up  to 
such  agents  the  first  premiums  of  all  policies  applied  for  through  them, 
and  credits  them  with  sums  remitted  at  intervals  or  with  policies  re- 
turned, leaving  them  to  make  with  the  insured  such  agreements  as  to 
payments  as  may  seem  to  them  proper. '^^  This  acceptance  of  the  liability 
of  such  agents,  usually  known  as  "insurance  brokers,"  satisfies  the  con- 
dition of  the  policy  requiring  actual  payment  in  cash  as  far  as  the  in- 
surer is  concerned.*® 

Another  difficult  question  involving  the  validity  of  an  irregular  pay- 
ment of  premiums  is  well  illustrated  by  Wooddy  v.  Old  Dominion  Ins. 
Co.,*^  in  which  the  opinion  was  delivered  by  the  able  and  learned  Judge 
Burks.  Here  the  applicant's  tender  of  the  amount  of  the  premium  was 
refused  by  the  agent  of  the  insurer  on  the  ground  that  the  agent  was 
indebted  in  that  sum  to  the  applicant  for  house  rent,  and  that  the  two 
obligations  should  be  allowed  to  offset  each  other.  The  insurer  was 
also  indebted  to  the  agent  for  a  sum  equal  to  a  part  of  the  premium  due. 
The  insurer  was  held  liable  on  this  contract,  although  the  policy  pro- 
vided that  it  should  not  go  into  effect  until  the  actual  payment  of  the 
premium.  Judge  Burks  thus  explaining  the  legal  effect  of  the  tender :  •* 
"If  he  had  then  paid  over  that  amount  to  the  appellant  in  discharge  of 
the  rent  due,  and  the  appellant  had  immediately  handed  it  back  to  him 

the  note  brought  by  the  agent,  when  the  insurance  company  has  become  in- 
solvent after  the  execution  of  the  note.  See  Hudson  v.  Compere  (Tex.  Sup.) 
01  S.  W.  389. 

58  John  Hancock  Ins.  Co.  v.  Schlink,  175  111.  284,  51  N.  B.  795.  This  view 
Is  seemingly  held  by  the  Supreme  Court  of  the  United  States;  Hoffman 
▼.  Insurance  Co.,  92  U.  S.  161,  23  L.  Ed.  539. 

B»  Smith  V.  Society,  65  Fed.  765,  13  C.  C.  A.  284. 

•0  Miller  v.  Insurance  Co.,  12  Wall.  (U.  S.)  285,  20  L.  Ed.  398;  Wytheville 
Insurance  &  Banking  Co.  v.  Teiger,  90  Va.  277,  18  S.  B.  195;  Griffith  v.  In- 
surance Co.,  101  Cal.  627,  36  Pac.  113,  40  Am.  St  Rep.  96;  Western  Assur. 
Co.  V.  McAlpin,  23  Ind.  App.  220,  55  N.  E.  119,  77  Am.  St  Rep.  423;  Train 
V.  Insurance  Co.,  62  N.  Y.  598. 

But  see  Brown  v.  Insurance  Co.,  59  N.  H.  298,  47  Am.  Rep.  205. 

•1  31  Grat  (Va.)  362,  31  Am.  Rep.  739. 

•a  31  Grat  (Va.)  at  page  369,  31  Am.  Rep.  739. 


for  the  premium,  nobody  will  doubt  that  the  premium  would  have  been 
actually  paid.  Did  not  the  transaction  which  took  place  amount  sub- 
stantially to  the  same  thing?  The  appellant  took  the  money  from  his 
pocket  and  offered  it  to  Rowzie,  who  declined  to  take  it,  saying  in 
terms,  'I  have  in  my  hands  money  belonging  to  you  for  the  rent,  and 
will  credit  you  by  that  amount.'  It  seems  to  me  that  it  would  be  ex- 
tremely technical  to  hold  that  this  was  not  a  payment,  when,  if  instead 
of  retaining  the  money,  which  he  says  he  had  in  his  hands,  belonging 
to  the  appellant,  he  had  paid  it  over  to  him  with  one  hand  and  taken  it 
back  from  him  with  the  other,  all  will  admit  that  there  would  have  been 
payment  In  the  latter  case  the  money  paid  would  have  become  at 
once  the  money  of  the  company  in  the  hands  of  its  agent,  and  so,  I 
think,  the  money  retained  by  the  agent,  under  the  arrangement  made, 
became  in  like  manner  the  money  of  the  company,  the  greater  part  of 
which,  in  fact  ($9),  was  already  in  the  hands  of  the  company,  for,  ac- 
cording to  Rowzie's  statement  (and  it  is  not  contradicted),  the  company 
owed  him  that  amount,  balance  on  account." 

Many  other  cases  take  the  same  view,««  but  it  is  very  doubtful  wheth- 
er the  theory  of  the  decision  is  correct.  It  would  seem  better  to  abide 
by  the  simple  and  righteous  rule  that  the  agent  cannot  be  allowed  to 
use  the  principal's  money  for  the  payment  of  his  own  debts.'* 

Effect  of  Payment  by  Check,  Note,  etc. 

Payment  of  a  premium  by  check,  draft,  or  note  may  be  absolute  or 
conditional.  If  absolute,  the  insurer  accepts  the  liability  of  the  parties 
bound  upon  the  instrument  received  in  satisfaction  of  the  premium 
due.««  If  the  instrument  is  not  paid  in  accordance  with  its  tenor,  the 
insurer  may  enforce  his  rights  thereunder,  but  cannot  claim  that  the 
premium  remains  unpaid.««  If,  however,  the  instrument  is  received  in 
conditional  payment,  as  it  is  presumed  to  be  unless  otherwise  agreed," 
the  nonpayment  of  the  obligation  remits  the  insurer  to  his  original  right 
to  demand  payment  of  the  premium.  He  cannot,  however,  unless  so 
expressly  stipulated,'^  claim  that  the  policy  is  forfeited  for  nonpayment 
of  the  premium.  The  premium  has  become  a  collectible  debt,  but  the 
nght  of  forfeiture  was  waived  by  the  acceptance  of  the  conditional  oav- 
ment«»  ^  ^ 

«3  Kerlin  v.  Association,  8  Ind.  App.  636,  35  N.  B.  40;  Hallock  v.  Insurance 
Co.,  26  N.  J.  Law,  268. 

«*  Ferebee  v.  Insurance  Co.,  68  N.  C.  11. 

«B  National  Ben.  Ass'n  v.  Jackson,  114  111.  533,  2  N.  B.  414. 

•«  Michigan  Mut  Life  Ins.  Co.  v.  Bowes,  42  Mich.  19,  51  N  W  962 

•7  Clark,  Cont  632;    National  Life  Ins.  Co.  v.  Goble,  51  Neb.  *5    70  N    W 
603;  McDonald  v.  Society.  108  Wis.  213,  84  N.  W.  154,  81  Am.  St  Rep  885    ' 

Qi!'oo  T  ^''i^^o!?'*^^®''  ^^  ^''^-  ^^-  ^-  Pendleton,  112  U.  S.  696,  5  Sup.  Ct 
wJ-4,  ^o  jli,  htd.  866. 

••  Hollowell  V.  Insurance  Co.,  126  N.  G  398,  35  S.  E.  610. 
Vance  Ins. — 14 


I 


.4 


r: 


I   V 


210 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


There  is  difficulty  in  determining  the  effect  of  the  dishonor  of  the 
check  of  the  insured  given  in  good  faith  and  accepted  by  the  insurer 
in  payment  of  a  premium  due.  It  is  clear  that  a  receipt  obtained  by 
the  delivery  of  the  insured's  check,  known  to  be  worthless,  could  be 
contradicted  and  the  policy  forfeited  for  nonpayment;^®  but  it  seems 
that  when  the  insured  gives  his  check  in  good  faith,  and  it  is  accepted 
by  the  insurer  without  condition  other  than  that  implied  by  law,  in 
payment  of  the  premium  due,  the  insurer  cannot  deny  that  the  premium 
is  paid,  in  so  far  as  the  validity  of  the  policy  is  concerned.''^  He  may, 
however,  make  such  denial  in  an  action  brought  to  recover  the  amount 
of  the  premium,  or,  in  case  of  loss,  to  support  his  claim  of  set-off  to 
the  extent  of  the  premium  still  unpaid."'* 

As  stated  generally  above,  acceptance  by  the  insurer  of  an  order  or 
draft  drawn  upon  a  third  party  by  the  insured  is  a  payment  of  the 
premium  so  far  as  the  validity  of  the  policy  is  concerned,  and  the  fail- 
ure of  the  drawee  to  pay  does  not  in  any  wise  affect  the  liability  of  the 
insurer  under  the  policy.'"  But  it  is  not  infrequently  stipulated  in  the 
order  or  in  the  policy  that  a  failure  to  pay  the  order  or  draft  will  for- 
feit or  suspend  rights  under  the  policy,  this  being  the  usual  practice 
among  those  engaged  in  industrial  insurance.  In  the  event  of  the  non- 
payment of  such  orders,  the  insurance  is  forfeited  or  suspended  in  ac- 
cordance with  the  agreement  of  the  parties,  provided  the  insurer  has 
made  due  demand  and  given  to  the  insured  notice  of  nonpayment. ''* 
But  it  has  been  held  that  no  notice  of  nonpayment  was  necessary  before 
forfeiture  when  the  insured  had  left  the  employ  of  the  drawee,  and 
knew  that  the  order  would  not  be  paid.''*  When  an  order  so  given  is 
negotiable  in  form,  the  insurer  occupies  the  position  and  sustains  the 
responsibilities  of  any  other  holder  of  negotiable  paper.  He  must  make 
due  presentment  and  demand,  and,  ordinarily,  take  all  steps  necessary 
to  fix  the  liability  of  secondary  parties.     It  has  been  held,  however,  that 

TO  Brady  v.  Association,  190  Pa.  595,  42  Atl.  962. 

Ti  See  Hollowell  v.  Insurance  Co.,  126  N.  C.  398,  35  S.  E.  616;  Northwest- 
em  Life  Assur.  Co.  v.  Sturdivant,  24  Tex.  Civ.  App.  331,  59  S.  W.  61; 
^tna  Life  Ins.  Co.  v.  Greene,  38  U.  C.  Q.  B.  459.  But  see  Greenwich  Ins. 
Co.  V.  Oregon  Imp.  Co.,  76  Hun  (N.  Y.)  194,  27  N.  Y.  Supp.  794;  Id.,  148  N.  Y. 
758,  43  N.  EL  987  (memorandum  decision). 

72  Hollowell  V.  Insurance  Co.,  126  N.  C.  398,  35  S.  B.  616.  See,  also,  dicta 
In  Tayloe  v.  Insurance  Co.,  9  How.  (U.  S.)  390,  13  L.  Ed.  187. 

78  National  Ben.  Ass'n  v.  Jackson,  114  111.  533,  2  N.  E.  414.  See,  also, 
FIDELITY  &  CASUALTY  CO.  v.  JOHNSON,  72  Miss.  333,  17  South.  2,  30 
L.  R.  A.  206;  Travelers*  Life  &  Accident  Ins.  Co.  v.  Cash,  14  Ind.  App.  3, 
42  N.  E.  246;  Gotten  v.  Casualty  Co.  (C.  C.)  41  Fed.  506. 

74  Lyon  V.  Insurance  Co.,  55  Mich.  141,  20  N.  W.  829,  54  Am.  Rep.  354; 
Bury  V.  Insurance  Co.,  89  Tenn.  427,  14  S.  W.  929,  10  L.  R.  A.  534.  See,  also. 
Pacific  Mut.  Ins.  Co.  v.  Williams,  79  Tex.  633,  15  S.  W.  478. 

7  8  Bane  v.  Insurance  Co.,  85  Ky.  677,  4  S.  W.  787;  Landis  T.  Insurance  Co., 
6  Ind.  App.  502,  33  N.  E.  988. 


§  76)  CONSEQUENCES  OP  NONPAYMENT  OF  PREMIUMS.  211 

protest  of  a  bill  drawn  by  the  insured,  with  a  condition  of  forfeiture  of 
the  policy  upon  nonpayment,  was  not  necessary  to  justify  the  insurer 
in  declaring  a  forfeiture,  although  the  court  intimated  that  it  would  be 
otherwise  if  the  bill  were  drawn  by  a  stranger. ''«  In  the  same  case  it 
was  further  held  that  dishonor  of  the  bill  by  nonacceptance  was  not 
sufficient  to  work  a  forfeiture;  presentment  for  payment  was  still  nec- 
essary. 

Application  of  Dividends  to  Premiums. 

If  the  policy  provides  that  dividends  accruing  on  any  policy  shall  be 
applied  to  the  reduction  of  the  premiums  that  become  due  thereon,  the 
insured  cannot  be  required  to  pay  such  premiums  until  he  receives  no- 
tice of  the  amount  due  in  excess  of  the  dividend  credited  to  his  policy." 
Even  when  the  insurer  has  not  agreed  in  the  policy  to  apply  dividends 
to  premiums  due,  it  seems  to  be  held  that  the  insurer  cannot  declare  a 
forfeiture  of  a  policy  for  nonpayment  of  a  premium  when  he  has  in  his 
hands,  as  dividends  on  such  policy,  funds  sufficient  to  pay  the  premium 
due;  ^«  and  this  is  especially  true  when  the  insured  has  customarily  ap- 
plied previous  dividends  to  the  satisfaction  of  premium  dues.^^  But 
the  possession  by  the  insurer  of  insufficient  dividends  will  not  prevent 
a  forfeiture  for  nonpayment  of  a  premium,'®  nor  can  the  insured  claim 
that  the  earnings  of  the  insurer,  not  yet  declared  as  dividends,  shall  be 
applied  to  a  premium  due.** 


CONSEQUENCES   OP  NONPAYMENT  OP  PREMIUMS. 

76.  Nonpayment  of  the  first  preminm,  unless  waived,  prevents  the  im- 
ception  of  the  policy.  Nonpayment  of  subsequent  premiums 
does  not  affect  the  validity  of  the  contract,  unless,  by  express 
stipulation  of  the  policy,  it  is  provided  that  the  policy  shall  in 
that  event  lapse.  The  rights  of  the  insured  under  a  lapsed 
policy  are  determined  by  the  terms  of  the  poUcy,  supplemented 
by  any  statutes  applicable.  The  usual  results  are— 
(a)   Porf  eitnre  of  all  rights,  or 

G>)    Extension  of  insurance  for  a  certain  period,  or 
(o)    Granting  paid-up  insurance  for  a  certain  amount. 

7«  Knickerbocker  Life  Ing.  Oo.  v.  Pendleton,  112  U.  S.  696,  5  Sup   Ct  314 
28  L.  Ed.  866. 

"  Meyer  v.  Insurance  Co.,  73  N.  Y.  516,  29  Am.  Rep.  200;  Eddy  v.  Insur- 
ance Co.,  65  N.  H.  27,  18  Atl.  89,  23  Am.  St  Rep.  17;   Nail  v.  Society  (Tenn. 
Ch.)  54  S.  W.  109;   Union  Cent  life  Ins.  Co.  v.  Caldwell,  68  Ark.  505  58  S 
W.  355;   Phoenix  Mut  Life  Ins.  Co.  v.  Doster,  106  U.  S.  30,  27  L.  Ed.  65. 

T8  See  Chicago  Life  Ins.  Co.  v.  Warner,  80  111.  410. 

^»  Girard  Life  Ins.  Co.  v.  Mutual  life  Ins.  Co.,  97  Pa.  15;   Manhattan  Life 
Ins.  Co.  V.  Smith,  44  Ohio  St  156,  5  N.  E.  417,  58  Am.  Rep.  806. 

8<^  Bulger  V.  Insurance  Co.,  63  Ga.  328. 

81  Mutual  Life  Ins.  Co.  v.  Girard  Life  Ins.,  Annuity  &  Trust  Co.,  100  Pa. 


I 


U 


I 


212  THE   CONSIDERATION rUEMIUMS   AND   ASSESSMENTS.         (Ch.  6 

The  effect  of  the  failure  of  the  applicant  for  insurance  to  pay  the  first 
premium  has  already  been  discussed,  and  need  not  be  further  treated 
here.  As  a  general  principle,  the  time  specified  for  the  payment  of  pre- 
miums is  of  the  essence  of  the  contract.  The  ability  of  the  insurer  to 
meet  his  obligations  depends  upon  the  prompt  payment  of  all  premiums 
due  him,  and  without  requiring  payment  of  premiums  ad  diem  the  suc- 
cessful conduct  of  insurance  business  would  be  impossible.  Yet  so 
great  is  the  disfavor  in  which  the  Jaw  holds  forfeitures  that  it  will  not 
readily  infer  that  the  parties  intend  that  the  nonpayment  of  premiums 
shall  be  a  condition  of  forfeiture;  such  intention  must  be  clearly  ex- 
pressed, otherwise  the  unpaid  premium  will  be  regarded  as  a  debt  due 
from  the  insured  to  the  insurer,  who  still  remains  liable  under  the  pol- 
icy.®^ 

But  in  response  to  the  needs  of  their  business,  insurers  are  careful  to 
include  in  their  policies  terms  that  will  insure  prompt  payments  of  pre- 
miums and  assessments  due.  The  most  potent  mode  of  compelling  pay- 
ment in  due  time  is  to  impose  a  penalty  upon  tardiness  or  neglect.  Ac- 
cordingly, a  policy  is  seldom  found  that  does  not  contain  some  penal 
provision  for  the  enforcement  of  the  insurer's  premium  claims. 

The  simplest  penalty  to  be  imposed  is  the  absolute  forfeiture  of  all  of 
the  insured's  rights,  and  in  the  earlier  policies  we  find  this  almost  the 
only  means  used  for  the  enforcement  of  punctual  payment  of  premiums. 
But  with  the  development  of  a  more  liberal  spirit  in  the  conduct  of  the 
insurance  business,  due  largely  to  the  growth  of  competition  for  public 
favor,  the  rigors  of  absolute  forfeiture  began  to  be  abated.  Insurers 
found  it  politic,  as  well  as  just,  to  give  the  policy  holders  the  benefit  of 
the  reserve  value  of  their  policies  at  the  time  of  default.  Hence  came 
the  provisions  for  extended  insurance  for  so  long  a  time  as  the  reserve 
value  of  the  policy  would  suffice  to  pay  the  accruing  premiums,  or  for 
paid-up  insurance  in  such  an  amount  as  could  be  purchased  by  a  sum 
?qual  to  the  value  of  the  policy. 

Any  unreadiness  that  may  have  been  shown  by  insurers  to  grant  de- 
viiiquent  policy  holders  the  equitable  value  of  their  policies  in  paid-up 
insurance  has,  in  some  states,  been  cured  by  statutes  requiring  the  in- 
surer to  give  the  holder  of  a  lapsed  policy  such  insurance." 

It  is,  of  course,  competent  for  the  parties  to  make  any  other  agree- 


•«  See  dicta  In  OWo  Farmers'  Ins.  Co.  v.  Stowman,  16  Ind.  App.  205,  44 
K.  E.  558,  940;  United  States  Life  Ins.  Co.  v.  Ross,  159  111.  476,  42  N.  R  850; 
Woodfln  V.  Insurance  Co.,  52  N.  0.  558;  American  Ins.  Co.  v.  Klink,  65  Mo. 
78;  Brady  v.  Insurance  Co.,  9  Misc.  Rep.  6,  29  N.  Y.  Supp.  44. 

83  For  the  Missouri  statute  on  this  subject,  and  its  construction,  see  in- 
teresting case.  Cravens  v.  Insurance  Co.,  148  Mo.  583,  50  S.  W.  519,  53  L.  R. 
A  305  71  Am.  St  Rep.  628.  For  the  construction  of  the  New  York  statute  of 
similar  import,  see  Nielsen  v.  Society,  139  Cal.  332,  73  Pac.  168,  96  Am.  St 
Rep.  140. 


..ii 


§T7) 


FORFEITURE. 


213 


ment  desired  as  to  the  consequence  of  default  on  the  part  of  the  insured 
in  the  payment  of  premiums.  The  policy  may  stipulate  that  the  rights 
of  the  insured  shall  be  suspended  during  his  delinquency,  and  provide 
for  their  revival,  subject  to  certain  conditions,  upon  the  payment  of  the 
overdue  premiums.  Of  course,  the  insurer  is  not  liable  for  any  loss 
that  may  be  incurred  during  such  a  period  of  suspension.  So  the  pol- 
icy holder  may,  by  the  terms  of  his  contract,  be  entitled  to  surrender 
his  policy  and  receive  a  certain  amount  of  cash,  termed  the  "surrender 
value"  of  the  policy.  But,  in  the  absence  of  express  agreement  there- 
for, a  policy  has  no  surrender  value.'* 


FORFEITUBB. 

77.  A  term,  providing  for  forfeiture  upon  nonpasrment  of  preniinms, 
while  regarded  xsith  disfavor  by  the  courts,  will  nevertheless 
be  enforced,  nor  will  equity  relieve  against  such  forfeiture  un- 
less fraud  or  mistake  be  shown. 

Courts  must  enforce  contracts  as  the  parties  make  them,  provided 
they  are  not  contrary  to  law  or  public  policy.  Hence,  when  an  insur- 
ance contract  provides  for  forfeiture  of  the  insured's  rights  upon  cer- 
tain contingencies,  such  provisions  will  be  given  full  effect,®*  although 
the  courts  are  acute  in  discovering  grounds  upon  which  such  forfeitures 
may  be  avoided.  Such  forfeitures  are  not  penalties,  nor  will  equity 
relieve  against  them.**  They  are  rather  conditions  that  go  to  the  heart 
of  the  contract,  and  their  enforcement  as  parts  of  the  agreement  is  nec- 
essary for  the  safe  conduct  of  the  business  of  insurance. 

Forfeiture  of  Right  to  Paid-up  Insurance — Void  as  a  Penalty. 

But  it  must  be  borne  in  mind  that  a  mere  penalty  for  the  nonpay- 
ment of  a  debt  will  not  be  enforced.  Hence,  when  the  insurer  makes  a 
contract  which  is  primarily  a  loan,  and  only  incidentally  pertains  to 
insurance,  he  cannot  expect  to  occupy  a  better  position  before  the  law 
than  is  accorded  to  other  lenders.*^  Therefore,  when  the  rights  and 
liabilities  of  the  parties  to  a  contract  of  insurance  have  in  some  way 
become  fixed,  as  where  the  insured  has  acquired  the  right  to  paid-up  or 
extended  insurance,  and  the  insurer  makes  a  loan  to  the  insured  secured 


'II 


«*  Haskell  v.  Society,  181  Mass.  341,  63  N.  E.  899. 

8  5  Fowler  v.  Insurance  Co.,  116  N.  Y.  389,  22  N.  B.  576,  5  L.  R.  A.  805; 
St.  Louis  Mut.  Life  Ins.  Co.  v.  Grigsby,  10  Bush  (Ky.)  310. 

8«  KLEIN  V.  INSURANCE  CO.,  104  U.  S.  88,  26  L.  Ed.  662;  Thompson  v. 
Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  766;  Attorney  General  v.  Insurance 
Co.,  93  N.  Y.  70;  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24, 
23  L.  Ed.  789. 

87  Mutual  Ben.  Life  Ins.  Co.  v.  First  Nat  Bank  (Ky.)  74  S.  W.  1066  [June, 
1903]. 


214 


THE   CONSIDERATION PREMIUMS   AND    ASSESSMENTS. 


(Ch.6 


I 


by  the  policy,  a  stipulation  in  the  policy  forfeiting  such  insurance  in 
case  of  nonpayment  of  principal  or  interest  will,  in  some  jurisdictions, 
not  be  enforced ;  it  is  a  mere  penalty.  In  accordance  with  this  view  it 
has  been  held  that  a  stipulation  in  a  policy  that  the  failure  to  pay  in 
advance  the  interest  on  any  notes  or  loans  owing  to  the  insurer  on  ac- 
count of  annual  premiums  should  avoid  the  policy  was,  so  far  as  it  ap- 
plied to  a  paid-up  policy,  nothing  else  than  a  penalty  to  compel  the 
prompt  payment  of  debts  otherwise  well  secured,  and  therefore  unen- 
forceable.®*    But  to  the  rule  thus  stated  there  is  much  dissent.®® 

The  payment  of  part  of  the  premium  due  will  not  prevent  a  forfei- 
ture ••  unless  accepted  under  such  circumstances  as  will  estop  the  in- 


••  St.  Louis  Mnt  Life  Ins.  Co.  ▼.  Grigsby,  10  Bush  (Ky.)  310. 

In  Northwestern  Mut  Life  Ins.  Co.  v.  Fort's  Adm'r,  82  Ky.  269,  the  court 
thus  explains  the  doctrine  set  forth  in  the  text:  "Here  the  default,  if  any 
has  occurred,  is  not  of  the  substance  of  the  contract,  but  in  time  of  the  pay- 
ment of  interest,  and  the  company  can  be  given  all  that  it  stipulated  to  re- 
ceive. On  the  other  hand,  to  forfeit  the  whole  policy  on  account  of  default 
in  time  of  payment  of  the  interest,  which  formed  but  a  small  part  of  the  con- 
sideration, and  wliich  the  company  is  fully  secured  in  the  ultimate  payment 
of,  if  not  already  paid,  would  impose  upon  the  insured  the  entire  loss  of  the 
premiums  actually  paid.  A  forfeiture  under  such  circumstances  would  be 
extremely  oppressive,  and,  if  provided  for  in  a  contract  between  individuals 
concerning  any  ordinary  business  transaction,  [would]  be  held  as  in  the 
nature  of  a  penalty.  And,  as  we  are  unable  to  perceive  any  reason  for  chan- 
ging or  relaxing  the  rule  in  respect  to  contracts  about  the  business  of  life  in- 
surance, the  forfeiture  provided  for  in  this  case  must  be  likewise  so  held." 
See,  also.  New  York  Life  Ins.  Co.  v.  Curry  (Ky.)  72  a  W.  736,  61  L.  R  A. 
268,  holding  that  a  provision  in  a  contract  of  loan  from  an  insurance  com- 
pany, for  which  its  paid-up  policy  is  pledged  as  collateral,  that  on  default 
in  payment  of  interest  for  30  days  the  policy  shall,  at  the  company's  option, 
be  surrendered  to  it  at  the  customary  cash  surrender  value  of  i)olicies  of 
that  class,  is  void. 

Where  there  is  no  stipulation  in  the  policy  for  forfeiture  (see  Cowles  v. 
Insurance  Co.,  63  N.  H.  300;  Ohde  v.  Insurance  Co.,  40  Iowa,  357,  5  Bigelow, 
Ins.  Cas.  145),  or  where  the  transaction  is  regarded  by  the  parties  to  it  as  a 
loan  (see  Bruce  v.  Insurance  Cto.,  58  Vt.  253,  2  Atl.  710),  it  seems  that  a  for- 
feiture for  nonpayment  of  interest  on  premium  notes  will  be  held  void,  as  a 
penalty.  See,  also,  Eddy  v.  Insurance  Co.,  65  N.  H.  27,  18  Atl.  89,  23  Am. 
St  Rep.  17. 

8»  By  the  probable  weight  of  authority,  a  provision  in  a  paid-up  policy 
that  it  shall  be  forfeited  for  nonpayment  in  advance  of  interest  on  premium 
notes  is  held  valid,  and  will  not  be  relieved  against  in  equity.  Holman  v. 
Insurance  Co.,  54  Conn.  195,  6  Atl.  405,  1  Am.  St.  Rep.  97;  People  v.  Insur- 
ance Co.,  103  N.  Y.  480,  9  N.  a  35;  Fowler  v.  Insurance  Co.,  116  N.  Y.  389, 
22  N.  E.  576,  5  L.  R.  A.  805.  See,  also,  Knickerbocker  Life  Ins.  Co.  v.  Dietz, 
52  Md.  16;  Anderson  v.  Insurance  Co.,  1  Flip.  559,  Fed.  Gas.  No.  362,  5  Bige- 
low, Ins.  Cas.  527. 

90  Willcutts  V.  Insurance  Co.,  81  Ind.  300;  Barnes  v.  Insurance  Co.,  74  N. 
a  22,  5  Bigelow,  Ins.  Cas.  420. 


m 


,;\ 


to 


§77) 


FORFEITURE. 


215 


surer  to  insist  upon  such  forfeiture.  So  the  failure  to  pay  one  of 
several  installments  of  a  premium  note  may,  by  the  agreement  of  the 
parties,  avoid  the  whole  contract.  In  such  a  case  a  stipulation  that  all 
the  installments  shall  be  considered  earned  and  payable,  despite  the  for- 
feiture of  the  policy,  is  enforceable,  not  being  contrary  to  public  policy 
or  unconscionable.®^ 

Some  question  has  arisen  as  to  the  effect  of  granting  "days  of  grace," 
for  the  payment  of  a  premium  due,  upon  the  insurer's  right  to  declare 
the  policy  forfeited  during  the  time  of  grace.  Some  of  the  English 
cases  seem  to  hold  that  during  such  period  the  rights  of  the  insured  are 
suspended,  and  that,  in  case  the  sickness  or  death  of  the  insured  makes 
it  expedient,  the  insurer  may  refuse  a  tender  of  the  premium  made  be- 
fore the  expiration  of  the  days  of  grace,  and  declare  the  policy  void. 
Nearly  all  the  American  cases,  on  the  other  hand,  hold  that  giving  a 
period  of  grace  amounts  to  postponing,  until  the  expiration  of  sucli 
period,  the  insurer's  right  to  enforce  the  forfeiture  agreed  upon.  The 
conflict  is  only  apparent.  The  courts  have  but  to  determine  the  inten- 
tion of  the  parties,  and  to  give  effect  thereto.  If  the  days  of  grace  are 
specified  as  a  period  within  which  a  forfeited  policy  may  be  reinstated, 
provided  the  insured  himself  pays  the  premium,'*  or  provided  the  in- 
surer elects  to  receive  a  premium  tendered,®'  or  upon  any  other  condi- 
tions,®* it  is  plain  that  the  insurer  could  not  be  held  liable  for  the  death 
of  the  insured  within  the  period  of  grace,  unless  all  the  conditions  re- 
quired for  reinstatement  had  been  satisfied.  But  where  the  agreement 
to  give  a  period  of  grace  for  the  payment  of  premiums  amounts  to  an 
extension  of  time  for  payment,  so  that  the  insured  is  not  in  default  until 
the  expiration  of  that  time,  it  is  equally  plain  that  the  liability  of  the 
insurer  continues  through  the  whole  period  of  grace,  and  such  is  the 
effect  of  the  customary  provision  for  grace  in  American  policies. ''^  In- 
deed, in  many  policies  it  is  expressly  stated  that  during  the  month  of 
grace  the  unpaid  premium  shall  remain  an  indebtedness,  which,  with 
interest,  may  be  deducted  from  the  amount  to  be  paid  under  the  policy 
in  case  of  death  during  that  month. 


•1  St  Paul  Fire  &  Marine  Ins.  Co.  y.  Coleman,  6  Dak.  458,  43  N.  W.  693, 
6  L.  R.  A.  87;  Cauffield  v.  Insurance  Co.,  47  Mich.  447,  11  N.  W.  264. 

92  Simpson  v.  Insurance  Co.,  2  C.  B.  N.  S.  257. 

»3  Salvin  v.  James,  6  East,  571. 

0*  Actual  payment  "before  loss"  required.  Bradley  v.  Insurance  Co.,  32 
Md.  108,  8  Am.  Rep.  121.  Payment  during  "good  health"  of  insured.  Want 
V.  Blunt,  12  East,  183;  Pritchard  v.  Society,  3  C.  B.  N.  S.  622. 

9  5  McMaster  v.  Insurance  Co.,  183  U.  S.  25,  22  Sup.  Ct.  10,  46  L.  Ed.  64; 
Howell  V.  Insurance  Co.,  44  N.  Y.  276,  4  Am.  Rep.  675;  Homer  v.  Insurance 
Co.,  67  N.  Y.  478;  Farnum  v.  Insurance  Co.,  83  Cal.  246,  23  Pac.  869,  17  Am. 
St  Rep.  233;  Spoeri  v.  Insurance  Co.  (C.  C.)  39  Fed.  752. 


216 


THB   CONSIDERATION — PREMIUMS   AND    ASSESSMENTS.         (Ch.  6 


r-' 


M 


Porfeiture  when  Annual  Premium  is  Made  Payable  in  Less  than  a 
Year, 

An  interesting  and  important  question  concerning  forfeiture  of  pol- 
icies for  nonpayment  of  premiums  has  arisen  out  of  the  practice  of  in- 
i^urers  to  date  policies  issued  as  of  the  same  date  with  the  application, 
which  is  also  made  the  date  for  the  payment  of  the  recurring  annual 
premiums,  while  the  policy  does  not  in  fact  take  eflFect  as  a  contract  un- 
til delivery  and  payment  of  the  first  premium  at  a  somewhat  later  date. 
The  result  is  an  inconsistency  between  the  several  terms  of  the  contract 
Upon  payment  of  the  first  premium  and  delivery  of  the  policy  the  in- 
sured is,  under  its  terms,  entitled  to  insurance  for  one  year.  Since  the 
insurance  begins  only  with  the  delivery  of  the  policy,  and  not  from  the 
date  written  upon  it,  the  year  during  which  the  insured  is  entitled  to 
protection  should  begin  on  the  day  of  delivery  and  extend  to  the  same 
day  in  the  succeeding  year.  Yet  the  policy  also  provides  that  if  a  pre- 
mium falling  due  at  a  date,  specified  in  the  policy,  earlier  than  the  last 
day  of  the  year  stipulated  for,  shall  remain  unpaid,  the  policy  shall  be 
forfeited.  Put  briefly,  the  insurer  by  one  term  of  his  contract  sells  the 
insured  protection  for  one  year  from  a  certain  date,  and  then  in  another 
term  declares  the  failure  to  pay  a  premium  within  that  year  will  cut 
short  the  insurance  bargained  and  paid  for.  One  term  insures  for  a 
whole  year,  another  for  part  of  a  year.  Applying  the  well-settled  rule 
that  in  cases  of  uncertainty  and  repugnancy  the  court  will  always  adopt 
that  construction  which  will  avoid  a  forfeiture,  it  seems  safe  to  conclude 
that  the  insurer  will  not  be  allowed  to  declare  the  insurance  forfeited 
before  the  expiration  of  a  full  year  from  the  time  when  the  policy  be- 
came binding,  even  though  the  express  terms  of  the  contract  may  ren- 
der it  forfeitable  upon  failure  to  pay  an  annual  premium  at  an  earlier 
(lay.»« 


•«  It  seems  that,  although  the  Insurer  cannot  forfeit  the  policy  until  the 
end  of  the  term  for  which  premiums  have  been  paid,  nevertheless  a  failure 
to  pay  the  premium  at  the  time  specified  will  justify  him  In  refusing  to  re- 
new the  Insurance.  Thus  In  Tibbltts  v.  Insurance  Co.,  159  Ind.  671,  65  N.  E. 
1033,  the  policy,  dated  April  25th,  was  not  issued  until  April  30th.  The  pol- 
icy provided  for  the  quarterly  payment  of  premiums,  the  second  of  which 
was  to  be  paid  "July  25th  at  or  before  twelve  o'clock  m.,"  and,  In  case  of 
failure  to  pay,  the  policy  was  to  be  forfeited.  Payment  was  not  made  be- 
fore noon  on  the  25th,  and  the  insurer  refused  to  receive  It  after  that  time. 
The  insured  died  August  10th.  It  was  claimed  by  the  plaintiff  that,  inas- 
much as  the  policy  became  effective  only  on  delivery  (30th),  a  tender  of 
the  premium  at  or  before  noon  on  July  30th  was  sufficient;  but  it  was  held 
that  the  failure  to  pay  ad  diem  as  specified  in  the  policy  justified  the  insurer 
in  refusing  to  continue  the  policy.  The  question  as  to  whether  the  risk  was 
terminated  on  July  25th  or  30th  was  not  raised.  It  would  seem  In  accord- 
ance with  the  principles  stated  in  the  text  that.  If  the  insured  had  died  be- 
fore July  30th,  the  insurer  should  have  been  held  liable. 


§n) 


FOBFEITUBE. 


217 


This  conclusion  appears  to  be  justified  by  the  case  of  McMaster  v. 
New  York  Life  Ins.  Co.,®^  recently  decided  by  the  federal  Supreme 
Court.  In  this  case  the  insured,  on  December  26,  1893,  received,  and 
paid  the  first  premium  on,  certain  policies  which  bore  date  as  of  Decem- 
ber 18,  1893,  and  which  had  been  applied  for  on  December  12th.  The 
insured  did  not  read  the  policies  delivered,  being  assured  by  the  agent 
that  they  conformed  to  his  application.  He  did  not,  therefore,  know 
that  the  policy  provided  that  the  annual  premiums  should  be  payable 
on  December  12th  of  each  year,  and  that  a  failure  to  pay  any  premium 
within  a  month  after  it  became  due  would  avoid  the  policy,  the  designa- 
tion of  that  date  being  due  to  the  fact  that  the  agent  of  the  insurer, 
without  the  knowledge  or  consent  of  the  insured,  inserted  a  request  to 
that  effect  in  the  application.  The  insured  paid  no  other  premiums,  and 
died  on  January  18,  1895.  The  insurer  contended  that  the  insured, 
having  accepted  the  contract  offered  him,  was  estopped  to  deny  that  he 
had  assented  to  all  its  terms ;  that  by  its  terms  the  policy  was  forfeited 
on  January  12,  1895,  for  nonpayment  of  the  premium  due  on  December 
12,  1894 ;  and  this  contention  was  supported  by  the  judgments  of  both 
the  Circuit  Court  and  of  the  Circuit  Court  of  Appeals.  But  in  the  Su- 
preme Court  it  was  held  that  the  acceptance  of  the  policy  by  the  in- 
sured did  not  estop  his  representative  to  deny  that  he  had  requested  the 
policy  to  be  dated  December  12th,  since  he  had  been  induced  thereto 
by  the  fraud  of  the  agent  of  the  insurer ;  that  he  had  a  right  to  suppose 
that  he  was  insured  for  thirteen  months  from  the  time  of  the  payment 
of  the  first  premium ;  and  that  the  insurance  granted  was  not  forfeitable 
within  that  period.  Then,  apparently  assuming  that  the  provision  for 
payment  on  December  12th  was  a  binding  term  of  the  contract,  the 
court  says :  "To  hold  the  insurance  forfeitable  for  nonpayment  of  an- 
other premium  within  the  year  for  which  payment  had  already  been 
fully  made,  would  be  to  contradict  the  legal  effect  under  the  applica- 
tions and  policies  of  the  first  annual  payment.  Clearly,  such  a  con- 
struction is  uncalled  for,  if  the  words  'the  12th  day  of  December  in 
every  year  thereafter'  could  be  assumed  to  mean  in  every  year  after  the 
year  for  which  the  premiums  had  been  paid.  But,  if  not,  taking  all  the 
provisions  together,  and  granting  that  the  words  included  December  12, 
1894,  nevertheless  it  would  not  follow  that  forfeiture  could  be  availed 
of  to  cut  short  the  thirteen  months'  immunity  from  December  18,  1893, 
as  the  premiums  had  already  been  paid  up  to  December  18,  1894." 
The  final  conclusion  of  the  court,  that  "the  payment  of  the  first  year's 
premiums  made  the  policies  nonforfeitable  for  the  period  of  thirteen 
months,  and,  inasmuch  as  the  death  of  McMaster  took  place  within 
that  period,  the  alleged  forfeiture  furnished  no  defense  to  the  action," 
seems  to  justify  the  inference,  drawn  above,  that  nonpayment  of  a  pre- 

•7  183  U.  S.  25,  22  Sup.  Ct.  10,  46  L.  Ed.  64. 


218 


THE   CONSIDERATION PREMIUMS   AND    ASSESSMENTS. 


(Ch.6 


mium,  made  payable  by  the  policy  within  a  year  from  the  time  when 
It  became  effective  by  the  payment  of  the  first  annual  premium,  cannot 
cause  a  forfeiture  of  the  policy  before  the  expiration  of  the  full  year 
plus  any  period  of  grace  allowed.®* 

While  conditions  forfeiting  the  policies  have  repeatedly  been  desig- 
nated "conditions  subsequent,"  ®®  they  are  yet  unlike  such  conditions 
of  defeasance  as  are  sometimes  imposed  on  vested  rights,  such  as  in- 
terests in  real  estate.  The  happening  of  such  a  condition  does  not  of 
itself  defeat  the  estate  upon  which  it  is  imposed ;  some  affirmative  act 
is  necessary  to  enforce  the  forfeiture.  But  the  condition  of  forfeiture 
in  the  contract  of  insurance  is  self -operative ;  upon  breach  of  the  condi- 
tion the  rights  of  the  insured  are  terminated  ipso  facto.^®®  No  notice 
need  be  given  by  the  insurer  of  his  intention  to  claim  the  forfeiture.^®^ 


EXCUSES  FOB  NONPAYMENT;  , 

78.  No  ezcnses  for  failure  to  pay  preminxas  due  oan  be  alleged  in  order 
to  prevent  a  forfeiture,  save-* 

(a)  War,  in  some  Jurisdictions. 

(b)  Insolvency  of  the  insurer. 

(c)  Refusal  of  tendered  premium. 

(d)  Any  wrongful  act  of  insurer  preventing  payment. 

(e)  Want  of  notice,  when  it  is  the  duty  of  the  insurer  to  give  notice. 

(f)  Waiver  of  prompt  payment. 

In  another  respect  the  condition  of  forfeiture  for  nonpayment  of 
premiums  is  strikingly  unlike  the  usual  condition  subsequent.  Impos- 
sibility of  performance,  not  due  to  the  default  of  the  one  under  obliga- 
tion to  perform,  will  excuse  the  nonperformance  of  a  condition  subse- 
quent; but  even  the  act  of  God,^®^  rendering  the  payment  of  the  pre- 

•8  Of  course,  where  policies  take  effect  as  of  their  date,  delivery  and  pay- 
ment of  first  premium  not  being  required,  failure  to  pay  the  annual  premium 
upon  the  date  specified  will  avoid  the  policy.  RUSE  v.  INSURANCE  CO., 
23  N.  Y.  516. 

»9  See  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  NEW 
YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24,  23  L.  Ed.  789. 

100  Attorney  General  v.  Insurance  Co.,  93  N.  Y.  70;  Ashbrook  v.  Insurance 
Co.,  94  Mo.  72,  6  S.  W.  462;  United  States  Life  Ins.  Co.  v.  Ross,  159  111.  476, 
42  N.  E.  859;   Schimp  v.  Insurance  Co.,  124  111.  357,  16  N.  E.  229. 

101  Attorney  General  v.  Insurance  Co.,  93  N.  Y.  70;  Roehner  v.  Insurance 
Co.,  63  N.  Y.  160. 

102  The  fact  that  at  the  time  the  payment  was  to  be  made  the  insured  was 
sick  and  delirious  is  no  excuse  for  nonpayment  of  premium.  Carpenter  v. 
Association,  68  Iowa,  453,  27  N.  W.  456,  56  Am.  Rep.  855.  In  this  case  the 
court  said:  "It  is  true,  it  was  impossible  for  the  assured  at  the  time  re- 
quired therein  to  perform  it;  but  he  could  have  provided  for  its  performance 
beforehand,  and  those  of  his  family  about  him  could  have  performed  it  for 
him.    The  fact  that  the  plaintiff  did  not  know  of  the  existence  of  the  pol- 


I! 


§78) 


EXCUSES  FOR  NONPAYMENT. 


219 


mium  wholly  impossible,  will  not  prevent  the  forfeiture  of  a  policy 
when  the  premium  remains  unpaid.  Thus  the  sickness  or  insanity  of 
the  insured,  rendering  him  wholly  incapable  of  attending  to  business, 
affords  no  excuse  for  a  failure  to  pay  premiums  at  the  day."«  Neither 
will  the  fact  that  the  policy  is  in  possession  of  the  insurer  as  pledgee,"* 
so  that  the  insured  mistakes  the  date  on  which  premiums  are  pay- 
able, excuse  a  tardy  payment."**  In  fact,  no  excuse  whatever  will 
avail  to  prevent  a  forfeiture  in  case  premiums  due  remain  unpaid,  un- 
less such  nonpayment  has  in  some  way  been  induced  by  the  condition, 
conduct,  or  default  of  the  insurer.  These  may  now  be  considered  in 
detail. 

War. 

The  outbreak  of  war  between  the  countries  in  which  the  insurer  and 
insured  respectively  reside  renders  it  unlawful  that  premiums  should 
be  paid  or  any  other  business  transacted  between  them.  In  accordance 
with  the  general  principle  stated  above,  the  impossibility  of  lawfully 
paying  the  premiums  falling  due  during  the  war  will  not  excuse  their 
nonpayment  nor  prevent  a  forfeiture.  And  such  is  the  better  view,"* 
although  it  is  properly  held  by  the  Supreme  Court  of  the  United  States 
that  the  insurer  must  pay  to  the  insured  the  equitable  value  of  his  pol- 
icy at  the  outbreak  of  the  war."^  The  majority  of  the  courts  passing 
on  this  question  have,  however,  in  opposition  to  sound  principle  as  it 
would  seem,  held  that  the  existence  of  war  suspends  the  contract,  and 
thus  prevents  forfeiture  for  nonpayment  of  premiums  that  would  oth- 


Icy  before  her  husband's  death  does  not  change  the  case.  Prudence  and  care 
on  the  part  of  the  assured  would  have  prompted  him  to  prepare  for  the  pay- 
ment of  the  assessment  upon  the  day  it  became  due,  and  to  inform  his  wife 
of  his  contract,  and  his  obligation  to  perform  it  at  the  time  prescribed." 

See,  also,  cases  cited  in  following  note;  but  see  Hillyard  v.  Insurance  Co., 
35  N.  J.  Law,  415;  Grand  Lodge  A.  O.  U.  W.  v.  Brand,  29  Neb.  644,  46  N. 
W.  95. 

108  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  KLEIN  v. 
INSURANCE  CO.,  104  U.  S.  88,  26  L.  Ed.  662;  Howell  v.  Insurance  Co.  44 
N.  Y.  277,  4  Am.  Rep.  675;  WHE3LER  v.  INSURANCE  CO.,  82  N.  Y.  543,  37 
Am.  Rep.  594;  Home  Ins.  Co.  v.  Wood,  72  S.  W.  15,  24  Ky.  Law  Rep.  1G:JS. 
The  same  rule  applies  to  the  payment  of  assessments  in  benevolent  societies. 
Hawkshaw  v.  Supreme  Lodge  (C.  C.)  29  Fed.  770. 

104  Howard  v.  Insurance  Co.,  6  Mo.  App.  577. 

lOB  Nor  will  insured's  absence  from  home  excuse  nonpayment.  Webb  v.  In- 
surance Co.,  63  Md.  217 ;  Greeley  v.  Insurance  Co.,  50  Iowa,  86. 

108  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM,  93  U.  S.  24,  23  L.  Ed.  789- 
New  York  Life  Ins.  Co.  v.  Davis,  95  U.  S.  425,  24  L.  Ed.  453;  Abell  v.  In- 
surance Co.,  18  W.  Va.  400;  Worthington  v.  Insurance  Co.,  41  Conn.  372  19 
Am.  Rep.  495;  Dillard  v.  Insurance  Co.,  44  Ga.  119,  9  Am.  Rep.  167.  See, 
also,  supra,  p.  94. 

107  NEW  YORK  LIFE  INS.  CO.  v.  STATHAM.  93  U.  S.  24.  23  L.  Ed.  7Sy 
See,  also,  Abell  y.  Insurance  Co.,  18  W.  Va.  400, 


220 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS. 


(Ch.6 


§T8) 


EXCUSES  FOR  NONPAYMENT. 


*>'>1 

^^1 


I, 


erwise  have  become  due.  According  to  this  view,  the  suspended  pre- 
miums become  payable  upon  the  restoration  of  peace,  and  a  tender  then 
of  such  premiums  will  revive  the  policy.^®* 

Insolvency  of  the  Insurer. 

If  the  insurer  has  become  insolvent  and  has  suspended  business,  the 
insured  is  not  compelled  to  pay  a  premium  that  has  fallen  due,  in  order 
to  preserve  his  right  to  claim  the  value  of  his  policy  in  such  proceedings 
as  may  be  taken  for  winding  up  the  business  of  the  insolvent*®*  But 
the  mere  fact  that  the  insurer  is  in  an  insolvent  condition  will  not  ex- 
cuse failure  to  pay  premiums  due,  if  the  insurer's  business  is  not  yet 
suspended.**® 

Refusal  of  Tendered  Premiufiu 

The  act  of  the  insurer  or  his  agent  in  refusing  the  tender  of  a  premi- 
um properly  made  will  necessarily  estop  the  insurer  from  claiming  a 
forfeiture  for  nonpayment.  The  tender  must  be  valid,  and  comply  in  all 
respects  with  the  requirements  of  the  poHcy.***  So  nonpayment  was 
excused  where  the  agent  of  the  insurer  declined  to  accept  the  premium 
tendered  because  the  receipts  needed  had  not  been  received  from  the 
home  office.***  A  like  rule  applies  if  a  tender  has  been  decUned  on 
the  groimd  that  the  policy  is  already  forfeited.***    Even  the  tender  is 

* 

108  Cohen  v.  Insurance  Co.,  60  N.  Y.  610,  10  Am.  Rep.  522;  Sands  v.  In- 
surance Co.,  50  N.  Y.  626,  10  Am.  Rep.  535;  Robinson  v.  Society,  42  N.  Y. 
54,  1  Am.  Rep.  490;  Mutual  Ben.  Life  Ins.  Co.  v.  Hillyard,  37  N.  J.  Law,  444, 
18  Am.  Rep.  741;  Clemmitt  v.  Insurance  Co.,  76  Va.  355;  Mutual  Benefit 
Life  Ins.  Co.  v.  Atwood's  Adm'x,  24  Grat.  (Va.)  497,  18  Am.  Rep.  652;  New 
York  Life  Ins.  Co,  v.  Hendren,  24  Grat.  (Va.)  536;  Manhattan  Life  Ins.  Co. 
V.  Warwick,  20  Grat  (Va.)  614,  3  Am.  Rep.  218;  New  York  Life  Ins.  Co.  v. 
Clopton,  7  Bush  (Ky.)  179,  3  Am.  Rep.  290;  Statham  y.  Insurance  Ck).,  45 
Miss.  581,  7  Am.  Rep.  737. 

In  case  of  the  death  of  the  insured  pending  the  war,  no  tender  Is  neces- 
5?ary.  Connecticut  Mut  Life  Ins.  Co.  v.  Duerson's  Ex'r,  28  Grat  (Va.)  630; 
Martine  v.  Society,  53  N.  Y.  339,  13  Am.  Rep.  529. 

loeBurdon  v.  Association,  147  Mass.  3G0,  17  N.  K  874,  1  L.  R.  A.  146; 
Attorney  General  v.  Insurance  Co.,  82  N.  Y.  336;  Jones  v.  Life  Ass'n,  83  Ky. 
75,  7  Ky.  Law  Rep.  1;  Jones  v.  Benefit  Ass'n  (Ky.)  2  S.  W.  447;  People  v. 
Insurance  Co.,  92  N.  Y.  105. 

110  Taylor  v.  Insurance  Co.,  9  Daly  (N.  Y.)  489;  Benton  y.  Insurance  CJo. 
[1807]  34  Scottish  L.  R.  686. 

111  Meyer  v.  Insurance  Co..  73  N.  Y.  516,  29  Am.  Rep.  200;  Continental  Ins. 
Co.  V.  Miller,  4  Ind.  App.  553,  30  N.  E.  718. 

112  Kantrener  v.  Insurance  Co.,  5  Mo.  App.  581;  Shear  y.  Insurance  Co., 
4  Hun  (N.  Y.)  800. 

But  the  fact  that  the  agent  has  no  such  receipt  will  not  excuse  payment  or 
tender.    Morey  y.  Insurance  Co.,  2  Woods,  663,  Fed.  Cas.  No.  9,795. 

lis  Travelers*  Ins.  Co.  y.  Pulling,  159  111.  603,  43  N.  E.  762. 

In  Evans  v.  Insurance  Co.,  64  N.  Y.  304,  there  was  a  stipulation  in  the 
policy  avoiding  it  in  case  the  insured  should  reside  in  the  South.  On  the 
day  the  annual  premium  became  due,  an  agent  of  the  insured  called  at  de- 


excused  if  the  insurer  has  clearly  repudiated  the  contract  before  the 
premium  became  due,***  and  the  refusal  of  one  premium  tendered 
renders  unnecessary  further  tenders  of  subsequently  accruing  pre- 
miums.* *° 

Payment  Prevented  by  Wrongful  Act  of  the  Insurer. 

It  would  be  manifestly  unjust  to  allow  the  insurer  to  claim  a  for- 
feiture for  nonpayment  of  a  premium  due  when  the  insured's  failure 
to  pay  was  due  to  the  wrongful  conduct  of  the  insurer.  Therefore, 
when  the  insurer  secures  the  surrender  of  a  life  policy  without  the 
knowledge  or  consent  of  the  beneficiary,  the  rights  of  the  latter  cannot 
be  forfeited  on  account  of  the  nonpayment  of  subsequent  premiums.**** 
So  the  insurer  is  estopped  in  any  case  to  claim  a  forfeiture  when  a  sur- 
render of  the  policy  has  been  procured  by  misconduct.**^  Thus,  in 
Heinlein  v.  Imperial  Life  Ins.  Co.,**®  the  agents  of  the  insurer  induced 
the  beneficiary  under  a  policy  to  surrender  it  for  cancellation  by  falsely 
representing  that  the  insurance  was  illegal  and  void,  and  returning  the 

fendant's  office  to  pay  it.  The  defendant  declined  to  receive  it,  because  the 
insured  was  residing  South,  unless  a  percentage  on  the  amount  insured  was 
paid  in  addition,  but  agreed  with  the  agent  to  continue  the  policy  and  givQ 
credit  for  the  amount  claimed  until  the  next  day.  On  the  next  day  the  in- 
sured's agent,  having  been  authorized  by  his  principal  to  pay  the  increased 
rate,  tendered  the  required  amount  to  the  insurance  company,  who  refused 
to  receive  it.  It  was  held  that  as  there  was  no  agreement  to  pay,  bind- 
ing upon  the  insured,  the  promise  of  the  defendant  was  without  considera- 
tion, and  therefore  not  binding. 

11*  Manhattan  Life  Ins.  Co.  v.  Smith,  44  Ohio  St  156,  5  N.  E.  417,  58  Am. 
Rep.  806;  Girard  Life  Ins.  Co.  v.  Mutual  Life  Ins.  Co.,  86  Pa.  236;  Hayner  y. 
Insurance  Co.,  69  N.  Y.  435.  See,  also,  Heinlein  v.  Insurance  Co.,  101  Mich. 
250,  59  N.  W.  615,  25  L.  R.  A.  627,  45  Am.  St.  Rep.  409. 

11 B  Meyer  v.  Insurance  Co.,  73  N.  Y.  516,  29  Am.  Rep.  200;  Shaw  y.  In- 
surance Co.,  69  N.  Y.  286;  National  Mut.  Ins.  Co.  y.  Home  Benefit  Society, 
181  Pa.  443,  37  Atl.  519,  59  Am.  St.  Rep.  666. 

ii«  Whitehead  v.  Insurance  Co.,  102  N.  Y.  143,  6  N.  B.  267,  55  Am.  Rep. 
787;  Garner  v.  Insurance  Co.,  110  N.  Y.  206,  18  N.  E.  130,  1  L.  R.  A.  256; 
Manhattan  Life  Ins.  Co.  v.  Smith,  44  Ohio,  156,  5  N.  E.  417,  58  Am.  Rep. 
806;   Mutual  Ben.  Life  Ins.  Co.  y.  Dunn,  106  Ky.  591,  51  S.  W.  20. 

But  see  Miles  y.  Insurance  Co.,  147  U.  S.  177,  13  Sup.  Ct.  275,  37  L.  Ed.  128. 
distinguishable  on  the  ground  of  the  insurer's  good  faith;  SCHNEIDER  v. 
INSURANCE  CO.,  123  N.  Y.  109,  25  N.  E.  321,  20  Am.  St.  Rep.  727. 

117  Where  the  insured  surrendered  his  policy  because  of  a  mistake  as  to 
the  amount  of  the  paid-up  policy  that  he  was  to  receive,  and  with  a  distinct 
understanding  between  him  and  the  agent  of  the  company  that  he  was  to  re- 
ceive a  new  policy  corresponding  to  such  mistaken  view,  and  the  company 
kept  the  policy  for  six  months  without  giving  the  insured  any  notice  of  the 
mistake,  and  then,  by  indorsement  on  the  policy,  attempted  to  reduce  it  to 
a  different  amount,  the  insured  was  in  no  default,  and  did  not  forfeit  his 
rights  under  the  policy.  Lovell  v.  Insurance  Co.,  Ill  U.  S.  264,  4  Sup.  Ct 
390,  28  L.  Ed.  423. 

!!•  101  Mich.  250,  59  N.  W.  615,  25  L.  R.  A.  627,  45  Am.  St  Rep.  408l 


i 


,    « 

'i 


222 


THE    CONSIDERATION — PREMIUMS    AND    ASSESSMENTS. 


(Ch.G 


premiums  paid.  A  premium  accruing  before  the  death  of  the  insured 
was  not  paid.  But  it  was  held  that  a  court  of  equity  should  decree  a 
revival  of  the  policy  despite  the  surrender  and  nonpayment  of  the  pre- 
mium. 

It  is  well  recognized  that,  as  between  parties  bearing  no  fiduciary 
relation  towards  each  other,  neither  a  mistake  nor  an  innocent  misrep- 
resentation as  to  the  law  governing  a  contract  will  afford  any  reason 
for  relieving  the  parties  from  the  full  legal  consequences  of  their  acts. 
But  a  different  rule  has  been  applied  to  such  misrepresentations,  made 
by  an  insurer,  as  to  the  legal  effect  of  the  contract  made  with  the  in- 
sured. Thus,  in  a  case  decided  by  the  Supreme  Court  of  Minnesota,*^® 
the  insured  was  made  to  believe  by  the  representations  of  the  insurer 
that  an  illegal  assessment  was  valid,  and  payable  on  penalty  of  forfei- 
ture. Rather  than  submit  to  the  imposition  of  such  assessments,  the 
insured  declined  to  pay  certain  premiums  legally  due,  and  thus  allowed 
his  policy  to  lapse.  Upon  the  death  of  the  insured  it  was  held  that, 
since  the  misrepresentations  of  the  insurer  had  caused  the  nonpayment 
of  the  premiums  and  the  consequent  lapse  of  the  policy,  the  insurer 
could  not  set  up  a  forfeiture  in  defense  of  an  action  by  the  beneficiary, 
who  was  entitled  to  recover  the  amount  of  the  policy  less  the  premiums 
unpaid.  This  holding  was  based  on  the  theory  that  there  existed  a 
quasi  fiduciary  relation  between  the  parties.  The  correctness  of  the 
decision  is,  to  say  the  least,  doubtful. 

Want  of  Notice,  and  Waiver. 

The  insurer  cannot  claim  a  forfeiture  for  nonpayment  of  a  premium 
when  he  was  under  obligation  to  give  the  insured  notice  that  such  pre- 
mium would  become  due,  and  had  failed  to  do  so.  The  question  of 
when  the  duty  of  giving  such  notice  rests  upon  the  insurer  is  discussed 
in  the  following  section.  So,  when  the  insurer  has  in  any  wise  waived 
his  right  to  demand  payment  ad  diem,**®  he  will  be  estopped  to  claim  a 
forfeiture  for  nonpayment.  This  is  but  a  phase  of  the  general  subject 
of  waiver  and  estoppel,  and  will  be  reserved  for  treatment  in  the  chap- 
ter on  that  subject 

ii»  Colby  V.  Investment  Co.,  57  Minn.  510,  59  N.  W.  539. 

120  "Any  agreement,  declaration,  or  course  of  action  on  the  part  of  an  in- 
surance company  which  leads  a  party  insured  honestly  to  believe  that  by 
conforming  thereto  a  forfeiture  of  his  policy  will  not  be  incurred,  followed 
by  due  conformity  on  his  part,  will  and  ought  to  estop  the  company  from 
insisting  upon  the  forfeiture,  though  it  might  be  claimed  under  the  express 
letter  of  the  contract."  ^tna  Life  Ins.  Co.  v.  Ragsdale's  Adm'r,  95  Va.  579, 
at  page  582,  29  S.  E.  328,  at  page  829,  citing  New  York  Life  Ins.  Co.  v.  Eg 
gleston,  96  U.  &  572,  24  L.  Ed.  841. 


§§  79-80) 


NOTICE   OP  PREMIUMS   DUB. 


NOTICE  OF  PBEMIUMS  DUB. 


223 


79.  IN  OENERAIi— No  oblisration  rests  upon  tlie  insurer  to  notify  the 

insured  of  the  time  'when  a  premium  falls  due,  unless  such  no- 
tioe  be  required  by  statutory  enactment  or  by  agreement  of  the 
parties. 

80.  STATUTORY  PROVISIONS— In  many  states  statutes  have  been 

passed  prohibiting  forfeiture  of  life  policies  for  nonpayment  of 
premiums,  unless  the  insurer  shall  have  g:iTen  notice,  a  specified 
time  in  advance,  of  the  time  ivhen  the  premiums  would  become 
due,  or  of  default  in  the  payment  of  premiums  already  due.  All 
the  requirements  of  such  statutes  niust  be  strictly  ooniplied 
with  by  the  insurer  before  he  can  set  up  a  forfeiture. 

The  insured,  by  accepting  a  policy  containing  a  condition  of  forfei- 
ture, agrees  that  his  rights  thereunder  shall  terminate  if  he  fails  to  pay 
the  specified  premium  at  the  times  therein  designated.  Under  such 
circumstances  there  cannot  rest  upon  the  insurer  any  legal  obligation 
to  be  the  keeper  of  the  insured's  interest  by  giving  him  notice  of  the 
arrival  of  the  agreed  time  of  payment,  or  by  otherwise  aiding  him  to 
perform  his  part  of  the  agreement."^  But  the  insurer  may  give  no- 
tice, and  usually  does  so.  This  he  may  do,  without  the  spur  of  legal 
obligation,  through  semibenevolence  and  business  expediency;  or  the 
notice  may  be  given  under  the  requirements  of  law.  Such  a  legal  obli- 
gation to  give  notice  may  arise  from  peculiar  provisions  in  the  policy, 
or  from  the  requirements  of  statutes. 

Notice  Required  by  Policy — Where  Dividends  are  Applied  to  Premium. 
It  is  manifest  that  the  insured  cannot  be  required  to  pay  a  premium 
until  he  has  knowledge  of  the  amount  of  such  premium.  Therefore, 
when  the  policy  stipulates  that  all  dividends  apportioned  to  such  policy 
shall  be  applied  in  payment  of  premiums  due  thereon,  the  insured  can- 
not be  in  default  for  nonpayment  until  he  has  notice  of  the  balance 
due."« 

121  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765.  Punctuality 
in  the  payment  of  premiums  is  of  the  very  essence  of  the  contract,  and, 
where  payment  is  not  made  at  the  time,  the  company  has  the  right  to  for- 
feit, if  such  was  the  contract  Holly  v.  Insurance  Co.,  105  N.  Y.  437,  11  N. 
E.  507;  Continental  Ins.  Co.  v.  Dorman,  125  Ind.  189,  25  N.  E.  213. 

122  Phoenix  Mut.  Life  Ins.  Co.  v.  Doster,  106  U.  S.  30,  27  L.  Ed.  65;  Meyer 
V.  Insurance  Co.,  73  N.  Y.  516,  29  Am.  Rep.  200;  Nail  v.  Society  (Tenn.  Ch. 
App.)  54  S.  W.  109;  Union  Cent  Ufe  Ins.  Co.  v.  Caldwell,  68  Ark.  505.  58 
S.  W.  355. 

Where  an  insurance  company  has  been  accustomed  to  inform  the  insured 
of  the  place  where,  and  the  agent  to  whom,  he  should  make  payment  of  each 
premium  as  it  fell  due,  the  insured  has  a  right  to  rely  on  receiving  the  usual 
notice,  and  a  nonpayment  of  a  premium  will  not  avoid  the  policy,  in  case 
the  agency  at  which  payment  had  been  previously  made  has  been  discontin- 


IH 


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.1  1 


224  THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 

Sa77ie — Stipulations  in  the  Policy — Usage. 

Likewise  the  insurer  may  agree  to  give  notice  of  the  maturity  of 
premiums.  Such  an  agreement  may  be  expressly  made  in  the  policy 
itself,  or  in  the  insurer's  charter  or  by-laws,  or  it  may  be  made,  express- 
ly or  impliedly,  after  the  issue  of  the  policy.  Such  express  agreements 
give  rise  to  little  difficulty.  The  bad  standing  of  all  forfeitures  in 
courts  of  justice  throws  upon  the  insurer  the  burden  of  proving  actual 
notice  ^^^  given  to  the  insured,  and  it  is  a  question  for  the  jury  whether 
the  notice  is  sufficient.^^* 

But  much  difficulty  is  found  in  determining  when  an  agreement  to 
give  notice  can  be  implied  from  the  conduct  of  the  parties ;  that  is,  when 
the  insured  is  entitled  to  rely  upon  the  custom  or  usage  of  the  insurer 
to  give  notice.  The  usage  relied  on  may  be  (1)  a  general  usage  among 
insurers,  or  (2)  a  general  course  of  business  adopted  by  the  particular 
insurer  towards  all  his  policy  holders,  or  (3)  the  customary  course  of 
business  between  the  insurer  and  the  particular  party  insured,  whose 
rights  are  in  question.  It  is  manifest,  and  well  settled,  that  to  admit 
evidence  of  usage  in  the  first  two  cases  would  be  to  add,  by  parol,  terms 
to  a  written  contract,  which  cannot  be  done.  In  the  third  case,  how- 
ever, the  acts  shown  are  subsequent  to  the  written  contract,  and  may 
properly  be  shown  in  evidence  as  tending  to  prove  a  subsequent  agree- 

ued  and  the  company  has  neglected  to  inform  the  policy  holder  where  and 
to  whom  the  premium  should  be  paid.  New  York  Life  Ins.  Co.  v.  Eggles- 
ton,  96  U.  S.  572,  24  L.  Ed.  841. 

123  Columbia  Ins.  Co.  v.  Buckley,  83  Pa.  298;  Supreme  Lodge  Knights  of 
Honor  v.  Dalberg,  138  111.  508,  28  N.  E.  785.  Where,  under  the  terms  of  the 
contract,  the  insurer  must  notify  the  insured  of  his  liability  for  any  dues,  pre- 
mium, or  assessment,  if  such  notice  is  sent  by  mail  it  is  incumbent  upon  the 
Insurer  to  show  not  only  that  the  notice  was  properly  addressed  and  mailed, 
but  also  that  it  was  actually  received.  Castner  v.  Insurance  Co.,  50  Mich. 
273,  15  N.  W.  452;  Schmidt  ▼.  Insurance  Co.,  4  Ind.  App.  340,  30  N.  E.  939; 
McCorkle  v.  Association,  71  Tex.  149,  8  S.  W.  516. 

Where  a  letter  properly  addressed  is  mailed,  there  is  a  prima  facie  pre- 
sumption that  it  reached  its  destination.  If  its  receipt  is  denied,  however,  it 
is  for  the  Jury  to  determine  the  weight  of  this  presumption.  Rosenthal  v. 
Walker,  111  U.  S.  185,  4  Sup.  Ct.  382,  28  L.  Ed.  395;  Meyer  v.  Krohn,  114  111. 
574,  2  N.  E.  495.  It  has  been  held  that  where  the  receipt  of  the  letter  Is  denied, 
it  is  reversible  error  to  instruct  the  jury  that  there  is  a  prima  facie  presump- 
tion that  it  was  received.  Home  Ins.  Co.  v.  Marple,  1  Ind.  App.  411,  27  N.  B. 
033. 

The  terms  of  the  contract,  Itself,  or  the  provisions  of  a  statute  governing 
the  subject,  must  in  all  cases  be  looked  to,  to  determine  the  sufllciency  of 
the  notice  given.  The  requirements  of  the  contract  or  the  statute  may  be 
satisfied  by  the  proper  mailing  of  the  notice  alone.  Survick  v.  Association 
(Va.)  23  S.  E.  223;  McKenna  v.  Insurance  Co.,  73  Iowa,  453,  35  N.  W.  519. 

As  to  when  notice  by  publication  is  sutficient  under  a  clause  of  the  char- 
ter, see  Pennsylvania  Training  School  v.  Independent  Mut  Fire  Ins.  Co.,  12T 
Pa.  559,  18  Atl.  392. 

i«4  Columbia  Ins.  Co.  v.  Buckley,  83  Pa.  293,  24  Am.  Rep.  172. 


i\ 


§§  79-80) 


NOTICE   OF  PREMIUMS  DUE. 


225 


ment  upon  the  part  of  the  insurer  to  give  notice.  And  while  there  is 
weighty  authority  to  the  contrary,  it  seems  to  be  generally  held  that 
such  a  custom  on  the  part  of  the  insurer  is  alone  sufficient  to  raise  such 
an  implied  agreement,  and  to  prevent  a  forfeiture  without  notice."* 

Statutory  Notice. 

Where  the  subject  of  notice  is  governed  by  statute,  the  statute  forms 
a  part  of  every  contract  of  insurance  made  within  that  jurisdiction  or 
with  reference  to  its  laws,  and  governs  the  rights  and  obligations  of 
the  parties  in  like  manner  as  if  all  of  its  terms  and  conditions  had  been 
mcorporated  in  the  written  agreement.  The  provisions  of  the  statute 
must  be  strictly  complied  with,  both  as  to  the  form  of  the  notice  and 
the  time  and  manner  of  giving  it.^^e     j^  jg  ^^^^  ^j^^^ . 

(1)  If  the  statute  does  not  prescribe  what  kind  of  notice  shall  be 
given,  personal  notice  is  necessary. 

(2)  If  notice  by  mail  is  declared  sufficient,  the  requirements  of  the 
statute  are  satisfied  when  the  notice  is  properly  addressed  and  mailed, 
though  it  fails  to  reach  the  insured."^ 

While  statutory  enactments  requiring  notice  are  for  the  benefit  of 
the  insured,  it  is  nevertheless  held  that  it  would  be  contrary  to  public 
policy  to  allow  him  to  waive  the  benefit  of  them.  Any  such  waiver  is 
"ultra  vires  and  void." "«  The  insured  may,  however,  voluntarily 
elect  to  terminate  the  contract,  and  by  doing  so  he  necessarily  forfeits 

"5  MAYER  V.  INSURANCE  CO.,  38  Iowa,  304,  18  Am.  Rep.  34;  Helme  v. 
Insurance  Co.,  61  Pa.  107,  100  Am.  Dec.  621;  Grant  v.  Insurance  Co.,  76  Ga. 
^;  Union  Cent.  Life  Ins.  Co.  v.  Pottker,  33  Ohio  St.  459,  31  Am.  Rep  555- 
Hartford  Ins.  Co.  v.  Hyde,  101  Tenn.  396,  48  S.  W.  968. 

Contra,  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  Girard 
Life  Ins.,  Annuity  &  Trust  Co.  v.  Mutual  Life  Ins.  Co..  97  Pa   15 

126  Carter  v.  Insurance  Co.,  110  N.  Y.  15,  17  N.  E.  396;  Baxter  v.  Insur- 
ance Co.,  119  N.  Y.  450,  23  N.  E.  1048,  7  L.  R.  A.  293.  The  phraseology  of 
the  notice  given  must  be  as  clear  as  the  statute.  Phelan  v.  Insurance  Co 
113  N.  Y.  147,  20  N.  E.  827,  10  Am.  St  Rep.  441.  See  Mutual  Life  Ins.  Co' 
V.  Phinney,  178  U.  S.  327,  20  Sup.  Ct  906,  44  L.  Ed.  1088,  for  the  New  York 
statute  in  full. 

"T  McConnell  v.  Society,  92  Fed.  769,  34  C.  C.  A.  663. 

As  to  computing  time  under  the  New  York  statute  prohibiting  the  for- 
feiture of  a  policy  unless  the  insured  fails  to  make  payment  within  30  days 
after  the  receipt  of  notice,  see  Hicks  v.  Insurance  Co.,  60  Fed.  690  9  C  C  A 
aS;  Rosenplanter  v.  Society,  96  Fed.  721,  37  O.  O.  A.  566,  46  L.  R.  A  473- 
Wachtel  V.  Society,  84  N.  Y.  28,  38  Am.  Rep.  478;  Schmidt  v.  Insurance  Co ' 
4  Ind.  App.  340,  30  N.  E.  939;   McKenna  v.  Insurance  Co..  73  Iowa,  453,  35 

W«   W.  019. 

128  Griffith  V.  Insurance  Co..  101  Cal.  627,  36  Pac.  113,  40  Am.  St  Rep.  96; 
Equitable  Life  Assur.  Soc.  v.  Nixon,  81  Fed.  796.  26  C.  Q  A.  620*  Hill  v 
Insurance  Co.  (C.  C.)  113  Fed.  44,  affirmed  Mutual  Life  Ins.  Oo  v  HilL  118 
Fed.  708,  55  C.  C.  A.  536.  ^ 

Vance  Ins.— 15 


226 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


all  Statutory  rights  to  which  he  was  entitled  while  the  contract  was  in 
force.*" 

An  important  question  has  arisen  as  to  whether  a  statute  requiring 
notice,  enacted  by  the  state  in  which  an  insurance  corporation  is  char- 
tered and  has  its  domicile,  forms  a  part  of  its  contracts  made  with 
parties  resident  in  other  states.  Plainly  the  terms  of  the  policy  may 
incorporate  therein  the  laws  of  the  insurer's  state,  or  it  may  be  made 
subject  to  the  laws  of  such  state  if  it  is  to  be  there  performed.  But 
where  the  contract  is  made  and  to  be  performed  in  the  state  where  the 
insured  resides,  and  there  is  no  reference  in  the  policy  to  the  law  of  any 
state  as  governing  the  contract,  it  has  recently  been  held  by  the  Su- 
preme Court  of  the  United  States  that  the  law  of  the  insurer's  residence 
and  incorporation,  requiring  notice,  does  not  form  any  part  of  the  con- 
tract, and  that  the  rights  of  the  parties  are  governed  by  the  law  of 
the  place  where  the  contract  was  made,  which  is  always  presumed  to 
be  the  law  of  the  contract"*  Many  state  courts,  however,  appear  to 
have  held  differently.*** 

To  whom  Notice  should  be  Given, 

Where  the  insurer  is  required,  either  by  reason  of  agreement  or  stat- 
ute, to  give  notice  of  the  time  when  premiums  fall  due,  notice  should 
be  given  either  to  the  insured,  or  to  his  assignee,  who  has  assumed  all 
obligations  under  the  contract,  with  the  consent  of  the  insurer."* 

Where  the  insured  is  physically  or  mentally  incapacitated  from  at- 
tending to  business,  notice  should  be  given  to  the  beneficiary  before  the 
policy  is  claimed  to  be  forfeited  for  a  failure  on  the  part  of  the  insured 
to  pay  any  premium  which  may  be  due,  provided  that  the  insurer  has 
been  duly  notified  of  this  disability.*** 

!«•  Mutual  Life  Ins.  Co.  v.  Phinney,  178  U.  S.  327,  20  Sup.  Ct.  906,  44  L. 
Ed.  1088;  Mutual  Life  Ins.  Co.  v.  Sears,  178  U.  S.  345,  20  Sup.  Ct  912,  44  L. 
Ed.  1096.   But  see  Washington  life  Ins.  Co.  v.  Berwald  (Tex.  Civ.  App.)  72 

S.  W.  436. 

isoMutiial  Life  Ins.  Co.  v.  Cohen,  179  U.  S.  262,  21  Sup.  Ct  106,  45  L.  Ed. 
181.  See,  also,  Mutual  Life  Ins.  Co.  v.  Hill,  193  U.  S.  551,  24  Sup.  Ct  538,  48 
L.  Ed.  788,  in  which  the  provisions  of  the  New  York  law  requiring  notice, 
which  were  incorporated  in  the  policy  issued  to  a  resident  of  Washington, 
were  held  to  be  validly  waived  by  another  term  of  the  policy. 

isiMcConnell  v.  Society,  92  Fed.  769,  34  C.  C.  A.  663;  Nail  v.  Society 
(Tenn.  Ch.  App.)  54  S.  W.  109;  Equitable  Life  Assur.  Soc.  v.  Nixon,  81  Fed. 
796,  26  C.  C.  A.  620;  Mutual  Life  Ins.  Co.  v.  Hill,  97  Fed.  263,  38  C.  Q  A.  159, 
49  L.  R.  A.  127.    See  article  in  52  Cent  Law  J.  p.  4. 

i«»  Brannin  v.  Insurance  Co.,  28  N.  J.  Law,  92.  A  voluntary  assignee  is 
a  stranger  to  the  contract  and  therefore  not  entitled  to  notice.  Lycoming 
Fire  Ins.  Co.  v.  Storrs,  97  Pa.  354. 

133  Buchanan  v.  Supreme  Conclave,  178  Pa.  465,  85  Atl.  873,  34  Ij.  B.  A. 
4S6,  56  Am.  St  Bep.  774. 


(o> 


(d) 


g  81)  PAID-UP  POLICIES  AND  EXTENDED  INSURANCE.  227 

PAID-UP  POLICIES  AmO  EXTENDED  INSURANOB. 

81.  Amons  the  uoit  importaat  provision,  of  the  so-oaUed  "nonfor^ 
feitable*'  poUcies  are  those  Kraating  the  delinquent  poUoy 
holder  paid-np  and  extended  insurance.  The  rights  of  the  par- 
ttes  under  suoh  provisions  necessarily  depend  upon  the  terms  of 
the  agreement  as  written,  but  these  general  principles  may  be 
stated: 

(a)  Ambiguities  wiU  be  resolved  in  favor  of  the  insured. 

(b)  The  parties  will  be  presumed  to  have  continued  the  original  con. 
tract,  so  far  as  its  terms  are  applicable  to  the  new  agreement. 

All  conditions  precedent  to  the  right  to  demand  such  paid-up  or 
extended  insurance  must  be  strictly  compUed  with,  unless  con- 
trary  to  law. 

The  time  specified  within  which  a  delinquent  policy  shall  be  sur- 
rendered  for  commutation  is  of  the  essence  of  the  contract. 
A  delay  beyond  that  time  will  be  fatal  to  the  rights  of  the  in- 
^tioL  ""*'*  **'  however,  much  authority  opposed  to  this  prop- 

DeHnitions.  • 

By  "paid-up"  insurance  is  meant  a  unilateral  contract,  executory  as 
to  the  insurer,  but  wholly  executed  as  to  the  insured.  The  insurer 
promises  to  pay  in  accordance  with  the  terms  of  the  contract,  without 
further  payments  of  premiums  by  the  insured.  The  consideration  for 
the  insurance  may  have  been  given  in  the  form  of  a  single  premium, 
or  of  a  senes  of  premiums  already  paid. 

Extended  insurance,  called  also  "term"  and  "temporary"  insurance 
is  the  extension  of  the  policy  in  its  original  amount  for  so  long  a  period 
as  the  value  of  the  policy  at  the  time  of  default  will  suffice  to  pay  the 
^^\\?*  Z"""^^  °^  ^^  ^^  premiums  that  would  accrue  within  that  peri- 
od.         The  amount  of  paid-up  insurance  to  which  the  insured  is  en- 

fn^Ti Jk!  "^'V^  *^?  ^^^^  ^''^''  ^^  ^^^-  S*-  Mo-  1879,  §  5983:  "Policies  non- 
forfeitable,  when.  No  policy  of  insurance  on  life  hereafter  issued  by  any 
life  insurance  company  authorized  to  do  business  in  this  state,  on  and  after 
the  firat  day  of  August,  A.  D.  1879,  shall,  after  payment  upon  it  of  two  full 
annual  premiums,  be  forfeited  or  become  void  by  reason  of  the  nonpayment 
of  premiums  thereon^  but  it  shall  be  subject  to  the  following  rules  of" 
mutation,  to  wit:  The  net  value  of  the  policy,  when  the  premium  becomes 
nf"t^!f ,  !  °!iP5^  '^^"  ^®  computed  upon  the  American  experience  table 
of  mortality,  with  four  and  one-half  per  cent,  interest  per  annum,  and  after 
n!«r.  f/''''^  three-fourths  of  such  net  value  any  notes  or  othei-  indebted- 
ness to  the  company,  given  on  account  of  past  premium  payments  on  said 
policy  issued  to  tiie  insured,  which  indebtedness  shall  then  be  c^cel^  the 
balance  shall  be  taken  as  a  net  single  premium  for  temporary  InZanc^  for 
the  full  amomit  written  in  the  policy,  and  the  term  for  wWch  such  tem^rarv 
insurance  shall  be  in  force  shall  be  determined  by  the  age  of  theTraon 
Whose  life  is  insured  at  the  time  of  default  of  premium,  anf  the  assuSn 
of  mortality  and  interest  aforesaid;   but.  if  the  poUcy  slmU  be  Z7^Z 


m  * 


I 


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228  THE   CONSIDERATION — PREMIUMS   AND    ASSESSMENTS.         (Ch.  6 

titled  in  any  case  is  also  usually  deteraiined  by  the  reserve  value  of  the 
policy,  which  is  regarded  as  a  single  premium  paid  at  the  time  of  de- 
fault' in  consideration  of  the  insurer's  promise  to  pay  a  certain  sum 
upon  the  happening  of  the  event  upon  which  it  is  contingent.  Some- 
times, however,  the  amount  of  paid-up  insurance  given  is  made  equal 
to  the  sum  of  all  the  premiums  paid,  or  a  certain  part  of  the  sum  writ- 
ten in  the  original  policy,  proportioned  to  the  number  of  premiums 
paid.  Both  paid-up  and  extended  insurance  are  usually  conditioned 
upon  the  payment  of  certain  initial  premiums,  ordinarily  two  or  three. 

Sources  of  the  Right 

As  shown  above,  the  delinquent  policy  holder  has  no  inherent  right 
to  the  reserve  value  of  his  policy.  The  right  of  the  insurer  to  enforce 
an  agreement  of  forfeiture  is  unquestionable.  Hence  any  claim  made 
by  the  insured  to  paid-up  or  extended  insurance  must  necessarily  be 
based  upon  an  agreement  or  a  statute  according  to  him  such  a  right. 
It  follows  that  the  defaulting  policy  holder's  claim  must  be  brought 
within  the  terms  of  such  agreement  or  statute  before  it  can  be  en- 
forced."* The  nonforfeiture  features  of  different  policies  are  so  dis- 
similar in  both  effect  and  phraseology  that  few  rules  of  construction  of 
general  application  can  be  deduced  from  the  numerous  cases  that  cum- 
ber the  books,  the  decision  in  each  case  turning  upon  the  peculiar  word- 
ing of  the  policy  in  suit.  It  will  be  well,  however,  to  state  a  few  prin- 
ciples that  are  of  value  in  determining  the  proper  construction  of  all 
such  nonforfeiture  agreements,  however  dissimilar  in  form  or  wording. 

ment,  payable  at  a  certain  time  or  at  death,  if  it  should  occnr  previously, 
then,  if  what  remains,  as  aforesaid,  shall  exceed  the  net  single  premium  of 
temporary  insurance  for  the  remainder  of  the  endowment  term  for  the  full 
amount  of  the  policy,  such  excess  shall  be  considered  as  a  net  single  premium 
for  a  pure  endowment  of  so  much  as  such  premium  will  purchase,  deter- 
mined by  the  age  of  the  insured  at  date  of  defaulting  the  payment  of  the 
premium  on  the  original  policy,  and  the  table  of  mortality  and  interest  as 
aforesaid,  which  amount  shall  be  paid  at  the  end  of  the  original  term  of 
endowment,  if  the  insured  shall  then  be  alive."  For  the  method  of  determin- 
ing the  amount  of  paid-up  policy,  see  Id.  §  5984.  These  statutes  are  set  forth 
and  construed  in  Cravens  v.  Insurance  Co.,  148  Mo.  583,  60  S.  W.  519,  53  L. 
R.  A.  305,  71  Am.  St.  Rep.  628.  «  ,    „ 

In  Nichols  V.  Insurance  Co.  (June.  1903)  176  Mo.  355.  75  S.  W.  664,  62  L.  R. 
A  657,  it  was  held  that  the  term  "paid-up  insurance,"  under  the  statute, 
meant  insurance  for  life,  fully  paid  up,  and  not  temporary  paid-up  insurance. 

186  Universal  Life  Ins.  Co.  v.  Devore,  88  Va.  778,  14  S.  E.  532.  But  in 
Wilcox  V.  Society.  173  N.  Y.  50.  65  N.  E.  857,  93  Am.  St  Rep.  579,  reversing 
same  case,  55  App.  Div.  529,  67  N.  Y.  Supp.  269,  it  was  held  that  the  in- 
sured's right  to  a  paid-up  poUcy  was  not  defeated  by  his  failure  to  surrender 
his  policy  in  accordance  with  the  terms  of  the  contract,  due  to  the  fact  that 
it  had  been  stolen  from  him  without  his  fault,  he  having  performed  all 
other  conditions,  and  that  he  was  entitled  to  a  decree  for  a  paid-up  policy 
without  first  executing  to  the  insurer  a  separate  discharge  or  surrender  of 
the  policy. 


§81) 


PAID-Ur  POLICIES  AND   EXTENDED  INSUIiANCB. 


229 


Rules  of  Construction. 

We  must  first  note  that  the  theory  of  all  nonforfeiture  policies  and 
statutes  is  the  preservation  to  the  insured  of  the  equitable  value  of  his 
policy  despite  his  default  in  the  payment  of  premiums.^'*  Such  pro- 
tection to  the  insured  against  the  evil  consequences  of  his  own  neglect 
or  misfortune  in  regard  to  payment  of  premiums  is  the  purpose  of  both 
statute  and  contract.  Hence  the  terms  of  such  statutes  are  manifestly 
to  be  construed  in  favor  of  the  insured,  and  likewise  the  provisions  of 
policies,  for  the  double  reason  that  words  should  be  construed  strictly 
against  the  person  using  them,  and  also  in  order  to  effectuate,  so  far 
as  possible,  the  general  intent  of  the  parties.  These  rules  are  well  illus- 
trated by  two  cases  recently  decided.  In  Cravens  v.  New  York  Life 
Ins.  Co.^*^  the  statute  of  Missouri  governing  the  contract  provided  that 
upon  failure  to  pay  any  premium,  after  the  second,  the  insured  should 
be  entitled  to  extended  insurance,  or,  upon  demand  made  within  sixty 
days  after  default,  he  might  receive  a  paid-up  policy.  The  insured 
failed  to  pay  the  fifth  or  any  subsequent  annual  premium,  and  died  with- 
in the  term  for  which  his  insurance  was  extended  by  the  terms  of  the 
statute,  never  having  demanded  a  paid-up  policy.  The  insurer  claimed 
the  right  to  waive  the  demand  for  the  paid-up  policy,  and  to  be  there- 
fore liable  only  for  such  an  amount  as  should  have  been  written  in  a 
paid-up  policy  at  the  time  of  default,  which  was  found  to  be  $2,670. 
The  plaintiff,  however,  claimed  the  full  face  of  the  policy,  $10,000, 
less  unpaid  premiums,  under  the  provision  for  extended  insurance. 
The  court  held  that  statute  had  been  enacted  for  the  benefit  of  the  in- 
sured, and  that  none  of  its  conditions  could  be  waived  to  his  prejudice. 
Drury's  Adm'x  v.  New  York  Life  Ins.  Co.^*®  involved  the  construc- 
tion of  a  policy  which  provided  for  paid-up  insurance  upon  surrender 
of  the  policy  and  demand  made  within  six  months  after  default  in  pay- 
ment of  any  annual  premium  after  the  third,  or,  in  the  absence  of  such 
surrender  and  without  request,  it  was  stipulated  that  the  insurance 
would  be  extended  for  the  face  of  the  policy  during  such  term  as  was 
provided  in  a  "table  of  loans  and  surrender  values  in  paid-up  or  ex- 
tended insurance."  For  the  fourth  annual  premium  the  insured  gave 
his  note,  in  which  it  was  stipulated  that  the  policy  should  be  forfeited 
by  the  nonpayment  of  interest  and  subsequent  premiums,  "except  as  to 
a  surrender  value  or  paid-up  policy."  The  insured  died  within  the 
term  of  extended  insurance  as  fixed  in  the  table,  having  left  unpaid 
both  interest  and  subsequent  premiums.  It  was  held  that  the  insurer 
was  liable  for  the  full  amount  of  the  policy  as  extended  insurance,  that 
being  one  of  the  "surrender  values"  fixed  in  the  table,  and  so  within 
the  exception  contained  in  the  terms  of  the  note. 

i»«  Carter  v.  Insurance  Co.,  127  Mass.  153. 

i»7  148  Mo.  583,  50  S.  W.  519,  53  L.  R.  A.  305,  71  Am.  St.  Rep.  628. 

!••  (Ky.)  74  S.  W.  663,  61  L.  R.  A.  714. 


230 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


The  contract  for  paid-up  insurance  may  be  set  forth  in  a  separate 
instrument,  which  the  insurer  agrees  to  issue,  or  it  may  be  indorsed 
upon  the  original  policy,  or  merely  contained  in  the  terms  of  that  pol- 
icy.^" But  in  whatever  form  executed,  the  contract  is  subject  to  all 
the  terms  of  the  original  policy,  so  far  as  they  are  not  inconsistent  with 
the  new  agreement.^**  But  it  has  been  held  that  the  indorsement  of  a 
term  granting  paid-up  insurance  upon  a  policy  amounts  ta  a  waiver  of 
a  known  right  to  forfeit  such  policy.**^  Neither  does  the  incorpora- 
tion of  a  nonforfeiture  statute  into  the  policy  make  a  new  contract. 
"When  the  statute  provisions  are  adopted,  in  an  endowment  policy,  for 
the  purpose  of  qualifying  the  forfeiture  clause,  the  clause  thus  qualified 
is  to  be  so  construed  as  to  give  the  insured  its  full  benefit,  without  alter- 
ing any  other  provision  of  the  policy."  ^**  Accordingly  it  was  held 
that  extended  insurance,  given  by  the  Massachusetts  statute,  became 
payable,  under  an  endowment  policy,  at  the  expiration  of  the  endow- 
ment period,  in  accordance  with  the  terms  of  the  policy,  and  not  only  at 
the  death  of  the  insured.^** 

Same — Conditions  Precedent — Time  Within  Which  Demand  for  Paid- 
up  Policy  must  he  Made. 
From  what  has  been  stated  above,  it  is  apparent  that  the  insured  can- 
not make  good  his  claim  to  paid-up  or  extended  insurance  without  first 
showing  compliance  with  all  conditions  precedent  that  may  have  been 
imposed  upon  the  right  to  such  commutation  by  the  policy.^**  Non- 
forfeitable policies  usually  contain  a  condition  requiring  that  the  policy 
holder  shall  surrender  his  policy  and  demand  commuted  insurance  with- 
in a  specified  time.  If  a  policy,  by  its  terms  forfeitable  upon  nonpay- 
ment of  premiums,  provides  for  paid-up  insurance  upon  surrender  of 
the  policy  "on  or  before  it  expires  by  nonpayment"  of  some  stipulated 
premium,  it  seems  to  be  generally  held  that  the  right  to  paid-up  insur- 
ance is  lost  upon  the  forfeiture  of  the  policy.  A  demand  for  such  in- 
surance on  any  day  after  that  on  which  the  premium  became  due  is  too 
late,^**  and,  when  the  policy  does  not  limit  the  time  within  which  com- 
muted insurance  shall  be  demanded,  the  time  of  making  such  demand 

!••  Harlow  v.  Insurance  Co.,  54  Miss.  425,  28  Am.  Rep.  358. 

140  McDonnell  v.  Insurance  Co.,  85  Ala.  401,  6  South.  120;  Merritt  T.  In- 
surance Co.,  55  Ga.  103. 

1*1  Cotton  States  Life  Ins.  Co.  v.  Edwards,  74  Ga.  220. 

i*»  Carter  v.  Insurance  Co.,  127  Mass.  153.  * 

i*»  Carter  v.  Insurance  Co.,  127  Mass.  153.  For  statutory  provisions  for 
extended  insurance  under  endowment  policies,  see  Rev.  St.  Mo.  f  5983;  3 
Rev.  St.  N.  Y.  (8th  Bd.)  p.  1688. 

144  Union  Cent  Life  Ins.  Co.  v.  Buxer,  62  Ohio  St  385,  57  N.  B.  66,  40  L. 
B.  A.  737;  Universal  life  Ins.  Co.  v.  Devore,  88  Va.  778,  14  S.  B.  532. 

146  Smith  V.  Insurance  Co.,  103  Pa.  177,  49  Am.  Rep.  121;  Meyer  v.  Insur- 
ance Co..  144  Ind.  439,  43  N.  E.  448;  Sheerer  y.  Insurance  Co.  (0.  0,)  20  Fed. 


81) 


PAID-UP  POLICIES  AND   EXTENDED   INSUKANCE. 


231 


is  plainly  at  the  option  of  the  insured.^**  So  when  the  policy  provides 
for  extended  insurance  without  request  or  other  act  of  the  delinquent 
policy  holder,  unless  he  shall  within  a  specified  time  demand  paid-up 
insurance,  there  seems  to  be  no  question  that  such  election  is  necessary 
before  the  insured  may  claim  paid-up  insurance.^*^ 

But  the  provision,  frequently  found  in  life  policies,  simply  stipulat- 
ing that  failure  to  pay  designated  premiums  shall  not  forfeit  the  policy, 
provided  it  shall  be  surrendered  and  paid-up  insurance  demanded  with- 
in a  term  specified,  is  difficult  of  construction,  and  has  caused  much 
confusion  among  the  courts  before  which  it  has  come.  Some  courts 
have  held  that  the  effect  of  such  a  provision  is  to  confer  a  right  upon 
the  insured  which  may  be  demanded  at  any  time  within  a  reasonable 
period,  and  that  the  time  specified  in  the  contract  for  the  surrender  of 
the  policy  and  making  demand  is  not  of  the  essence  of  the  contract.^*® 
The  reason  for  this  view  may  best  be  given  in  the  words  of  Du  Relle, 
J.,  in  Manhattan  Life  Ins.  Co.  v.  Patterson :  **•  "The  policy  was  null 
and  void,  except  for  this  remaining  right.  This  right  was  absolute, 
and,  while  it  is  provided  that  the  company  would  issue  a  paid-up  policy 
'upon  the  surrender  of  its  policy  within  six  months  after  such  lapse,' 
the  time  was  not  of  the  essence  of  the  contract.  The  whole  considera- 
tion had  gone.  There  is  no  pretext  appearing  in  the  record  that  the 
performance  of  its  contract,  for  which  it  had  received  payment,  was 
more  oppressive  at  the  time  it  was  demanded  than  if  it  had  been  de- 
manded within  the  six  months  provided  for.  Some  argument  is  made 
that  the  delay  in  making  the  demand  imposed  upon  the  company  the 
burden  of  unnecessary  bookkeeping.  This  we  do  not  regard  as  sufficient- 
ly burdensome  to  justify  retaining  the  purchase  money  and  refusing  to 
deliver  the  goods.  As  said  in  the  Montgomery  Case :  *The  premiums, 
by  express  convention,  paid  for  both  current  insurance  and  a  paid-up 
policy,  and  now  to  deny  to  the  assured  the  benefit  of  a  paid-up  policy 
because  the  old  one  was  not  surrendered  in  time  is,  in  the  strictest  and 
most  obnoxious  sense,  a  forfeiture.     Such  a  claim  is  without  support 

886;  Bussing's  Ex'rs  v.  Insurance  Co.,  34  Ohio  St  222;  People  v.  Widows' 
&  Orphans'  Ben.  Life  Ins.  Co.,  15  Hun  (N.  Y.)  8. 

The  violation  of  a  condition  against  travel  upon  the  seas  without  consent 
of  the  insurer,  for  which  a  policy  declares  that  it  shall  become  void,  defeats 
a  right  to  surrender  that  policy  and  obtain  a  paid-up  policy  for  an  amount 
fixed  by  the  terms  of  the  policy  with  reference  to  the  number  of  premiums 
paid.    Douglas  v.  Insurance  Co.,  83  N.  Y.  492. 

i4«  Lovell  v.  Insurance  Co.,  Ill  U.  S.  264,  4  Sup.  Ct  390,  28  L.  Bd.  423. 

i*T  Cravens  v.  Insurance  Co.,  148  Mo.  583,  50  S.  W.  519,  53  L.  R.  A.  305,  71 
Am.  St.  Rep.  628;  Drury's  Adm'x  v.  Insurance  Co.  (Ky.)  74  S.  W.  663,  61 
L.  R.  A.  714.    But  see  Blake  v.  Insurance  Co.,  123  Oal.  470,  56  Pac.  101. 

1*8  See  Chase  v.  Insurance  Co.,  67  Me.  85;  Dorr  v.  Insurance  Co.,  67  Me. 
438 ;  and  Kentucky  cases  cited  infra,  note  150. 

148  109  Ky.  624,  60  S.  W.  383,  22  Ky.  Law  Rep.  1282,  53  L.  B.  A.  378,  95 
Am.  St.  Rep.  393. 


I 


* 


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J 

f 

I 


( 


232 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


in  reason,  justice,  or  authority,  and  cannot  be  sanctioned  in  a  court  of 
equity/  "  »• 

By  the  gfreat  weight  of  authority,  however,  such  a  requirement  is 
regarded  as  a  valid  condition  precedent,  which  must  be  strictly  com- 
plied with."^  Thus  it  has  been  held  that  an  offer  to  surrender  a 
policy  upon  receipt  of  the  paid-up  term  policy,  although  made  within 
the  required  time,  was  not  a  sufficient  compliance  with  the  requirement 
that  the  policy  "shall  have  been  transmitted  to  and  received  by  the  com- 
pany," within  a  time  limit  stated,  before  the  insured  should  be  entitled 
to  commuted  insurance."*    And  this  seems  to  be  the  sounder  doctrine, 

160  Tbe  development  of  this  doctrine  In  Kentucky  Is  quite  remarkable.  In 
Montgomery  v.  Insurance  Co.,  14  Bush  (Ky.)  51,  the  court,  in  a  carefully  con- 
sidered opinion,  decided  that  the  time  at  which  a  paid-up  policy  should  be 
demanded  was  not  of  the  essence  of  the  contract,  and  that  the  right  of  the 
insured  to  receive  commuted  insurance  was  not  forfeited  by  his  failure  to 
surrender  his  policy  and  make  demand  as  required  by  the  terms  of  the  pol- 
icy. The  doctrine  thus  laid  down  was  approved  In  Johnson  v.  Insurance  Co., 
79  Ky.  403;  Northwestern  Mut.  Life  Ins.  Co.  v.  Fort's  Adm'r,  82  Ky.  269; 
Southern  Mut.  Life  Ins.  Co.  v.  Montague,  84  Ky.  653,  2  S.  W.  443,  4  Am.  St 
Rep.  218 ;  Germanla  Life  Ins.  Co.  v.  Saur,  7  Ky.  Law  Rep.  297 ;  but  was,  in 
effect,  overruled  by  the  cases  of  Hexter  v.  Insurance  Co.,  91  Ky.  357,  15  S. 
W.  863,  and  Northwestern  Mut.  Life  Ins.  Co.  v.  Barbour,  92  Ky.  429,  17  S. 
W.  796,  15  L.  R.  A.  449,  which  restricted  the  right  of  the  insured  to  demand 
such  paid-up  policy  to  the  time  stipulated  in  the  contract 

In  Mutual  Life  Ins.  Co.  v.  Jarboe,  102  Ky.  80,  42  S.  W.  1097,  39  L.  R.  A. 
504,  80  Am.  St  Rep.  343 — ^the  next  case  to  come  before  the  court— the  two 
preceding  cases  were  disapproved,  and  the  doctrine  of  the  Montgomery  Case 
re-established.  The  Jarboe  Case  was  followed  and  approved  In  Manhattan 
Life  Ing.  Co.  v.  Patterson,  109  Ky.  624,  60  S.  W.  883,  53  L.  R.  A.  378,  95  Am. 
St.  Rep.  393,  and  again  In  Washington  Life  Ins.  Co.  v.  Miles,  112  Ky.  743, 
06  S.  W.  740. 

In  the  case  last  mentioned,  the  court,  being  pressed  to  state  a  time  after 
which  the  right  of  the  insured  to  a  paid-up  policy  should  terminate,  desig- 
nated five  years — by  analogy  with  the  statute  of  limitations — as  the  extreme 
limit  of  time  within  which  such  demand  might  be  successfully  made.  This 
rule  was  enforced  so  as  to  defeat  a  tardy  claim  in  Equitable  life  Assur.  Soc. 
V.  Warren  Deposit  Bank  (Ky.  1903)  75  S.  W.  275. 

"1  KNAPP  V.  INSURANCE  CO.,  117  U.  S.  411,  6  Sup.  Ct  807,  29  L.  Ed. 
960;  Attorney  General  v.  Insurance  Co.,  93  N.  Y.  70;  Smith  v.  Insurance 
Co.,  103  Pa.  177,  49  Am.  Rep.  121. 

The  fact  that  the  insurer  was  enjoined  from  Issuing  any  policies  during 
the  specified  time  was  held  to  be  no  excuse  for  a  failure  to  demand  the  paid- 
up  policy  during  such  time.  Universal  Life  Ins.  Co.  v.  Whitehead,  58  Miss. 
226,  38  Am.  Rep.  322. 

The  death  of  the  Insured  does  not  terminate  the  right  to  a  paid-np  policy, 
where  within  the  time  specified  the  owner  of  the  policy  surrenders  it  and 
demaids  the  paid-up  policy.  WHEELER  v.  INSURANCE  CO.,  82  N.  Y.  543, 
37  Am.  Rep.  594.    See,  also.  Dorr  v.  Insurance  Co.,  67  Me.  438. 

But  the  loss  of  the  policy  without  fault  of  the  owner  excuses  failure  to 
surrender  within  time  designated.  Wilcox  v.  Society,  173  N.  Y.  50,  65  N.  B. 
857.  93  Am.  St  Rep.  579. 

i»a  Universal  Life  Ins.  Co.  v.  Devore,  88  Va.  778,  14  S.  E.  532. 


§81) 


PAID-UP  POLICIES  AND  EXTENDED  INSURANCE. 


233 


as  well  as  the  more  reasonable  practice.  There  seems  to  be  no  more 
reason  for  saying  that  the  forfeiture  of  a  right  to  commuted  insurance 
by  reason  of  a  failure  to  surrender  the  original  policy  and  make  demand 
within  a  time  agreed  upon  is  an  inequitable  penalty,  than  to  say  the 
same  of  the  forfeiture  of  all  rights  under  a  policy  for  the  least  default 
in  making  payment  of  a  premium  due,  the  validity  of  which  has  never 
been  questioned.  The  insurer  has  a  right  to  know,  within  a  reasonable 
time,  the  status  of  delinquent  policies.  Such  knowledge  is  necessary, 
in  fact,  to  the  safe  and  proper  conduct  of  the  insurer's  business,  espe- 
cially in  regard  to  the  apportionment  of  dividends  among  surviving  pol- 
icy holders ;  and  a  requirement  that  the  delinquent  policy  holder  shall, 
within  a  reasonable  time,  make  known  his  intentions  with  reference  to 
the  continuance  of  his  insurance,  is  reasonable,  and  should  be  enforced 
as  summarily  as  the  provision  for  the  payment  of  premiums. 

It  would  seem,  however,  that  a  different  rule  should  apply  to  pro- 
visions forfeiting  paid-up  policies  for  failure  to  pay  interest  on  notes 
given  to  the  insurer.  As  to  such  interest  dues,  the  insurer  occupies  the 
position  of  a  money  lender,  who  should  not  be  allowed  to  enforce  a 
penalty  imposed  for  the  purpose  of  collecting  an  amply  secured  debt 
As  shown  heretofore,"'  however,  there  is  much  authority  to  the  con- 
trary. 

Same — Required  Premium  Paid  by  Note. 

The  right  to  paid-up  or  term  insurance  is  usually  conditioned  upon 
the  full  payment  in  cash  of  a  designated  number  of  premiums,  two  or 
three  being  ordinarily  required.  Without  making  these  required  pay- 
ments in  the  manner  stipulated,  the  insured  can  make  no  valid  claim  to 
such  a  right.^»*  Hence,  when  notes  have  been  given  for  any  of  the  re- 
quired premiums,  the  intention  of  the  parties  being  to  extend  thereby 
the  term  for  the  payment  of  such  premiums,  no  right  to  paid-up  insur- 
ance can  exist  while  such  notes  remain  unpaid.  The  premiums  have 
not  yet  been  paid  in  the  manner  required  by  the  terms  of  the  policy.  But 
it  is  competent  for  the  parties  to  agree  that  a  note  shall  be  taken  as  a 
cash  payment,  or  as  part  of  a  cash  payment.  Such  a  transaction 
amounts  to  a  loan  made  by  the  insurer  to  the  insured.  If  such  be  the 
nature  of  the  transaction,  as  sufficiently  proved,  the  insurer  cannot  deny 
that  the  premiimi  has  been  paid  substantially  in  cash,  nor  can  he  refuse 
to  issue  the  commuted  insurance  if  all  other  conditions  have  been  satis- 
fied. The  indebtedness  evidenced  by  the  note  will,  however,  constitute 
a  lien  upon  the  policy  in  favor  of  the  insurer.**" 

IBS  Supra,  p.  218. 

18*  Equitable  Life  Assur.  Soc.  v.  Spillman,  56  S.  W.  710,  22  Ky.  Law  Rep. 
183. 

!«•  Brooklyn  Life  Ins.  Co.  v.  Dutcher,  95  U.  S.  269,  24  L.  Ed.  410.  In 
tbis  case  the  court  said:  "The  part  of  the  annual  premium  for  which  a  note 
was  to  be  given  was,  in  substance  and  effect,  a  loan  of  so  much  money  by 


#1 


III 


234  THB  CONSIDBBATION — ^PBBMIUMS  AND   ASSBSSMBNT8.        (Ch.  6 


^m 


EFFECT  OF  NONPATMENT  OF  PREMIUM  NOTES. 

82.  The  nonpayment  of  a  premlvni  note  does  not  affect  the  rights  and 
liabilities  of  the  parties  to  the  insurance  contract,  in  the  ab- 
sence of  eacpress  provision  to  that  effect.  It  is  frequently 
agreed,  however,  that  the  policy  shall  be  forfeited  by  a  failure 
to  pay  such  a  note  at  its  maturity. 

Suoh  an  agreement  may  be  contained— (a)  In  the  policy,  or  in  both  the 
policy  and  the  note;  in  which  cases  it  will  be  enforced  in  exact 
accordance  with  its  terms,  (b)  In  the  note  alone,  when,  by 
the  better  reason  and  authority,  nonpayment  of  the  note  avoids 
the  policy;  but  in  some  jurisdictions  it  is  held  that  upon  such 
nonpayment  the  insurer  has  merely  a  right  to  enforce  a  for- 
feiture, xvhich  must  be  done  by  sonie  affirmative  act. 

Where  there  is  no  express  agreement  that  the  policy  shall  be  avoided 
by  a  failure  on  the  part  of  the  insured  to  pay,  at  its  maturity,  a  note 
given  in  payment  of  a  premiimi,  such  a  failure  on  his  part  to  discharge 
his  liability  on  the  note  does  not  work  a  forfeiture  of  the  policy,  but 
merely  gives  the  insurer  a  right  of  action  on  the  note.^** 

the  company  to  tbe  assured.  It  was  so  described  In  the  receipt  of  the  com- 
pany for  the  premium,  and  in  the  contract  of  the  parties.  If  the  money  had 
been  actually  paid  to  the  company,  and  the  next  moment  loaned  back,  and 
the  note  then  taken,  there  would  not  have  been  room  even  for  a  quibble  upon 
the  subject  Why  go  through  such  a  ceremony?  Why  not  go  directly,  as 
was  done,  to  the  end  in  view?  The  intent  which  animated  the  conduct  of 
the  parties  determines  its  character.  The  receipt  and  contract  both  show 
that  the  transaction  was  regarded  by  both  parties  as  a  payment  of  money  to 
one,  and  a  loan  back  to  the  other,  for  which  the  note  was  taken.  The  re- 
ceipt was  for  the  full  amount  of  the  premium.  The  note  and  loan  were  men- 
tioned by  way  of  memorandum,  as  a  distinct  matter.  The  law  never  re- 
quires an  idle  thing  to  be  done.  It  would  clearly  have  been  this,  and  noth- 
ing else,  if  the  assured  had  actually  handed  over  the  money  and  note  with 
one  hand,  and,  eo  instante,  with  the  other  taken  back  the  money.  The  com- 
pany had  the  power  to  waive  the  actual  production  and  payment  of  the 
money,  and  to  receive  a  note  bearing  interest,  as  the  same  thing.  It  has 
exercised  this  power,  and  is  estopped  to  deny  the  consequence.**  See,  also, 
Bruce  v.  Insurance  Ck).,  58  Vt.  253,  2  Atl.  710.  In  an  action  for  breach  of  con- 
tract to  issue  a  paid-up  policy,  it  seems  that  the  amount  of  damages  is  not 
the  whole  sum  paid  as  premiums,  but  the  equitable  value  of  the  policy;  L 
e.,  the  amount  necessary  in  order  to  purchase  a  paid-up  policy  for  the  stipu- 
lated sum  in  a  reputable  company.  See  Phoenix  Mut.  Life  Ins.  Co.  v.  Baker, 
85  111.  410;  Union  Cent.  Life  Ins.  Co.  v.  McHugh,  7  Neb.  66;  Rumbold  v. 
Insurance  Co.,  7  Mo.  App.  71;  Missouri  Valley  Life  Ins.  Co.  v.  Kelso,  16 
Kan.  481.  But  see  Watts  v.  Insurance  Co.,  16  Blatchf.  228,  Fed.  Cas.  No. 
17,294;  Farley  v.  Insurance  Co.,  41  Hun  (N.  Y.)  303;  Nashville  Life  Ins.  Co. 
V.  Mathews,  8  Lea  (Tenn.)  499.  But  where  the  insured  elects  to  consider  the 
regular  policy  as  In  force,  the  measure  of  damages  is  the  difference  between 
the  value  of  a  paid-up  policy  and  the  life  policy  retained  by  the  insured. 
American  Life  Ins.  &  Trust  Co.  v.  Shultz,  82  Pa.  46. 
i««Shaw  T.  Insurance  Co^  69  N.  Y.  287;   Michigan  Mut  life  Ins.  Co.  t. 


§82) 


EFFECT  OF  NONPAYMENT  OF  PBEMIUM  NOTES. 


235 


The  right  to  accept  a  promissory  note  in  payment  of  a  premium  is  a 
necessary  incident  to  the  right  to  issue  a  policy  of  insurance,"^  and  a 
legal  presumption  arises  that,  where  the  insurer  chooses  thus  to  accept 
notes  instead  of  a  cash  payment,  he  is  acting  in  the  furtherance  of  his 
own  interests.  If  no  stipulation  is  inserted  providing  for  the  forfeiture 
of  the  policy  in  case  of  nonpayment  of  the  note  at  maturity,  the  rights 
and  obligations  of  the  parties  under  the  contract  of  insurance  are  the 
same  as  if  a  cash  payment  had  been  made.^** 

The  parties  to  the  contract  may,  however,  enter  into  an  agreement 
that  the  failure  to  make  payment  of  any  premium  note  at  its  maturity 
shall  work  a  forfeiture  of  the  policy.  Such  provisions  are  usually  in- 
serted either  in  the  policy  or  in  the  note  itself,  and  it  becomes  necessary 
to  determine  what  effect  will  be  given  them  in  each  case. 

Where  there  is  a  Stipulation  in  the  Policy. 

Where  the  policy  contains  a  provision  that  a  failure  by  the  insured 
to  pay  a  premium  note  at  its  maturity  shall  avoid  the  policy,  this  stipu- 

Bowes,  42  Mich.  19,  51  N.  W.  962 ;  Stepp  v.  Association,  37  S.  0.  417,  16  S. 
B.  134;  Massachusetts  Ben.  Life  Ass'n  v.  Robinson,  104  Ga.  256,  30  S.  E. 
918,  42  L.  R.  A.  261 ;  Griffith  v.  Insurance  Co.,  101  Cal.  627,  36  Pac  113.  40 
Am.  St.  Rep.  96. 

Where  there  is  a  provision  in  a  policy  that,  in  case  of  any  loss  under  the 
policy,  the  insurer  may  deduct  an  unpaid  premium  note,  such  a  provision 
will  be  enforced,  despite  the  fact  that  the  statute  of  limitations  might  pre- 
vent a  recovery  on  the  note.  ALEXANDER  v.  INSURANCE  GO.,  67  Wis. 
422,  30  N.  W.  727,  58  Am.  Rep.  869. 

Premiums  are  sometimes  paid,  in  whole  or  In  part,  by  assessment  notes. 
The  liability  on  such  notes  is  contingent  upon  the  levying  of  an  assessment 
in  prescribed  mode,  and  under  proper  authority.  They  are  not  negotiable. 
Savage  v.  Medbury,  19  N.  Y.  32.  Notes  known  as  "capital  stock  notes"  are 
sometimes  given,  under  statutory  authorization,  as  a  part  of  the  capital  stock 
of  a  corporation.  Rowland  v.  Edmonds,  24  N.  Y.  307;  White  v.  Haight.  16 
N.  Y.  310. 

"T  Farmers'  Bank  of  Saratoga  v.  Maxwell,  32  N.  Y.  579.  A  note  given  in 
payment  of  a  premium  on  a  policy  which  is  void  is  without  consideration 
and  unenforceable.  FROST  v.  INSURANCE  CO.,  5  Denio  (N.  Y.)  154,  49 
Am.  Dec.  234;  Lynn  v.  Burgoyne,  13  B.  Mon.  (Ky.)  400.  It  was  held  in  a 
Massachusetts  case,  however,  that  a  promissory  note  received  in  payment 
of  a  premium  by  the  officers  of  the  company,  who  were  ignorant  of  the  fact 
of  its  insolvency,  was  given  for  a  valid  consideration,  and  enforceable.  Les- 
ter V.  Webb,  5  Allen,  569. 

Where  an  insurance  company  takes  the  notes  of  some  person  other  than 
the  Insured,  it  cannot,  as  against  the  insured,  insist  that  they  did  not 
amount  to  a  payment  Michigan  Mut.  Life  Ins.  Co.  v.  Bowes,  42  Mich.  19,  51 
N.  W.  962.  So  if  an  agent  accepts  in  payment  of  a  premium  the  note  of  a  third 
person,  a  failure  to  discharge  the  note  at  maturity  does  not  forfeit  the  policy, 
even  though  it  contains  a  stipulation  providing  that  the  failure  to  pay  any  pre^ 
mium  note  at  its  maturity  shall  avoid  the  policy.  Galvln  v.  Insurance  Co 
(Ky.)  74  S.  W.  275. 

188  Massachusetts  Ben.  Life  Ass'n  v.  Robinson,  104  Ga.  256,  30  S.  E.  918, 
42  U  B.  A.  261 ;  Stepp  v.  Association,  37  S.  C.  417, 16  S.  E.  134. 


« 


M 


236 


THB   CONSIDERATION PREMIUMS   AND    ASSESSMENTS. 


(Ch.6 


lation  will  be  enforced  in  exact  accordance  with  its  terms.  As  soon 
as  the  note  becomes  due  and  unpaid,  the  insurer  is  released  from  all 
liability  under  the  contract,  and  this  notwithstanding  the  fact  that  he 
may  have  failed  to  make  demand,  or  to  give  the  insured  notice  of  the 
maturity  of  the  note,  unless  the  giving  of  such  notice  be  required  by 
statute."^ 

The  forfeiture  takes  place  as  soon  as  the  note  is  due  and  unpaid,  and 
no  subsequent  proceedings  instituted  by  the  insurer  for  the  purpose  of 
enforcing  the  collection  of  the  note  will  be  construed  as  a  waiver  of 
j^  i«o  When,  in  addition  to  the  provision  in  the  policy,  a  similar  stipu- 
lation is  contained  in  the  note  itself,  the  same  results  will  naturally  fol- 
low a  failure  to  make  due  payment  of  the  note.^** 

When  the  Stipulation  is  in  the  Note  Alone. 

In  several  cases  it  has  been  held  that  a  different  rule  applies  where 
the  condition  of  forfeiture  upon  nonpayment  of  a  premium  note  at  ma- 
turity is  found  in  the  note  only.^'*  The  failure  to  pay  such  a  note,  it 
is  said,  does  not  avoid  the  policy  ipso  facto,  in  accordance  with  the 
terms  of  the  note,  but  merely  gives  the  insurer  a  right  to  terminate  a 
policy  by  some  affirmative  act;  and  that,  in  the  absence  of  evidence 
showing  a  clear  intent  on  the  part  of  the  insurer  so  to  avoid  a  policy, 
he  will  be  deemed  to  have  waived  his  right  to  do  so.*'*  This  doctrine 
is  based  on  the  theory  that  nonpayment  of  the  note  makes  the  contract 
only  voidable,  not  void ;  and  that  therefore  some  act  on  the  part  of  the 
insurer  is  needed  to  make  it  void.  "The  mere  nonpayment  of  the  note 
was  not,  alone,"  said  the  Ohio  court  in  a  leading  case,***  "sufficient  to 
avoid  the  policy.  Such  payment  was  not  a  condition  precedent  to  the 
attaching  or  continuing  of  the  risk.  It  was  rather  a  note  with  a  condi- 
tion of  defeasance,  that  might  be  made  operative  if  desired."    In  a 

159  Holly  v.  Insurance  Co.,  105  N.  T.  437,  11  N.  B.  507;  Mclntyre  ▼.  Insur- 
ance Co.,  52  Mich.  188,  17  N.  W.  781;  Roehner  v.  Insurance  Co.,  68  N.  Y. 
160;  Muhleman  v.  Insurance  Co.,  6  W.  Va.  508;  Imperial  Life  Ins.  Co.  v. 
Glass,  96  Ala.  568,  11  South.  671;   Blgelow  v.  Association,  123  Mass.  113. 

Otherwise  where  a  statute  requires  notice.  Bradford  v.  Insurance  Co.,  112 
Iowa,  495,  84  N.  W.  693. 

leo  National  Life  Ass'n  of  Hartford  v.  Brown,  103  Ga.  882,  29  S.  EV.  927. 

i«i  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  Baker  v.  In» 
surance  Co.,  43  N.  Y.  283. 

i«2  Mutual  Life  Ins.  Co.  t.  French,  30  Ohio  St  240,  27  Am.  Rep.  443,  ap- 
proved in  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  26  L.  Ed.  765;  Mont- 
gomery V.  Insurance  Co.,  14  Bush  (Ky.)  51.  But  see  Manhattan  Life  Ins.  Co. 
V.  Pentecost,  105  Ky.  642,  49  S.  W.  425;  Same  v.  Myers,  109  Ky.  872,  59  a 
W.  30,  53  L.  R.  A.  378,  95  Am.  St  Rep.  393;  Dwelling  House  Ins.  Co.  v.  Har- 
die,  37  Kan.  674,  16  Pac.  92.  See,  also,  MCALLISTER  v.  INSURANCE  CO., 
101  Mass.  558,  8  Am.  Rep.  404;  TRADE  INS.  00.  v.  BARRACLIFP,  45  N. 
J.  Law,  543,  46  Am.  Rep.  792;   and  Fithian  v.  Insurance  Co.,  4  Mo.  App.  386. 

!•»  See  cases  cited  in  preceding  note. 

i««  Mutual  Life  Ins.  Co.  y.  French,  30  Ohio  St  240,  27  Am.  Rep.  443. 


§§  83-84) 


IN   MUTUAL  BENEFIT  SOCIETIES. 


237 


Kentucky  case  ^®*  it  was  said  that  to  enforce  such  a  condition  would  be 
to  impose  a  penalty  upon  the  nonpayment  of  a  debt. 

But  these  views  are  clearly  erroneous,  and  without  any  sound  basis  of 
reason.  It  can  make  no  possible  difference  in  legal  contemplation 
whether  the  condition  avoiding  the  policy  for  nonpayment  of  a  premium 
note  is  written  on  the  face  of  the  policy,  or  on  the  face  of  the  note,  or 
on  a  premium  receipt,  or  in  any  other  properly  executed  instrument.  It 
is  equally  a  part  of  the  contract,  and  should  be  enforced  as  made.  If 
the  insured  has  signed,  and  the  insurer  has  received,  a  premium  note 
in  which  it  is  stipulated  that  if  it  shall  not  be  paid  at  maturity  the  pol- 
icy is  to  be  null  and  void,  a  failure  to  pay  operates  of  itself  to  avoid  the 
contract,  and  the  mere  fact  that  the  insurer  may  waive  the  forfeiture  if 
he  sees  fit  does  not  affect  the  case.  Forfeitures  for  nonpayment  of 
premiums  due  can  also  be  waived.  To  hold  otherwise  is  to  make  a  new 
contract  for  the  parties.^**  The  question  came  squarely  before  the  fed- 
eral Supreme  Court  recently  in  the  case  of  Iowa  Life  Ins.  Co.  v.  Lew- 
is,**^ in  which  the  condition  of  forfeiture  was  contained  only  in  the 
receipt  given  for  a  premium  paid  by  note.  It  was  held,  reversing  the 
judgment  of  the  Circuit  Court,  that  upon  the  nonpayment  of  the  note 
at  maturity  the  insurance  ceased  without  further  act  by  the  insurer. 


< 


DUES  AND  ASSESSMENTS  IN  MUTUAL  BENEFIT  SOCIETIES. 

S3,  Dnes  are  fees  payable  to  associations  for  the  pnrpose  of  defraying 
tlie  ordinary  expenses  of  administration.  Assessments  are  snnis 
payable  as  ratable  contributions  to  make  good  a  loss  vrliich  the 
association  bas  agreed  to  indemnify.  The  nature  of  the  liabil- 
ity, and  the  consequence  of  nonpayment,  depend  in  each  ease 
upon  the  terms  of  the  contract. 

84*  No  assessment  is  payable  unless  reasonable,  and  levied  in  strict  ae- 
cordance  with  the  authority  conferred  by  the  charter,  by-lairs, 
and  certificate.  There  is  no  presumption  that  an  assessment  Is 
▼alid.     The  burden  of  proving  it  so  is  upon  the  association. 

xes  Montgomery  v.  Insurance  Co.,  14  Bush,  51. 

!••  In  Holly  V.  Insurance  Co.,  105  N.  Y.  437,  11  N.  B.  507,  Peckham.  J., 
uses  the  following  strong  language:  "To  that  extent  it  was  an  alteration 
of  the  terms  of  the  policy,  giving  thirty  days  after  a  default  in  which  to  sur- 
render and  make  a  demand,  and  instead  thereof  it  plainly  provided  for  a  total 
and  immediate  forfeiture  if  at  maturity  the  note  were  not  paid.  If  lan- 
guage as  plain  and  unambiguous  as  this  is  not  only  to  be  twisted  out  of  its 
natural  meaning,  but  is  to  be  wholly  ignored  by  courts  of  justice,  it  will  be 
useless  in  the  future  for  companies  to  make  any  effort  to  bind  policy  holders 
to  perform  their  contracts.  The  use  of  language  is  to  express  ideas,  and 
writing  is  resorted  to  in  order  to  furnish  conclusive  proof  of  what  language 
was  used.  Being  certain  of  the  language  used,  and  the  case  being  free  from 
fraud  and  mistake,  if  such  language  is  plain  and  susceptible  of  but  one 
meaning,  that  meaning,  even  in  cases  regarding  contracts  of  life  insurance, 
must  control,  though  a  forfeiture  should  be  the  result" 

lei  18T  U.  S.  335,  23  Sup.  Ct  126,  47  L.  Ed.  204.    To  the  same  eflTect,  see 


238 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS. 


(Ch.6 


§§  83-84) 


IN  MUTUAL  BENEFIT  SOCIETIES. 


239 


Mutual  benefit  associations,  from  their  nature,  can  only  accomplish 
the  purpose  for  which  they  are  organized,  and  meet  the  losses  which 
they  necessarily  incur,  when  the  individual  members  of  the  organization 
are  regular  and  prompt  in  meeting  the  obligations  imposed  upon  them 
by  the  terms  of  their  contract,  as  set  forth  in  the  charter  or  by-laws  of 
the  association  or  the  certificate  of  membership.  Chief  among  these 
obligations,  and  the  one  which  constitutes,  to  the  greatest  extent,  the 
consideration  for  the  benefits  which  result  to  the  members,  is  the  prom- 
ise to  pay  all  properly  levied  dues  and  assessments,  under  penalty  of 
forfeiting  membership  in  the  organization  on  nonpayment.^'" 

In  order,  however,  for  the  member  to  be  under  an  obligation  to  pay 
an  assessment,  the  assessment  must  be  shown  to  have  been  legally  lev- 
ied under  proper  authority,  and  it  must  be  reasonable.^ ••  In  de- 
termining whether  an  assessment  has  been  properly  levied,  the  char- 
ter and  by-laws  of  the  association  must  be  examined.  Each  case  is, 
of  course,  to  be  governed  by  the  terms  of  the  contract,  by  which 
alone  the  rights  and  obligation  of  the  parties  can  be  ascertained. 
The  authority  to  levy  assessments  is  usually  vested  in  the  board  of  di- 
rectors of  the  association,  who,  when  such  authority  has  been  given 
them,  may  exercise  a  reasonable  discretion  in  determining  the  neces- 
sity for  an  assessment,^  ^®  and  may  fix  or  change  the  rate  of  the  assess- 

Holly  V.  Insurance  Co.,  105  N.  T.  437,  11  N.  E.  507;  Ressler  v.  Insurance  Co., 
110  Tenn.  411,  75  S.  W.  735.  See,  also.  Kerns  v.  Insurapce  Co.,  86  Pa.  171; 
Frank  v.  Assurance  Co.,  20  Ont.  App.  564. 

168  When  a  provision  that  the  insured  shall  pay  certain  assessments  in  ad- 
dition to  cash  premiums  is  made  a  part  of  the  consideration  for  the  policy, 
and  a  condition  of  it,  the  acceptance  of  the  policy  is  tantamount  to  an  agree- 
ment to  make  such  payments.  Whipple  v.  Insurance  Co.,  20  R.  I.  260,  38 
Atl.  498. 

The  member's  promise  to  pay  the  assessments  when  duly  called  to  meet 
the  obligations  of  the  company  accruing  upon  the  deaths  of  other  members 
is  the  consideration  for  the  benefit  he  derives  from  his  insurance  as  a  mem- 
ber of  the  society.  Ellerbe  v.  Barney,  119  Mo.  632,  25  S.  W.  384,  23  L.  R.  A. 
435. 

!••  Rosenberger  y.  Insurance  Co.,  87  Pa.  207;  Sands  v.  Graves,  58  N.  Y. 
94;  American  Mut  Aid  Soc.  v.  Helbum,  85  Ky.  1,  2  S.  W.  495,  7  Am.  St. 
Rep.  571;  Hartford  Ins.  Co.  v.  Hyde,  101  Tenn.  396,  48  S.  W.  968. 

170  Vandalia  Mut  County  Fire  Ins.  Co.  v.  Peasley,  84  111.  App.  138;  Rosen- 
berger V.  Insurance  Co.,  87  Pa.  207. 

Where  the  by-laws  of  a  mutual  benefit  society  provide  that  assessments 
for  death  losses  shall  be  levied  by  the  board  of  directors,  the  board  cannot 
delegate  such  power  to  the  president  Garretson  v.  Association,  93  Iowa,  402, 
61  N.  W.  952. 

In  case  of  the  Insolvency  of  a  mutual  benefit  association,  a  court  of  equity 
may  authorize  the  levying  of  an  assessment  by  an  officer  of  the  court  Whit- 
aker  v.  Meley,  61  N.  J.  Law,  1,  38  Atl.  840. 

An  order  authorizing  a  receiver  of  a  company  to  make  a  special  assess- 
ment on  a  policy,  if  within  the  jurisdiction  of  the  court,  cannot  be  questioned 


ment,  provided  the  apportionment  is  equitable.*^*  If  the  member  is 
assessed  for  more  than  his  just  proportion,  he  is  excused  from  pay- 
ment; ^^*  so,  also,  if  the  assessment  is  for  losses  incurred  before  he  be- 
came a  member,  or  after  his  membership  in  the  association  has  ter- 
minated.*'* 

Where  a  mutual  benefit  association  relies  upon  the  failure  of  any 
member  to  pay  an  assessment  as  a  forfeiture  of  his  membership  and  all 
benefits  to  which  he  was  entitled,  the  association  must  show  that  the 
assessment  was  legally  made,  in  strict  accordance  with  the  charter  and 
by-laws.*'*    If  the  defendant,  however,  seeks  to  excuse  his  failure  to 

in  a  collateral  or  ancillary  proceeding.  Capital  City  Mut  Fire  Ing.  Go.  v. 
Boggs,  172  Pa.  91,  33  Atl.  349. 

171  Ebert  v.  Association,  81  Minn.  116,  83  N.  W.  506;  Barbot  y.  Associa- 
tion, 100  Ga.  681,  28  S.  E.  498. 

A  limitation  of  six  months  in  the  by-laws  of  a  mutual  insurance  company, 
within  which  an  assessment  may  be  questioned,  is  valid.  Survick  v.  Associa- 
tion (Va.)  23  S.  B.  223. 

1"  United  States  Mut  Ace.  Ass'n  v.  Mueller,  151  111.  254,  37  N.  B.  882. 

So,  also,  if  other  members  liable  to  be  assessed  are  knowingly  omitted. 
Swing  V.  Lumber  Co.,  62  Minn.  169,  64  N.  W.  97.  But  slight  errors  in  making 
an  assessment,  which  do  not  substantially  affect  the  rights  of  the  parties,  do 
not  make  the  assessment  invalid.  Thropp  v.  Insurance  Co.,  125  Pa.  427,  17 
Atl.  473,  11  Am.  St  Rep.  909. 

The  mere  fact  that  the  insured  had  paid  mortuary  assessments  higher  than 
he  was  bound  to  pay  under  his  certificate  in  an  assessment  life  insurance  com- 
pany, in  the  absence  of  any  showing  of  fraud,  or  that  any  one  had  been 
misled  by  his  conduct,  did  not  estop  him  from  contesting  subsequent  assess- 
ments greater  than  he  was  bound  to  pay.  Covenant  Mut  Life  Ass'n  v.  Kent- 
ner,  188  111.  431,  58  N.  B.  966. 

17  8  Capital  City  Mut  Fire  Ins.  Co.  v.  Boggs,  172  Pa.  91,  33  Atl.  349; 
Koehler  v.  Beeber,  122  Pa.  291,  16  Atl.  354.  A  failure  to  pay  an  assessment 
levied  on  a  member  for  a  death  which  occurred  prior  to  the  date  of  his 
certificate,  the  assessment  being  contrary  to  the  plain  provisions  of  a  by-law 
of  the  union,  will  not  Invalidate  the  claim  of  his  representatives  to  benefits. 
Rowswell  V.  Union  (C.  C.)  13  Fed.  840. 

174  As  It  is  well  expressed  by  Bennett,  J.,  in  a  leading  Kentucky  case: 
"Thus  we  see  that  In  making  assessments  by  the  appellant  [the  society]  up- 
on its  members,  it  does  not  act  in  a  judicial,  but  in  a  ministerial,  capacity. 
Therefore  no  presumption  can  arise  in  favor  of  the  regularity  or  legality  of 
its  assessments.  That  the  appellant's  board  of  directors,  or  an  executive 
committee  appointed  by  them,  are  the  only  persons  authorized  by  appellant's 
charter  to  make  assessments  against  its  surviving  members,  to  pay  the  ben- 
efits due  the  representatives  of  its  deceased  members.  That  a  deceased  mem- 
ber of  the  society  should  have  died,  and  that  his  representative  was  entitled 
to  a  benefit  arising  from  his  death,  and  that  an  assessment  upon  all  the  sur- 
viving members  was  actually  made  by  the  board  of  directors,  or  an  execu- 
tive committee  appointed  by  them,  for  the  purpose  of  i>aying  said  assess- 
ments, are  conditions  precedent  to  the  right  of  the  appellant  to  demand  pay- 
ment of  an  assessment  from  any  of  its  members.  And  they  are  not  bound 
to  pay  any  assessment  until  these  things  occur.  Nor  do  they  forfeit  their 
membership  by  reason  of  their  failure  to  pay  such  assessments,  unless  these 


I 


n 


240 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


g§  85-86)  WHEN  PREMIUMS  MAT  BE  RECOVERED. 


241 


•s  ' 


f 


pay  by  showing  fraud  or  misconduct  on  the  part  of  the  association,  the 
burden  of  proving  this  is  upon  him.^^* 

Assessments — When  Reasonable. 

Even  though  an  assessment  be  properly  levied,  and  for  a  duly  au- 
thorized purpose,  yet  the  members  of  the  association  will  be  excused 
from  payment  unless  it  can  also  be  shown  to  be  reasonable.  Whether 
or  not  this  requirement  is  satisfied  can  only  be  determined  by  a  consid- 
eration of  each  particular  case  as  it  arises,  as,  manifestly,  it  would  be 
impossible  to  lay  down  any  general  rule  which  could  safely  be  followed. 
In  a  leading  Pennsylvania  case  it  was  held  that,  where  an  associa- 
tion was  authorized  by  its  charter  to  levy  assessments  to  pay  present 
losses,  any  further  assessment  made  in  anticipation  of  future  losses 
would  be  an  unreasonable  exercise  of  the  discretion,  as  to  fixing  the 
amount,  given  to  the  directors.  Such  an  assessment,  it  was  held,  would 
consequently  be  illegal  and  void,  and  the  members  of  the  association 
excused  from  paying  it.*^* 

The  body  which  has  authority  to  make  the  by-laws  of  an  association 
may  also,  as  a  rule,  amend  or  repeal  them,  subject  to  the  restrictions 
imposed  by  the  charter  or  articles  of  the  association;  but  any  such 
changes  or  amendments  must  be  reasonable,* ^^  and,  if  this  condition  is 
not  satisfied,  assessments  made  under  authority  of  such  amended  by- 
laws are  invalid.  An  association  may  make  a  change  in  its  regular 
rate  of  assessment  when  levies  made  in  accordance  with  the  new  rate 
will  be  reasonable  as  to  a  member  who  has  assented  to  the  change, 
although  unreasonable  as  to  other  members  who  have  withheld  their 
assent.*^* 

things  have  occurred.  And  when  the  society  relies  upon  the  failure  of  any 
of  its  members  to  pay  his  assessments,  as  a  forfeiture  of  his  membership 
and  benefits  under  its  charter,  it  must  show  aflSi-matively  that  the  assess- 
ment was  made  in  the  manner  indicated,  otherwise  the  member  cannot  be 
said  to  be  in  default."  American  Mut  Aid  Soc.  v.  Helbum,  86  Ky.  1,  2  S. 
W.  495,  7  Am.  St  Rep.  571.  The  association  must  also  show  that  an  assess- 
ment was  necessary.  Pacific  Mut  Ins.  Co.  v.  Guse,  49  Mo.  329,  8  Am.  Rep. 
132;   Susquehanna  Mut  Fire  Ins.  Co.  v.  Gackenbach,  115  Pa.  492,  9  Atl.  90. 

The  record  of  an  assessment  of  a  mutual  insurance  association,  reciting 
that  the  resolution  ordering  the  assessment  •*wa8  unanimously  adopted  by 
the  directors,  as  a  body,  and  by  the  executive  committee,"  is  prima  facie  evi- 
dence of  its  validity.    Anderson  v.  Association,  171  111.  40,  49  N.  B.  205. 

17  5  Rosenberger  v.  Insurance  Co.,  87  Pa.  207;  Susquehanna  Mat  Fire  Ina 
Co.  V.  Gackenbach,  115  Pa.  492,  9  Atl.  90. 

176  Rosenberger  v.  Insurance  Co.,  87  Pa.  207. 

ITT  Thibert  v.  Supreme  Lodge,  78  Minn.  448,  81  N.  W.  220,  47  L.  R.  A.  136, 
79  Am.  St.  Rep.  412;  Mutual  Reserve  Fund  Life  Ass'n  v.  Taylor,  99  Va.  206, 
37  S.  E.  854. 

As  to  what  changes  are  deemed  reasonable,  see  supra,  p.  194. 

ITS  Mutual  Reserve  Fund  Life  Ass'n  v.  Taylor,  99  Va.  208,  37  S.  B.  854. 


"WHEN  PREMrUMS  MAY  BE  RECOVERED* 

86.  WHEN  THE  RISK  HAS  ONCE  ATTACHED  tlie  whole  premium  li 
deemed  to  be  earned,  and  no  portion  thereof  is  returnable,  even 
thongh  the  risk  may  terminate  before  the  expiration  of  the 
term  contracted  for,  unless— 

(a)  Such  termination  is  due  to  the  urrong  of  the  insurer,  or 

(b)  Such  return  is  required  by  statute. 

86.  When  the  risk  has  never  attached,  the  premium  paid  is  always  re- 
turnable unless— 

(a)  The  contract  was  rendered  void  ab  initio  by  the  fraud  of  the  in- 

sured, or 

(b)  The  contract  is  illegal,  and  the  parties  in  pari  delicto. 

The  general  rule  is  that  the  insurance  granted  is  the  entire  consid- 
eration for  the  premium  received,  and  hence,  if  the  risk  has  attached 
by  reason  of  the  contract's  becoming  binding  upon  the  insurer,  the 
whole  premium  must  be  considered  as  earned,  and  therefore  cannot  be 
apportioned  in  case  the  risk  terminates  before  the  end  of  the  term  for 
which  the  insurance  was  granted."'  Thus,  in  the  leading  case  of  Ty- 
rie  V.  Fletcher,"®  the  plaintiff  had  procured  insurance  upon  a  certain 
vessel  for  a  period  of  twelve  months,  in  consideration  of  a  certain  pre- 
mium paid.  The  vessel  was  taken  by  an  American  privateer  some  two 
months  after  the  inception  of  the  policy.  This  being  an  excepted  risk, 
and  the  underwriter  thus  being  discharged  from  all  liability  under  the 
contract  for  the  remaining  portion  of  the  term  agreed  upon,  the  insured 
brought  suit  to  recover  a  proportionate  part  of  the  premium  paid. 
But  the  judgment  of  the  court  was  in  favor  of  the  defendant.  Lord 
Mansfield  saying,  in  his  opinion :  "that,  if  that  risk  of  the  contract  of 
indemnity  has  once  commenced,  there  shall  be  no  apportionment  or  re- 
turn of  premium  afterward.  For  though  the  premium  is  estimated, 
and  the  risk  depends,  upon  the  nature  and  length  of  the  voyage,  yet  if 
it  has  commenced,  though  it  be  for  only  twenty-four  hours  or  less,  the 
risk  is  run.  The  contract  is  for  the  entire  risk,  and  no  part  of  the 
consideration  shall  be  returned."  The  rule  thus  laid  down  by  Lord 
Mansfield  has  never  been  questioned.^ *^     Of  course,  when  the  contract 

iT»Tyrie  v.  Fletcher,  Cowp.  666;  Richards,  Ins.  Oas.  265;  Hendricks  v. 
Insurance  Co.,  8  Johns.  (N.  Y.)  1;  Waters  v.  Allen,  5  Hill  (N.  Y.)  421;  Con- 
tinental Life  Ins.  Co.  v.  Houser,  111  Ind.  266,  12  N.  E.  479;  Joshua  Hendy 
Mach.  Works  v.  American  Steam  Boiler  Ins.  Co.,  86  Cal.  248,  24  Pac.  1018, 
21  Am.  St  Rep.  33. 

See,  also,  Blaeser  v.  Insurance  Co.,  37  Wis.  31,  19  Am.  Rep.  747;  Taylor 
v.  Lowell,  8  Mass.  331,  3  Am.  Dec.  141;  Metropolitan  Life  Ins.  Co.  v.  McCor- 
mick,  19  Ind.  App.  49,  49  N.  E.  44,  65  Am.  St,  Rep.  392. 

ISO  Cowp.  666;  Richards,  Ins.  Cas.  265. 

181  See  Civ.  Code  Cal.  §  2618;    Mailhoit  v.  Insurance  Co.,  87  Me.  874,  32 
Atl.  989,  47  Am.  St.  Rep.  336,  and  cases  cited  supra,  note  ITOl 
Yakcb  Irs. — 10 


242 


THE   CONSIDERATION PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


§§  85-86) 


WHEN  PREMIUMS  MAT   BE  RECOVERED. 


243 


is  divisible,  consisting  of  several  distinct  risks,  the  premium  paid  for 
any  particular  risk  is  not  earned  until  that  risk  has  attached.^ ®^ 

The  general  rule  stated  above  applies  when  valid  insurance  is  ter- 
minated by  any  cause  whatsoever,  excepting  the  act  of  the  insurer  him- 
self."* It  is  frequentiy  stipulated,  however,  in  fire  policies,  that  ei- 
ther party  to  the  contract  may,  after  notice  given  to  the  other,  termi- 
nate the  insurance,  in  which  event  an  agreed  proportion  of  the  premium 
is  returnable."*  So  the  law  gives  to  an  infant  insured  the  right  to 
terminate  his  contract  of  life  insurance  without  suffering  the  conse- 
quences to  which  the  adult  is  subject.  He  will  not  be  allowed  to  re- 
cover the  premiums  paid,  however,  but  only  the  equitable  value  of  his 
insurance  at  the  time  of  repudiation."*  It  seems,  however,  that  an  in- 
fant would  not  be  allowed  to  rescind  his  contract  of  fire  insurance,  if 
the  risk  had  attached,  and  recover  any  part  of  the  premium  paid.  He 
could  not  restore  the  consideration  received,  which  is  the  incurring  the 

182  In  Stevenson  v.  Snow  (1761),  3  Burr.  1237,  1  W.  Bl.  318,  a  ship  was  In- 
sured, "lost  or  not  lost,  at  and  from  London  to  Halifax,  warranted  to  depart 
with  convoy  from  Portsmouth,  for  the  voyage."  The  convoy  left  the  ship 
before  she  reached  Portsmouth.  The  underwriters  were  notified,  and  re- 
quested either  to  make  long  insurance,  or  to  return  part  of  the  premium,  and, 
on  their  refusal,  an  action  was  brought  to  secure  the  return  of  a  proportion- 
ate part  of  the  premium  for  the  voyage  from  Portsmouth  to  Halifax.  On  the 
trial  it  was  shown  that  it  was  the  custom  of  underwriters  to  treat  such  con- 
tracts as  divisible,  and  to  return  a  proportionate  part  of  the  premium;  and 
the  court,  construing  the  contract  according  to  the  intent  of  the  parties, 
decreed  the  return.  See,  to  same  effect.  Gale  v.  Machell  (1785)  2  Marsh.  Ins. 
667;  Long  v.  Allen  (1785)  4  Doug.  276.  But  see  Meyer  v.  Gregson  (1784)  3 
Doug.  402,  distinguishable  on  the  ground  that  no  usage  was  found  to  regard 
the  contract  as  divisible. 

Where  the  policy  was  on  a  voyage  "at  and  from  New  York  to  Montevideo 
and  Buenos  Ayres,  and  at  and  from  thence  back  to  New  York,"  and  the  stip- 
ulation for  premium  was  "one  and  three-fourths  per  cent,  each  way,"  in  an 
action  on  premium  notes  by  the  insurer,  the  vessel  having  been  burned  by 
her  master  soon  after  leaving  New  York  (this,  of  course,  discharging  the  in- 
surer), it  was  held  that  the  contract  was  divisible,  and  he  could  recover  the 
premium  for  the  outward  voyage  only.    Waters  v.  Allen,  5  Hill  (N.  Y.)  421. 

188  Any  breach  of  condition  by  the  Insured  whereby  his  policy  is  forfeited 
will  deprive  him  of  all  rights  in  the  unearned  portion  of  the  premium  paid. 
Dickerson  v.  Insurance  Co.  (1902)  200  111.  270,  65  N.  E.  694;  Phoenix  Ins.  Co. 
V.  Stevenson,  78  Ky.  150.  Where  new  Insurance  was  taken  out  before  tht 
presentation  of  the  first  insurance  policy  for  cancellation,  and  the  first  pol- 
icy contained  the  usual  clause  avoiding  it  in  case  of  additional  insurance, 
the  insured  cannot  recover  the  unearned  portion  of  the  premium.  Farmers' 
Mut  Ins.  Co.  V.  Phenix  Ins.  Co.  (Neb.  1902)  90  N.  W.  1000. 

184  See  International  Life  Ins.  &  Trust  Co.  v.  Franklin  Fire  Ins.  &  Trust 
Co.,  66  N.  Y.  119;  HoUingsworth  v.  Insurance  Co.,  45  Ga.  294,  12  Am.  Rep. 
579. 

185  JOHNSON  V.  INSURANCE  CO.,  56  Minn.  365,  59  N.  W.  992,  26  U  R.  A. 
187,  45  Am.  St  Rep.  473;  ElUott,  Ins.  Cas.  5;  Woodruff,  Ins.  Caa.  22.  See 
supra,  p.  91. 


risk  by  the  insurer,  and  should  not  be  allowed  to  recover  what  he  has 
paid.^®* 

When  Insurance  Terminated  by  Act  of  Insurer, 

The  insurer  cannot  himself  terminate  his  liability  and  retain  the  pre- 
mium paid  him.  Even  though  he  may  act  in  perfect  good  faith  in  re- 
pudiating the  contract  for  a  supposed  breach  of  condition,  yet,  if  his 
act  is  in  fact  wrongful,  he  will  not  be  allowed  to  retain  the  premium 
paid."^  The  most  frequently  occurring  instance  of  the  insurer's  re- 
pudiation of  his  contract  is  his  wrongful  declaration  of  a  forfeiture  not 
really  incurred.  Any  other  act  showing  a  clear  intention  on  the  part  of 
the  insurer  not  to  be  bound  by  the  policy  is,  however,  sufficient.^®* 
Thus  the  wrongful  expulsion  of  a  member  of  a  mutual  benefit  associa- 
tion, whereby  he  is  denied  any  rights  to  benefits  contracted  for,  will 
afford  ground  for  an  action  to  recover  premiums  paid.^®*  So  an  as- 
signment made  by  an  insolvent  insurer  for  the  benefit  of  his  creditors 
constitutes  a  breach  of  his  contract,  and  the  claims  of  the  policy  holders 
for  damages  must  be  reckoned  among  the  liabilities  of  the  insolvent.* •• 

When  the  contract  repudiated  by  the  insurer  grants  insurance  for  a 
definite  term,  for  which  a  definite  premium  has  been  paid,  as  in  the  cus- 
tomary contract  of  fire  insurance,  it  is  clear  that  the  insured  is  entitled 
to  receive  again  the  entire  premium  paid,  with  interest.     The  contract 

i8«  See  Rice  v.  Butler,  160  N.  Y.  578,  55  N.  E.  275,  47  L.  R.  A.  303,  73  Am. 
St.  Rep.  703. 

There  is  a  conflict  of  opinion  as  to  whether  an  infant  who  has  paid  cash, 
and  is  unable  to  return  the  consideration,  may  disaffirm  his  contract  and 
recover  the  cash  paid.  The  trend  of  modern  authority  seems  to  favor  the 
doctrine  as  stated  in  the  text 

187  McCall  V.  Insurance  Co.,  9  W.  Va.  237,  27  Am.  Rep.  558;  McKee  v. 
Insurance  Co.,  28  Mo.  383,  75  Am.  Dec.  129.  See,  also,  Braswell  v.  Insurance 
Co.,  75  N.  C.  8. 

188  If  a  mutual  company,  by  virtue  of  an  act  of  the  legislature,  abandons 
its  plan  of  insurance  without  the  insured's  knowledge  or  consent,  and  there- 
by reduces  its  funds  upon  which  the  insured  relies  for  payment  of  endow- 
ments contracted  for,  he  may  rescind  the  contract,  and  is  entitled  to  a  return 
of  the  premiums  paid  thereon.  People's  Mut  Ins.  Fund  v.  Bricken,  92  Ky. 
297,  17  S.  W.  625.  So  where  a  benefit  society  issued  plaintiff  a  certificate 
for  $5,000,  and  by  a  subsequent  by-law  reduced  all  certificates  to  $2,000,  It 
was  held  that  a  tender  of  a  certificate  for  $2,000  to  the  plaintiff  amounted 
to  such  a  repudiation  of  the  contract  as  entitled  him  to  recover  all  premiums 
paid.  Supreme  Council  American  Legion  of  Honor  v.  Jordan,  117  Ga.  808, 
45  S.  E.  33. 

i8»  But  such  a  member  Is  not  entitled  to  a  recovery  of  premiums  because 
of  wrongful  expulsion  when  he  has  neglected  to  pursue  within  the  order 
such  remedies  as  were  open  to  him  under  the  association's  regulations.  Su- 
preme Council  Catholic  Knights  of  America  v.  Gambatl,  29  Tex.  Civ.  App. 
80,  69  S.  W.  114. 

i»o  Clark  v.  Insurance  Co.,  130  Ind.  332,  30  N.  E.  212.  See,  also.  In  re  Min- 
neapolis Mut  Fire  Ins.  Co.,  49  Minn.  291,  51  N.  W.  921;  Smith  v.  Insurance 
Co.,  65  Minn.  283,  68  N.  W.  28,  33  L.  R.  A.  511. 


i^" 


244 


THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


is  entire,  and  the  considerations  given  by  the  respective  parties  not  ap- 
portionable.     Hence  a  failure  on  the  part  of  the  insurer  to  give  any  part 
of  the  insurance  promised  works  a  total  failure  of  consideration  for  the 
premium  received,  which  may,  consequently,  be  recovered  by  the  in- 
sured as  money  had  and  received.     But  when  the  contract  so  repudi- 
ated is  in  the  form  of  the  usual  life  insurance  contract,  for  the  indefinite 
term  of  a  life's  duration,  and  for  a  consideration  paid  in  periodic  pre- 
miums, it  is  much  more  difficult  to  arrive  at  a  just  determination  of  the 
rights  of  the  parties.     In  Day  v.  Connecticut  General  Life  Ins.  Co.^®^ 
it  is  stated  that,  if  the  insurer  wrongfully  declares  a  policy  forfeited, 
three  courses  are  left  open  to  the  insured :     (1)  He  may  elect  to  con- 
sider the  poHcy  at  an  end,  and  in  a  proper  action  recover  its  just  value ; 
or  (2)  he  may  institute  proceedings  to  have  the  policy  adjudged  in  force ; 
or  (3)  he  may  tender  the  premium,  and  then  wait  till  the  policy  became 
payable  by  its  terms,  when  it  can  be  enforced.     This  statement  of  the 
law  has  been  approved  by  Mr.  Bacon,^®'*  and  adopted  by  at  least  one 
court,^*'  but  there  is  much  difference  of  opinion  as  to  whether  the  in- 
surer, upon  breach  of  the  contract,  shall  be  liable  to  pay  to  the  insured 
the  "just  value"  of  the  policy,^®*  or  the  sum  of  all  the  premiums  re- 
ceived,^ ••  or  such  sum  as  will,  under  the  circumstances  of  the  particu- 

i»i  45  Conn.  480,  29  Am.  Rep.  693. 

i»2  Bac.  Ben.  Soe.  §  376.     See,  also,  Joyce,  Ins.  8  1659. 

i»8  Mutual  Reserve  Fund  Life  Ass'n  v.  Taylor,  99  Va.  208,  37  S.  B.  854. 

i«4  Day  V.  Insurance  Co.,  45  Conn.  480,  29  Am.  Rep.  693;  L.ovell  v.  Insur- 
ance Co.,  Ill  U.  S.  264,  4  Sup.  Ct.  390,  28  L.  Ed.  423. 

i»8  The  rule  that  upon  the  insurer's  wrongful  termination  of  the  contract 
the  insured  is  entitled  to  recover  all  premiums  paid,  with  interest  on  each 
from  the  date  of  payment  seems  supported  by  the  clear  weight  of  authority. 
McKee  v.  Insurance  Co.,  28  Mo.  383,  75  Am.  Dec.  129;  McCall  v.  Insurance 
Co.,  9  W.  Va.  237,  27  Am.  Rep.  558.  In  North  Carolina  there  is  a  long  and 
unbroken  line  of  authorities  to  the  same  effect  Braswell  v.  Insurance  Co., 
75  N.  C.  8;  Lovick  v.  Association,  110  N.  O.  93,  14  S.  B.  506;  Bumis  v.  In- 
surance Co.,  124  N.  C.  9,  32  S.  E.  323;  Hollowell  v.  Insurance  Co.,  126  N.  C. 
398,  35  S.  E.  616;  Strauss  v.  Association,  126  N.  C.  976,  36  S.  E.  352,  54  L. 
R.  A.  605,  83  Am.  St.  Rep.  699;  s.  c.  128  N.  C.  468,  39  S.  B.  55,  54  L.  R.  A. 
605,  83  Am.  St  Rep.  699;    Gwaltney  v.  Society,  132  N.  C.  925,  44  S.  B.  659. 

See,  also,  Putnam  v.  Insurance  Co.,  42  La.  Ann.  739,  7  South.  602;  VAN 
WERDBN  V.  SOCIETY,  99  Iowa,  621,  68  N.  W.  892;  Supreme  CouncU  Amer- 
ican Legion  of  Honor  v.  Jordan,  117  Ga.  808,  45  S.  B.  33;  Suess  v.  Insurance 
Co.,  64  Mo.  App.  1 ;  Union  Cent  Life  Ins.  Co.  v.  Pottker,  33  Ohio  St  459,  31 
Am.  Rep.  555;  Helme  v.  Insurance  Co.,  61  Pa.  107,  100  Am.  Dec.  621;  Fisher 
v.  Insurance  Co.,  69  N.  Y.  161. 

In  Day  v.  Insurance  Co.,  45  Conn.  480,  29  Am.  Rep.  693,  an  action  was 
brought  upon  an  implied  contract  of  the  insurer  to  receive  the  premiums  ten- 
dered and  keep  the  policy  in  force.  The  insured  claimed  to  recover  all  pre- 
miums paid,  although  he  had  not  elected  to  rescind  the  principal  contract 
The  court  denied  the  existence  of  such  an  implied  contract  and  held  that  no 
action  would  lie  unless  the  contract  were  rescinded,  in  which  case  the  "eq- 
uitable and  just  value"  of  the  policy  might  be  recovered. 


§§  85-86)  WHEN  PREMIUMS   MAY  BE   RECOVERED.  ^45 

lar  case,  compensate  him  for  the  damage  suffered.^®'  In  some  respects 
a  life  insurance  contract  extends  from  year  to  year.  The  premium  is 
paid,  and  the  risk  newly  attaches,  each  succeeding  year.  It  would 
therefore  seem  scarcely  fair  to  the  insurer  to  apply  straitly  the  same 
rule  as  obtains  in  fire  insurance  contracts.  During  the  years  in  which 
the  policy  was  recognized  as  in  force,  the  insured  received  protection 
as  partial  consideration  for  the  premiums  paid,  and  to  allow  him  to 
recover  the  whole  of  his  premiums,  after  having  received  such  benefit, 
would  be  to  accord  him  more  than  his  due.  Neither,  it  seems,  would  it 
be  just  in  all  cases  to  limit  his  recovery  to  the  value  of  the  policy  at 
the  time  of  breach.  The  insured  is  entitled  to  be  put  in  as  good  a  posi- 
tion as  he  occupied  before  the  wrongful  act  of  the  insurer.^®^  To  give 
him  the  value  of  his  policy  would  accomplish  this  result  only  when  he  is 
in  good  health  and  insurable.  If  he  is  suffering  from  a  serious  disease, 
or  if  for  any  other  reason  his  expectancy  of  Ufe  is  reduced  below  the 
average  for  his  age,  the  equitable  value  of  his  policy  would  in  no  wise 
compensate  him  for  its  loss.  For  these  reasons  it  would  seem  that  the 
insurer  should  not  be  held  liable  for  all  the  premiums  paid,  nor  for  the 
"just  value"  of  the  policy,  but  rather,  as  held  by  the  Minnesota  court,"* 
for  the  damage  actually  resulting  at  the  date  of  the  repudiation,  due 
account  being  taken  of  the  value  of  insurance  already  had."' 

In  case  the  insurer's  insolvency  occasions  his  breach  of  contract,  the 
authorities  seem  agreed  that  the  holders  of  fire  poHcies  are  entitled  to 
recover  only  the  unearned  portion  of  premiums  paid,  and  not  the  whole 
amount.*****  In  life  insurance  the  right  of  the  insured  against  the  in- 
solvent insurer  is  to  receive  the  equitable  value  of  his  policy,  and  not 
the  premiums  paid.*®^ 

Statutes  Requiring  Return  of  Premiums, 

Pursuant  to  the  general  legislative  policy  of  protecting  the  unwary 
public  against  the  lurking  conditions  of  forfeiture  in  which,  policies  are 
apt  to  abound,  statutes  have  been  enacted  in  some  states  requiring  a 
return  of  premiums  received  by  the  insurer  before  he  shall  be  allowed 

!••  Ebert  v.  Association,  81  Minn.  116,  83  N.  W.  506,  84  N.  W.  457. 

i»T  "Where  one  party  to  an  executory  contract  prevents  performance  of 
it  or  puts  it  out  of  his  own  power  to  perform  it,  the  other  party  may  regard 
it  as  terminated  and  demand  whatever  damages  he  has  sustained  thereby.'* 
Lovell  V.  Insurance  Co.,  Ill  U.  S.  264,  4  Sup.  Ct  390,  28  L.  Ed.  423. 

188  Ebert  v.  Association,  81  Minn.  116,  83  N.  W.  506,  84  N.  W.  457. 

!•»  See  this  view  approved  In  People  v.  Security  Life  Ins.  &  Annuity  Co.,  78 
N.  Y.  114,  at  page  126,  34  Am.  Rep.  522. 

200  Smith  V.  Insurance  Co.,  65  Minn.  283,  68  N.  W.  28,  33  L.  R.  A.  511. 
And  see  1  Wood,  Ins.  §  147;  People  v.  Security  Life  Ins.  &  Annuity  Co.,  78 
N.  T.  114,  34  Am.  Rep.  522.  Dewey  v.  Davis,  82  Wis.  500,  52  N.  W.  774„ 
seems  to  be  contra. 

201  People  v.  Security  Life  Ins.  &  Annuity  Co.,  78  N.  Y.  114,  34  Am.  Repw 
522;  Universal  Life  Ins.  Co.  v.  Binford,  76  Va.  103. 


'! 


246 


THE   CONSIDERATION PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 


to  set  up,  in  defense  of  an  action  on  the  policy,  any  misrepresentation 
alleged  to  have  been  made  in  securing  such  policy.*®'  Many  other  pro- 
visions varying  the  common-law  rules  may  be  found  in  the  several 
states.  Thus  it  is  provided  by  the  Civil  Code  of  California  ***  that : 
"Where  the  insurance  is  made  for  a  definite  period  of  time  and  the  in- 
sured surrenders  his  policy,  he  is  entitled  to  a  return  of  such  propor- 
tion of  the  premium  as  corresponds  with  the  unexpired  time  after 
deducting  from  the  whole  premium  any  claim  for  loss  or  damage  un- 
der the  policy  which  had  previously  accrued."  So  in  Virginia  it  is 
provided  that  in  case  of  the  loss  of  property  insured  under  a  policy,  by 
the  terms  of  which  the  insurer  is  liable  to  pay  less  than  the  sum 
written  on  its  face,  and  on  which  premiums  have  been  paid,  the 
insurer  shall  be  held  liable  to  return  to  the  insured  a  part  of  the  pre- 
mium, proportioned  to  the  excess  of  the  amount  of  the  policy  over  the 

amount  actually  paid.*®* 

'i 

When  the  Risk  has  never  Attached. 

A  second  rule  was  laid  down  by  Lord  Mansfield,  in  Tyrie  v.  Fletch- 
er,*®* as  a  corollary  to  the  one  first  quoted  above,  to  this  effect :  "Where 
the  risk  has  not  been  run,  whether  its  not  having  been  run  was  owing 
to  the  fault,  pleasure,  or  will  of  the  insured,  or  to  any  other  cause,  the 
premium  shall  be  returned,  because  a  policy  of  insurance  is  a  contract 
of  indemnity.  The  underwriter  receives  a  premium  for  running  the 
risk  of  indemnifying  the  insured,  and  whatever  cause  it  be  owing  to,  if 
he  does  not  run  the  risk,  the  consideration  for  which  the  premium  or 
money  was  put  into  his  hands  fails,  and  therefore  he  ought  to  return 
it" 

The  rule  so  stated,  notwithstanding  the  eminent  respectability  of  itb 
origin,  has  not  been  accepted  without  qualification.  Its  terms  are  too 
broad.  If  the  fault  of  the  insured,  to  which  the  failure  of  the  risk  to 
attach  was  due,  was  willful  and  fraudulent,  the  insurer  may  neverthe- 
less retain  the  premiums,  for  the  insured  shall  not  profit  by  his  own 
wrong.  If  the  policy  was  void  from  its  inception  by  reason  of  the  un- 
truth of  any  representation  or  warranty,  the  right  of  the  insured  to 
have  again  his  premiums  depends  solely  on  the  character  of  the  misrep- 
resentation **• — ^if  fraudulent,  he  cannot  recover;*®^  but  if  innocent, 

toj  See  section  5977,  Rev.  St.  Mo.,  as  applied  in  NEW  YORK  LIFE  INS. 
00.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct  837,  29  L.  Ed.  934. 

208  §  2617. 

ao*  See  Acts  Va.  1897-98,  p.  636.  For  provisions  of  somewhat  similar  Im- 
port in  the  French  Code  de  Commerce,  §  356,  see  Barb.  Ins.  p.  100. 

soBCowp.  666;    Richards,  Ins.  Cas.  265. 

«oe  Fisher  v.  Insurance  Co.,  160  Mass.  386,  35  N.  E.  849,  39  Am.  St.  Rep. 
495.     See  Civ.  Code  Cal.  §  2619. 

207  Himely  v.  Insurance  Co.,  1  Mill,  Const.  (S.  C.)  153,  12  Am.  Dec.  623; 
Blaeser  t.  Insurance  Oo.,  37  Wis.  31,  19  Am.  Rep.  747. 


§g  85-86)  WHEN   PREMIUMS  MAY  BE   RECOVERED.  247 

he  may  recover."'  And  the  fact  that  the  insurer  would  be  estopped, 
by  reason  of  his  false  representations  in  securing  the  policy,  to  deny  his 
liability  on  the  policy,  does  not  prevent  the  innocent  insured  from 
avoiding  the  policy  ab  initio,  and  recovering  all  ptemiums  paid,  with  in- 
terest thereon.  As  said  by  the  court  in  Hogben  v.  Metropolitan  Life 
Ins.  Co. :  *<**  "Her  money  had  been  paid  in  reliance  on  a  valid  con- 
tract, and  not  on  the  chance  of  an  estoppel."  But  when  the  misrep- 
resentations are  not  material  to  the  insured,  nor  in  any  wise  injure  him, 
but  affect  the  insurer  only,  the  insured  cannot  rescind  the  contract  and 
require  the  return  of  his  premiums.*^® 

Same — Overinsurance. 

Another  application  of  the  rule  that  premiums  paid  for  a  risk  that 
never  attaches  are  recoverable  is  found  in  the  case  of  overinsurance 
The  law  is  thus  stated  by  Mr.  Arnould  in  his  excellent  work  on  Marine 
Insurance:  *"  "With  regard  to  return  of  premium  for  short  interest, 
overinsurance,  and  double  insurance,  the  principle  on  which  the  cases 
depend  is  simply  this :  That  if  the  underwriter  could  at  any  time,  and 
under  any  conceivable  circumstances,  have  been  called  on  to  pay  the 
whole  sum  on  which  he  has  received  premium,  in  such  case  the  whole 
premium  is  earned,  and  there  shall  be  no  return.  If,  on  the  other  hand, 
he  could  never  in  any  event  have  thus  been  called  on  to  pay  the  whole, 
but  only  a  part  of  the  amount  of  his  subscription— say  a  half  or  a  fourth 
—he  ought  not  to  retain  a  larger  proportion  than  one-half  or  one-fourth 
of  the  premium,  and  must  return  the  residue." 

American  marine  policies  usually  contain  a  provision  that,  if  the 
insurer  shall  be  exonerated  by  prior  insurance  from  any  part  of  the 
sum  insured,  a  ratable  portion  of  the  premium  shall  be  returned."* 

When  Insurance  is  Illegal. 

When  the  insurance  is  void  because  illegal,  the  general  rule  is  that 
the  premiums  cannot  be  recovered.*"  But  if,  in  fact,  the  parties  are 
not  in  pari  delicto,  the  law  will  suffer  an  innocent  insured  to  take  again 

208  Jones  V.  Insurance  Co.,  90  Tenn.  604,  18  S.  W.  200,  25  Am.  St  Rep.  706; 
Insurance  Co.  v.  Pyle,  44  Ohio  St.  19,  4  N.  E.  465,  58  Am.  Rep.  781;   Feise  v. 

Parkinson,  4  Taunt.  639. 

209  69  Conn.  503,  38  Atl.  214,  61  Am.  St.  Rep.  53.  See,  also,  Delouche  v. 
Insurance  Co.,  69  N.  H.  587,  45  Atl.  414,  in  wliich  it  was  held  that  the  in- 
sured, under  similar  circumstances,  could  recover  the  premiums  paid,  less 
the  value  of  the  insurance,  and  that  she  was  not  obliged  to  accept  a  paid-up 
policy  or  reinstatement  offered. 

2ioMailhoit  v.  Insurance  Co.,  87  Me.  374,  32  Atl.  989,  47  Am.  St  Rep.  336. 

211  Vol.  2  (7th  Ed.)  p.  1426,  §  1259. 

212  2  Phil.  Ins.  §  1839.  And  see  general  rule  well  stated  In  sections  2620- 
2622,  Civ.  Code  Cal. 

213  Andree  v.  Fletcher,  3  T.  R.  266;   Howard  Y.  Refuge  Friendly  Soc,  64 

L.  T.  644. 


I 


248  THE   CONSIDERATION — PREMIUMS   AND   ASSESSMENTS.         (Ch.  6 

his  premiums,"*  as  when  the  insured  was  ignorant  of  the  facts  which 
rendered  the  insurance  illegal.""  It  is  also  held  "«  that  where  one, 
having  no  insurable  interest  in  the  life  insured,  paid  premiums  in  the 
bona  fide  belief,  induced  by  the  statements  of  the  insurer,  that  such 
insurance  was  valid,  he  may  recover  the  premiums  paid  despite  the  fact 
that  the  contract  was  illegal.  But  it  is  otherwise  when  the  insured  w::s 
a  party  to  the  wrong.*" 

As  heretofore  shown,  a  policy  issued  without  the  consent  of  the  life 
insured  is  void.  Therefore,  when  a  wife  expends  money  intrusted  to 
her  for  housekeeping  purposes  in  paying  premiums  upon  a  policy  taken 
upon  the  life  of  her  husband  without  his  knowledge  or  consent,  the 
husband  may,  upon  discovering  the  fraud  and  furnishing  clear  proof 
that  the  moneys  paid  were  his  own,  recover  from  the  insurer  all  pre- 
miums so  paid,  with  interest  thereon.*^*  Such  cases  escape  the  settled 
rule  that  a  person  who  takes  embezzled  funds  in  due  course  of  business, 

«i*  In  holding  that  an  assignee  could  recover  premiums  paid  upon  an  ille- 
gally assigned  policy,  the  Indiana  court,  in  American  Mut.  Life  Ins.  Co.  v. 
Bertram  (Ind.)  70  N.  a  258,  said:  "The  question,  then,  is,  had  the  appellee, 
as  the  assignee  of  the  policy,  under  the  circumstances  hereinbefore  stated, 
the  right  to  recover  the  premiums  and  assessments  paid  by  her  on  account 
of  the  supposed  insurance?  The  general  rule  is  that  an  action  will  not  lie  to 
recover  premiums  paid  upon  an  insurance  which  is  illegal  by  reason  of  the 
policy  being  illegal  by  statute,  or  by  reason  of  the  Illegality  of  the  adventure 
insured.  14  English  Ruling  Cas.  533;  Lowry  v.  Bourdleu,  2  Dougl.  468;  Van 
Dyck  V.  Hewitt,  1  East,  96;  Russell  v.  De  Grand,  15  Mass.  35;  Welsh  v.  Cut- 
ler, 44  N.  H.  561;  Feise  v.  Parkinson,  4  Taunt.  640;  Anderson  v.  Thornton, 
8  Ex.  425;  Waller  v.  Northern  Assur.  Co.,  64  Iowa,  101,  19  N.  W.  865;  Rich- 
ards V.  Marine  Ins.  Co.,  3  Johns.  (N.  Y.)  307;  NEW  YORK  LIFE  INS.  CO. 
V.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct,  837,  29  L.  Ed.  934.  But  it  Is  held 
that  this  rule  does  not  apply  where  there  has  been  no  fraud  on  the  part  of 
the  plaintiff,  where  the  policy  is  void  because  of  innocent  misrepresentations, 
where  the  plaintiff  has  been  induced  to  take  out  the  policy  by  the  fraud  of 
the  insurer,  and  is  himself  innocent  or  where  it  is  clear  that  the  policy  was 
not  a  wagering  contract,  but  was  taken  out  under  a  mistake  in  regard  to  the 
rights  of  the  party  insured.  In  this  case  It  is  to  be  borne  In  mind  that  the 
appellee  herself  did  not  take  out  the  policy,  but  that,  with  the  knowledge 
and  consent  of  the  appellant,  and  at  its  solicitation,  she  took  an  assignment 
of  it.'* 

218  Oom  V.  Bruce,  12  East,  225;  Henry  ▼.  Stanlforth,  4  Oamp.  270,  5  M.  & 
S.  122.    See  2  Am.  Ins.  (7th  Ed.)  S  1255. 

ai«  Hogben  v.  Insurance  Co.,  69  Conn.  503,  38  Atl.  214,  61  Am.  St  Rep.  53. 

«i7  Fisher  v.  Insurance  Co.,  160  Mass.  386,  35  N.  E.  849,  39  Am.  St  Rep. 
495.  Where  the  policy  is  made  void  by  statute  the  parties  are  in  pari  delic- 
to, and  there  can  be  no  recovery.    Wheeler  v.  Association,  102  III.  App.  48. 

«i8  Metropolitan  Life  Ins.  Co.  v.  Smith,  59  S.  W.  24,  22  Ky.  Law  Rep.  868, 
53  U  R.  A.  817;  Metropolitan  Life  Ins.  Co.  v.  Monohan,  102  Ky.  13,  42  S. 
W.  924;  Metropolitan  Life  Ins.  Co.  v.  Sehlhorst  53  S.  W.  524,  21  Ky.  Law 
Rep.  912;  Metropolitan  Life  Ins.  Oo.  v.  Trende,  53  S.  W.  412,  21  Ky.  Law 
Rep.  909. 


g§  85-86) 


WHEN   PREMIUMS  MAY  BE   RECOVERED. 


249 


S19 


for  value  and  in  good  faith,  can  hold  them  against  the  true  owner. 
For  here  the  insurer,  though  perhaps  taking  the  premiums  in  due 
course  of  business  and  in  good  faith,  gives  no  value  therefor,  the  in- 
surance granted  being  void  ab  initio.  There  may  be  some  further  ques- 
tion as  to  whether  the  insurer  issuing  policies  upon  the  lives  of  persons 
never  examined  or  personally  consulted  can  be  said  to  receive  premiums 
paid  on  such  policies  in  good  faith. 

If,  however,  the  husband  subsequently  recognizes  such  a  policy  as 
valid,  it  seems  that  his  consent  will  relate  back  to  the  inception  of  the 
policy,  and  bar  any  action  for  the  recovery  of  premiums. 


220 


•iv  Overseers  of  Poor  of  Norfolk  v.  Bank  of  Virginia,  2  Grat.  (Va.)  544,  44 
Ara.  Dec.  399.  Commercial  Nat  Bank  v.  Armstrong  (C.  C.)  39  Fed.,  at  page 
691 

22C  Wakeman  v.  Metropolitan  Ins.  Co.,  30  Ont  Rep    705 


250 


CONCSAIiMBNT. 


(Ch.7 


CHAPTEB  VIL 

THE  CONSENT  OF  THE  PARTIES— CONCEALMENT, 

87-89.  General  Principles. 

90-92.  What  must  be  Disclosed. 

83-94.  When  Facts  Concealed  are  to  be  Deemed  Materiat 

95.  When  Duty  to  Disclose  Terminates. 

96.  Disclosure  Rendered  Unnecessary  by  Special  Circumstancea. 
87.  Facts  Unknown  to  Insured,  but  Known  to  his  Agent. 


g§  90-92) 


WHAT  MUST  BE   DISCLOSED. 


251 


Option  of  the  other  party.  No  question  of  actual  fraud  is  involved.* 
There  may  be  a  breach  of  this  obligation  by  a  party  acting  in  perfect 
good  faith.  In  fact,  the  condition  imposed  by  the  law  is  rather  one  of 
guaranty  that  all  material  information  possessed  by  the  one  party  has 
been  correctly  given  to  the  other." 

There  may  often  arise  questions  as  to  whether  statements  made  are 
material  or  not.  It  is  competent  for  the  parties  to  settle  such  questions 
in  advance,  and  to  agree  that  certain  statements  shall  be  deemed  ma- 
terial and  essential  conditions  of  the  contract.  Such  statements  be- 
come warranties.  Thus  arise  the  peculiar  doctrines  of  concealment, 
representations,  and  warranties,  which  are  now  to  be  discussed. 


GENERAIi  PRINCIPLES. 

87.  Tke  eoAseni  of  the  parties  to  the  contract  of  insurance  is  vitiated 

not  only  by  fraud  and  mistake,  but  also  by  any  failure  on  the 
part  of  either  to  exercise  that  high  degree  of  good  faith  which 
the  peculiar  relation  of  the  parties  requires. 

88.  The  exercise  of  such  good  faith  requires 

(a)  That  each  party  shall  disclose  to  the  other  all  material  facts 

known  to  him. 

(b)  That  all  material  representations  shall  not  only  be  made  In  good 

faith,  but  shall  also  be  substantially  true. 

89.  The  parties  may  by  agreement  make  any  representation  or  any 

promise,  however  trivial,  an  essential  part  of  the  contract, 
upon  the  truth  or  performance  of  which  the  existence  of  the 
contract  is  made  to  depend.  Such  a  representation  or  promise 
is  known  as  a  warranty. 

Contracts  of  insurance  are  affected  by  the  presence  ot  iraud  and 
mistake  in  their  making  in  like  manner  as  other  contracts.  For  dis- 
cussions of  the  rights  of  parties  to  general  contracts  characterized  by 
fraud  and  mistake,  the  reader  is  referred  to  treatises  on  general  con- 
tract law.^  The  scope  of  this  work  requires  that  only  those  principles 
in  regard  to  reality  of  consent  which  are  peculiar  to,  or  have  peculiar 
applications  to,  the  contract  of  insurance,  shall  be  discussed.  The  most 
striking  of  these  grow  out  of  the  fact  that  the  parties  to  this  contract 
are  not  on  equal  footing  in  making  it.  The  insurer  must  secure  from 
the  insured  much  of  the  information  upon  which  he  bases  his  calcula- 
tions as  to  the  character  of  the  risk  proposed,  while  the  insured  is  un- 
der an  equal  necessity  of  learning  from  the  insurer  the  latter's  methods 
of  conducting  his  business.  Hence  arise  the  obligations  on  the  part 
of  each  to  state  to  the  other  all  facts  material  to  the  risk,  and  to  make 
those  statements  correspond  with  the  facts — ^to  tell  the  whole  truth,  and 
nothing  but  the  truth— on  pain  of  making  the  contract  voidable  at  tlie 

1  See  Clark,  Cent  c  7. 


WHAT  MUST  BE  DISCLOSED.  , 

90.  In  England  the  insured  is  under  obligation  to  disclose  to  the  in- 

surer every  material  fact  that  is  or  ought  to  be  known  to  the 
insured.  The  presence  of  a  corrupt  intent  on  the  part  of  the 
insured  is  wholly  im.material. 

91.  In  the  United  States  the  rule  as  stated  above  applies  only  to  n&a- 

rine  insurance.  In  making  contracts  of  fire  and  life  insurance, 
the  insured  must  disclose 

(a)  All  facts  as  to  n^hich  inquiries  are  made. 

(b)  All  other  material  facts,  the  concealment  of  which  urould  amount 

to  bad  faith. 

92.  THE  EFFECT  of  concealing  a  fact  that  should  be  disclosed  is  to 

render  the  contract  voidable  at  the  option  of  the  injured  party. 

The  Duty  to  Disclose — English  Doctrine. 

The  original  mode  of  underwriting  marine  risks  at  Lloyd's,  as  ex- 
plained above,  was  for  the  applicant  to  submit  to  the  different  under- 
writers a  slip  containing  a  description  of  the  proposed  risk,  which  was 
initialed  by  such  as  chose  to  insure  the  risk  as  described,  in  such  sums 
within  a  given  total  as  each  saw  fit.  The  nature  of  this  transaction 
precluded  inspection  of  the  risk  by  the  underwriter,  and  compelled  en- 
tire reliance  upon  the  description  as  given  by  the  insured  in  determin- 
ing whether  the  risk  would  be  assumed,  and,  if  so,  at  what  rate  of  pre- 
mium. Such  a  course  of  business  necessarily  g^ve  rise  to  the  rule  that 
the  description  presented  by  the  applicant  for  insurance  should  fully 
and  fairly  set  forth  all  the  facts  concerning  that  risk  that  would  influ- 

2  Carrollton  Furniture  Mfg.  Co.  y.  American  Credit  Indemnity  Co.,  115 
Fed.  77,  52  C.  0.  A.  671.  The  rale  as  stated  above  is  the  general  rale.  As 
will  be  seen  later,  the  rule  In  this  country  with  regard  to  Are  and  life  insur- 
ance is  different. 

8  For  a  discussion  of  the  grounds  upon  which  an  insurance  contract  Is  held 
to  be  avoided  by  mere  misrepresentation,  see  post,  p.  270. 


252 


CONCEALMENT. 


(Ch.7 


ence  the  underwriter  in  accepting  or  rejecting  it.  This  rule,  with  the 
reasons  upon  which  it  rests,  has  been  clearly  stated  by  Lord  Mansfield 
in  the  celebrated  leading  case  of  Carter  v.  Boehm,*  as  follows :  "The 
special  facts  upon  which  the  contingent  chance  is  to  be  computed  lie 
most  commonly  in  the  knowledge  of  the  insured  only.  The  underwrit- 
er trusts  to  his  representation,  and  proceeds  upon  confidence  that  he 
does  not  keep  back  any  circumstance  in  his  knowledge  to  mislead  the 
underwriter  into  a  belief  that  the  circumstance  does  not  exist,  and  to 
induce  him  to  estimate  the  risk  as  if  it  did  not  exist.  The  keeping  back 
such  circumstance  is  a  fraud,  and  therefore  the  policy  is  void.  Al- 
though the  suppression  should  happen  through  mistake,  without  any 
fraudulent  intention,  yet  still  the  underwriter  is  deceived  and  the  pol- 
icy is  void,  because  the  risk  run  is  really  different  from  the  risk  under- 
stood and  intended  to  be  run  at  the  time  of  the  agreement." 

Although  Carter  v.  Boehm  did  not  involve  a  marine  risk,  but  the  in- 
surance of  a  fort  and  factory  in  Sumatra  against  capture,  the  rule  as 
there  laid  down  has  ever  since  been  accepted  as  a  correct  statement  of 
the  law  as  applicable  to  marine  insurance.* 

The  rule  thus  reasonably  established  in  marine  insurance  has,  in  Eng- 
land, after  some  faltering  on  the  part  of  the  courts  and  some  confusion 
in  the  decisions,*  been  extended  to  all  other  branches  of  insurance. 
Thus,  in  Lindenau  v.  Desborough,^  a  life  insurance  case,  Bayley,  J.» 
said :  "I  think  that  in  all  cases  of  insurance,  whether  on  ships,  houses, 
or  lives,  the  underwriter  should  be  informed  of  every  material  circum- 
stance within  the  knowledge  of  the  assured,  and  that  the  proper  ques- 
tion is  whether  any  peculiar  circumstance  was  in  fact  material,  and  not 
whether  the  party  believed  it  to  be  so." 

♦  GARTER  V.  BOEHM,  3  Burrows,  1905,  at  page  1909. 

» lonides  v.  Pender,  L.  R.  9  Q.  B.  531;  Son  Mut.  Ins.  Co.  ▼.  Ocean  Ins.  Co.» 
107  U.  S.  485,  1  Sup.  Ct  582,  27  L.  Ed.  337;  McLanahan  v.  Insurance  Co.,  1 
Pet.  (U.  S.)  170,  7  L.  Ed.  98;  Moses  v.  Insurance  Co.,  1  Wash.  C.  C.  385,  Fed. 
Cas.  No.  9,872. 

See,  also,  Oliver  v.  Greene,  3  Mass.  133,  3  Am.  Dec.  96;  Burritt  v.  Insur- 
ance Co.,  5  Hill  (N.  Y.)  189,  40  Am.  Dec.  345. 

«  In  Bufe  V.  Turner,  6  Taunt  338,  it  was  held  that  the  failure  to  disclose  a 
fact  which  the  Jury  found  material  to  a  fire  risk  avoided  the  policy,  although 
the  nondisclosure  was  in  entire  good  faith.  In  HUGUENIN  v.  RAYLEY, 
6  Taunt.  186,  and  Morrison  v.  Muspratt,  4  Bing.  60,  the  same  rule  was  ap- 
plied in  cases  of  life  insurance.  In  Wheelton  v.  Hardisty,  8  El.  &  Bl.  232, 
which  apparently  departs  from  the  rule  above  laid  down,  the  untrue  state- 
ment was  made  by  the  insured  and  without  knowledge  of  the  assured.  The 
language  of  Bayley,  J.,  in  LINDENAU  v.  DESBOROUGH,  8  Bam.  &  C.  58G. 
was  approved  in  LONDON  ASSURANCE  v.  MAIVBEL,  11  Ch.  Div.  363,  de- 
cided in  1879.  Ai  to  this  latter  case,  see  remarks  of  Mr.  Justice  Gray  in 
PHCENIX  MUT.  UPE  INS.  CO.  v.  RADDIN,  120  U.  S.  183.  7  Sup.  Ct.  500, 
SO  L.  Ed.  644. 

t  LINDENAU  V.  DESBOROUGH,  8  Bam.  &  C.  586. 


.. 


§§  90-92) 


WHAT  MUST  BE   DISCLOSED. 


253 


Same — The  American  Doctrine. 

The  American  rule  as  to  concealment  is  the  same  in  marine  insur- 
ance as  that  which  obtains  in  England.  "The  duty  of  communication, 
indeed,  is  independent  of  the  intention,  and  is  violated  by  the  fact  of 
concealment,  even  where  there  is  no  design  to  deceive."  ® 

While  a  few  of  the  early  American  decisions  *  show  a  tendency  to 
follow  the  English  cases  in  applying  to  contracts  of  fire  and  life  insur- 
ance the  same  strict  rule  as  to  concealment,  the  American  courts  soon 
recognized  the  fact  that  the  reason  did  not  accompany  the  rule  when 
imported  into  these  other  branches  of  insurance  law.  Thus,  in  an  early 
Ohio  Case,  Judge  Ranney  ^"  said :  "The  reason  of  the  rule,  and  the 
policy  on  which  it  was  founded,  in  its  application  to  marine  risks,  en- 
tirely fail  when  applied  to  fire  policies.  In  the  former  the  subject  of 
insurance  is  generally  beyond  the  reach,  and  not  open  to  the  inspection, 
of  the  underwriter,  often  in  distant  parts  or  upon  the  high  seas,  and 
the  peculiar  perils  to  which  it  may  be  exposed,  too  numerous  to  be  an- 
ticipated or  inquired  about,  known  only  to  the  owners  and  those  in  their 
employ ;  while  in  the  latter  it  is,  or  may  be,  seen  and  inspected  before 
the  risk  is  assumed,  and  its  construction,  situation,  and  ordinary  haz- 
ards as  well  appreciated  by  the  underwriter  as  by  the  owner.  In  ma- 
rine insurance  the  underwriter,  from  the  very  necessities  of  his  under- 
taking, is  obliged  to  rely  upon  the  assured,  and  has  therefore  the  right 
to  exact  a  full  disclosure  of  all  the  facts  known  to  him  which  may  in 
any  way  affect  the  risk  to  be  assumed.  But  in  fire  insurance  no  such 
necessity  for  reliance  exists,  and,  if  the  underwriter  assumes  the  risk 
without  taking  the  trouble  to  either  examine  or  inquire,  he  cannot  very 
well,  in  the  absence  of  all  fraud,  complain  that  it  turns  out  to  be  great- 
er than  he  anticipated.    And  so  are  die  latest  and  best  authorities." 

8  Sun  Mut  Ins  Co.  ^.  Ocean  Ins  Co.,  107  U.  S.  485,  1  Sup.  Ct  582,  27  L. 
Ed.  337.  In  BURRITT  v.  INSURANCE  CO.,  5  Hill  (N.  Y.)  188,  40  Am.  Dec. 
345,  Woodruff,  Ins.  Cas.  105,  the  court,  per  Bronson,  J.,  said:  "In  marine  in- 
surance the  misrepresentation  or  concealment  by  the  assured  of  a  fact  ma- 
terial to  the  risk  will  avoid  the  policy,  although  no  fraud  was  intended.  It 
is  no  answer  for  the  assured  to  say  thrft  the  error  or  suppression  was  the 
result  of  mistake,  accident,  forgetfulness,  or  inadvertence.  It  is  enough  that 
the  insurer  has  been  misled,  and  has  thus  been  induced  to  enter  into  a  con- 
tract which,  upon  correct  and  full  information,  he  would  either  have  declin- 
ed, or  would  have  made  upon  different  terms.  Although  no  fraud  was  in- 
tended by  the  assured,  it  is  nevertheless  a  fraud  upon  the  underwriter,  and 
avoids  the  policy." 

»  WALDEN  V.  INSURANCE  CO.,  12  La.  134,  82  Am.  Dec.  116,  Woodruff, 
Ins.  Cas.  104,  in  which  it  was  held  that  an  innocent  failure  to  disclose  an  at- 
tempt to  burn  an  adjacent  building  avoided  the  policy.  Curry  v.  Insurance 
Co.,  10  Pick.  (Mass.)  535,  20  Am.  Dec.  547.  See,  also.  Carpenter  v.  Insurance 
Co.  (per  Story,  J.)  1  Story,  57,  Fed.  Cas.  No.  2,428;  Vose  v.  Insurance  Co.,  6 
Cush.  (Mass.)  42;   Fowler  v.  Insurance  Co.,  6  Cow.  (N.  Y.)  673,  16  Am.  Dec. 

460. 

!•  Hartford  Protection  Ins.  Co.  v.  Harmer,  2  Ohio  St  452,  68  Am.  Dec.  684. 


i 


i'i 


■  ( 


254 


CONCEALMENT. 


(Ch.7 


In  addition  to  the  considerations  thus  stated  as  conducing  to  the  es- 
tablishment of  a  less  rigorous  rule  as  to  concealment  in  fire  and  life 
j  insurance,  the  later  cases  have  taken  into  account  the  customary  prac- 
^  j  tice  of  insurance  companies  in  making  these  contracts.     Property  up- 
on which  insurance  is  sought  is  inspected  on  behalf  of  the  insurer  by 
an  expert,  who  is  capable  of  forming  a  much  more  accurate  estimate  of 
the  character  of  the  risk  than  is  the  applicant  himself ;  and  the  person 
of  an  applicant  for  life  insurance  is  examined  by  a  skilled  physician 
with  such  a  degree  of  care  as  to  make  his  opinion  as  to  the  health  and 
probable  duration  of  the  life  of  the  applicant  far  more  reliable  than  that 
of  the  applicant  himself.     It  is  usual,  then— especially  in  life  insurance 
— to  require  of  the  applicant  written  answers  to  questions  concerning 
the  risk,  the  number  and  particularity  of  which  are  well  calculated  to 
lead  the  ordinary  man  to  believe  that  the  insurer  has  asked  for  all  the 
information  that  he  desired,  and  to  assume  that  information  in  his  pos- 
I  session  not  asked  for  by  the  insurer  is  deemed  by  the  latter  to  be  not 
Imaterial.^^     But  such  assumption  must  not  transcend  the  bounds  of 
good  faith.     If  the  applicant  is  aware  of  the  existence  of  some  circum- 
stance which  he  knows  would  influence  the  insurer  in  acting  upon  his 
application,   good   faith   requires  him   to  disclose  that   circumstance, 
though  unasked.     Hence  the  American  courts  have  come  to  recognize 
that  while,  in  estimating  the  character  of  the  proposed  risk,  the  insurer 
of  marine  risks  is  under  a  necessity  of  relying  absolutely  upon  the  knowl- 
edge and  good  faith  of  the  appHcant,  the  insurer  of  property  and  life 
y  I  relies  primarily  upon  the  information  acquired  by  methods  of  his  own 
1  J  selection,  and  looks  to  the  applicant  only  for  good  faith.     Accordingly, 
under  the  American  authorities,  the  rule  may  now  be  considered  as 
well  settled  that  the  failure  on  the  part  of  the  insured  to  disclose  any 
fact,  though  clearly  material,  will  not  avoid  a  fire  or  life  policy,  unless 
such  nondisclosure  was  fraudulent."     As  is  the  case  with  all  other 

(parties  alleging  fraud,  the  burden  of  proving  a  fraudulent  intent  in  the 
concealment  rests  heavily  upon  the  insurer,  and  the  question  is  neces- 

11  Gates  V.  Insurance  Oo..  6  N.  "^.  469,  55  Am.  Dec.  360;  Browning  v.  In- 
surance Co.,  71  N.  Y.  508,  27  Am.  Rep.  86;  Short  v.  Insurance  Co.,  90  N.  Y. 
16,  43  Am.  Kep.  138;  RAWLS  v.  INSURANCE  CO.,  27  N.  Y.  282,  84  Am.  Dec. 
280. 

12PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAVINGS  BANK  & 
TRUST  CO.,  72  Fed.  413,  19  O.  C.  A.  286,  38  L.  R.  A.  33;  Id.  73  Fed.  653,  19 
C.  O.  A.  316,  38  L.  R.  A.  33;  Wytheville  Ins.  Co.  v.  Stultz,  87  Va.  629,  13  S. 
E.  77;  Mallory  v.  Insurance  Co.,  47  N.  Y.  52,  7  Am.  Rep.  410;  RAWLS  v. 
INSURANCE  CO.,  27  N.  Y.  282,  84  Am.  Dec.  280;  Browning  v.  Insurance 
Co.,  71  N.  Y.  508,  27  Am.  Rep.  86;  West  Rockingham  Mut.  Fire  Ins.  Co.  v. 
Sheets,  26  Grat.  (Va.)  870.  See,  also.  National  Life  Ass'n  v.  Hopkins'  Adm'r, 
07  Va.  167,  33  S.  E.  539;  CLARK  v.  INSURANCE  CO.,  8  How.  (U.  S.)  235, 
12  L.  Ed.  1061. 

Fraudulent  concealment  of  value  of  property  will  avoid  policy.  Fireman's 
Fund  Ins.  Co.  v.  McGreevy,  118  Fed.  415,  55  C.  C.  A.  543. 


8§  yo-92) 


WHAT  MUST  BE  DISCLOSED. 


255 


sarily  for  the  jur>'."  But  it  has  been  said  "  that,  when  an  'undis- 
closed fact  is  palpably  material  to  the  risk,  the  mere  nondisclosure  is 
itself  strong  evidence  of  a  fraudulent  intent.  Thus,  if  a  man  about  to 
fight  a  duel  should  obtain  life  insurance  without  disclosing  his  mten- 
tion,  it  would  seem  that  no  argument  or  additional  evidence  would  be 
needed  to  show  the  fraudulent  character  of  the  nondisclosure."  So  it 
has  been  declared  that  if  any  extrinsic  peril  existed  outside  of  a  build- 
ing insured,  so  as  to  increase  the  risk,  it  would  be  the  duty  of  the  in- 
sured to  communicate  such  fact,  though  not  requested.^*  Failure  to 
disclose  the  fact  that  a  previous  attempt  had  been  made  to  burn  the 
building  insured  has  been  held  clearly  fraudulent,"  though  at  least  one 

i«  Daniels  v.  Insurance  Co.  (Mass.)  12  Cush.  416,  59  Am.  Dec.  192;  Levie 
V.  Insurance  Co.,  163  Mass.  117,  39  N.  E.  792;  Mutual  Life  Ins.  Co.  v.  Baker, 
10  Tex.  Civ.  App.  515,  31  S.  W.  1072;  Henn  v.  Insurance  Co.,  67  N.  J.  Law, 
310,  51  Atl.  689. 

But  in  a  recent  Georgia  case  (December,  1902),  Northwestern  Mut  Lite 
Ins.  Co.  V.  Montgomery,  116  Ga.  799,  43  S.  E.  79,  where  the  policy  was  incon- 
testable save  for  fraud,  the  court  said:  "Of  course,  intention  is  generally  a 
question  for  the  determination  of  the  jury;  and  the  conduct  of  the  parties, 
as  showing  a  fraudulent  intent,  is  generally  for  their  consideration.  But  in 
the  present  case  the  facts  were  such  that  they  could  properly  have  made  but 
one  finding.  The  applicant  for  insurance  made  in  his  application  a  false 
statement  with  reference  to  a  material  matter  of  fact.  The  statement  was 
false,  within  his  knowledge.  It  was  made  with  a  view  to  procuring  the  in- 
surance; was  made  deliberately,  and  with  an  agreement  that  it  should  be  re- 
garded as  a  warranty,  and  as  a  part  of  the  consideration  of  the  contract  of 
insurance.  The  company  had  no  notice  of  its  falsity,  and  acted  upon  it  to 
its  injury.  Purposely  misstating  this  material  fact,  in  order  to  induce  the 
company,  relying  upon  it,  to  enter  into  a  contract  which  might  prejudice  its 
rights,  would  be  consistent  with  no  other  intention  than  one  to  deceive  the 
company.  The  intention  to  deceive,  coupled  with  the  other  facts  in  the  case, 
conclusively  showed  fraud,  in  the  legal  acceptation  of  the  term.  What  the 
applicant  thought  or  intended  with  reference  to  the  consequences  of  his  false- 
hood cannot  be  material.  He  is  presumed  to  have  intended  the  natural  con- 
sequence of  what  he  purposely  and  knowingly  did.  We  are  therefore  of 
opinion  that  the  company  completely  made  out  its  defense,  and  that  the  evi- 
dence of  the  plaintiff  was  insufficient  to  overcome  it  We  are  also  of  opin- 
ion that  the  court  erred,  under  the  evidence  adduced,  in  leaving  the  jury  free 
to  find  that  there  was  no  bad  faith  or  intent  to  deceive  on  the  part  of  the 
insured  ** 

i*PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS*  SAVINGS  BANK  & 
TRUST  CO.,  72  ^ed.  413,  435,  19  0.  C.  A.  286,  38  L.  R.  A.  33. 

IB  CLARK  V.  INSURANCE  CO.,  8  How.  (U.  S.)  235,  250,  12  L.  Ed.  1061. 

Where  an  applicant  for  insurance  failed  to  disclose  the  fact,  known  to  him, 
that  a  fire  was  then  raging  in  the  vicinity  of  the  property  to  be  insured,  such 
concealment  was  in  bad  faith,  and  avoided  the  policy.    Orient  Ins.  Co.  v. 

Peiser,  91  111.  App.  278. 

i«WALDEN  V.  INSURANCE  CO.,  12  La.  134,  32  Am.  Dec.  116:  Orient 
Ins.  Co.  V.  Peiser,  91  111.  App.  278;  Bufe  v.  Turner,  6  Taunt  338.  See,  also^ 
Bebee  v.  Insurance  Co.,  25  Conn.  56,  65  Am.  Dec.  553. 


i   ' 


256 


CONCEALMENT. 


(Ch.  7 


court  is  of  a  contrary  opinion.*^  So,  if  a  building  insured  is  used  for 
some  extraordinary  purpose,  or  if  business  is  carried  on  therein  in  some 
unusual  manner,  so  that  the  risk  is  thereby  enhanced,  nondisclosure  of 
such  fact  would  be  evidence  of  bad  faith  on  the  part  of  the  insured.^* 
But  a  failure  to  disclose  the  existence  of  an  incumbrance  ^*  upon  prop- 
erty insured,  or  the  fact  that  the  owner  of  the  property  is  a  married 
woman,*®  does  not  avoid  the  policy,  in  the  absence  of  proof  of  a  fraud- 
ulent intent. 

A  statement  made  by  the  insured  in  the  application  to  the  effect  that 
he  had  therein  communicated  fully  and  fairly  all  facts  material  to  the 
risk,  or  asserting  that  there  are  no  other  facts  that  should  be  disclosed 
in  respect  to  the  risk,  does  not  enlarge  the  duty  of  the  insured  as  to  dis- 
closures.*^ It  is  still  for  the  insured  to  decide  upon  the  materiality  of 
the  fact  in  question,  and  a  failure  to  disclose  a  fact  known  to  be  ma- 
terial would  be  a  breach  of  good  faith,  even  in  the  absence  of  such 
stipulation. 

When  no  Questions  are  Asked, 

It  not  infrequently  happens  that  fire  policies  are  issued  without  re- 
quiring the  usual  application  to  be  filled  out,  and  without  making  any 
inquiries  of  the  insured  as  to  the  character  of  the  risk.  It  seems  to  be 
held  without  dissent  in  this  country  that  such  a  course  of  procedure 
does  not  change  the  rule  as  to  the  insured's  duty  to  disclose  material 
facts.**  The  insured  is  justified  in  supposing  that  the  taciturn  insurer 
has  otherwise  acquired  all  the  information  he  desired,  and  need,  there- 
fore, volunteer  information  on  the  subject  of  the  risk  only  when  to  keep 
silence  would  be  bad  faith.    On  this  point  the  Supreme  Court  of  the 

IT  German-American  Ins.  Oo.  v.  Norris,  100  Ky.  29,  37  S.  W.  267,  66  Am. 
St.  Rep.  324.  In  this  ease  it  was  left  to  the  jury  to  say  whether  the  conceal- 
ment was  with  the  intent  to  obtain  insurance  fraudulently  or  not. 

18  CLARK  T.  INSURANCE  CO.,  8  How.  (U.  S.)  235,  12  U  Ed.  1061. 

i»  HALL  V.  INSURANCE  CO.,  93  Mich.  184,  53  N.  W.  727,  18  L.  R.  A.  135, 
32  Am.  St.  Rep.  497;  Dooly  v.  Insurance  Co.,  16  Wash.  155,  47  Pac.  507,  58 
Am.  St  Rep.  26;  Union  Assur.  Soc.  v.  Nails  (Va.)  44  S.  B.  896;  Morotock  Ins. 
Co.  V.  Rodefer,  92  Va.  747,  24  S.  E.  393,  53  Am.  St  Rep.  846;  West  Rocking- 
ham Mut  Fire  Ins.  Co.  v.  Sheets,  26  Grat  (Va.)  854;  Manhattan  Fire  Ins. 
Co.  V.  Weill,  28  Grat  (Va.)  389,  26  Am.  Rep.  364. 

20  Queen  Ins.  Co.  t.  Young,  86  Ala.  424,  5  Soutn.  116,  11  Am.  St  Rep.  51. 

*i  Louis  V.  Insurance  Co.,  58  App.  Div.  137,  68  N.  Y.  Supp.  683,  affirmed 
[1902]  172  N.  Y.  650,  65  N.  B.  1119.  See,  also,  PKNN  MUT.  LIFE  INS.  CJO. 
V.  MECHANICS*  SAVINGS  BANK  &  TRUST  CO..  72  Fed.  413,  19  C.  0.  A. 
286,  38  li.  B.  A.  33;  Browning  v.  Insurance  Co.,  71  N.  Y.  508,  27  Aul  Rep. 
86. 

22  Pelzer  Mfg.  Co.  ▼.  Sun  Fire  Office,  36  S.  O.  213,  15  S.  B.  562;  Johnson 
r.  Insurance  Co.,  93  Wis.  223,  67  N.  W.  416.  See,  however,  Smith  v.  Insur- 
ance Co.,  17  Pa.  253,  55  Am.  Dec.  546;  Dooly  ▼.  Insurance  Co.,  16  Wash.  159, 
47  Pac  606»  58  Am.  St  Rep.  29. 


§§  93-94)       WHEN   FACTS  CONCEALED   DEEMED  MATERIAL.  25T 

United  States  said :  "  "We  think  the  governing  test  on  it  must  be 
this:  It  must  be  presumed  that  the  insurer  has,  in  person  or  by 
agent,  in  such  a  case,  obtained  all  the  information  desired  as  to  the 
premises  insured,  or  ventures  to  take  the  risk  without  it,  and  that  the 
insured,  being  asked  nothing,  has  a  right  to  presume  that  nothing  on 
the  risk  is  desired  from  him." 

WHEN  FACTS  CONCEALED  ARE  TO  BE  DEEMED  MATERIAL. 

93.   THE  TEST  of  materiality  is  in  tlie  effect  wMcli  the  knowledge  v 
tlie  fact  in  question  would  have  on  tlie  making  of  tke  contract. 
To  be  material,  a  fact  need  not  increase  the  risk,  or  contribute 
to  any  loss  or  damage  suffered.     It  is  sufficient  if  the  knowledge 
of  it  would  influence  the  parties  in  making  the  contract. 

94  SPECIAIi  INQUIRIES— Matters  made  the  subject  of  special  in- 
quire are  deemed  conclusively  material,  and  the  failure  of  an 
apparently  complete  answer  to  make  full  disclosure  will  avoid 
the  policy.  But  an  answer  incomplete  on  its  face  will  not  de- 
feat thd  policy  in  the  absence  of  bad  faith. 

Facts  to  be  Disclosed-  -Materiality. 

If  the  knowledge  of  a  fact  would  cause  the  insurer  to  reject  the  risk, 
or  to  accept  it  only  at  a  higher  premium  rate,  that  fact  is  material, 
though  it  may  not  even  remotely  contribute  to  the  contingency  upon 
which  the  insurer  would  become  liable,  or  in  any  wise  affect  the  risk.** 
Thus,  in  the  early  case  of  Lynch  v.  Hamilton,"  insurance  was  effected 
upon  certain  goods  on  board  ships  from  the  Canary  Islands  to  London, 
without  any  disclosure  to  the  underwriter  of  the  fact  that  one  of  the 
ships  carrying  the  goods  had  been  reported  at  Lloyd's  as  seen  at  sea 
deep  in  the  water  and  leaky.  This  intelligence  received  at  Lloyd's 
proved  to  be  wholly  erroneous,  as  the  ship  in  question  was  at  no  time 
during  the  voyage  leaky  or  otherwise  distressed,  and  was  lost  by  cap- 
ture.    But  the  concealment  nevertheless  avoided  the  contract,  for  the 

28  CLARK  v.  INSURANCE  CO.,  8  How.  (U.  S.),  235,  at  page  249,  12  L.  Kd. 

1061,  1066. 

24  Daniels  v.  Insurance  Co..  12  Gush.  (Mass.)  416,  59  Am.  Dec.  192;  Himely 
V.  Insurance  Co..  1  Mill,  Const.  (S.  C.)  153,  12  Am.  Dec.  623;  Jefferson  Ins. 
Co.  V.  Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567;  Hardman  v.  Firemen's 
Ins  Co  (C.  C.)  20  Fed.  594;  Mulville  v.  Adams  (C.  Q)  19  Fed.  887;  Clark  v. 
Insurance  Co.,  40  N.  H.  333,  77  Am.  Dec.  721.  See,  also,  Columbian  Ins.  Co. 
V.  Lawrence,  2  Pet.  (D.  S.)  25,  7  L.  Ed.  335. 

The  question  of  materiality  is  ordinarily  for  the  jury.  Daniels  v.  Insur- 
ance Co.  supra;  Hardman  v.  Insurance  Co.,  supra;  Livingston  v.  Insurance 
Co..  6  Cranch  (U.  S.)  274,  3  L.  Ed.  222;  Maryland  Ins.  Co.  v.  Ruden,  6  Cranch 
(U  S)  338  3  L.  Ed.  242;  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS' 
SAVINGS  BANK  &  TRUST  CX)^  72  Fed.  413,  19  a  tt  A.  286.  88  L.  B.  A.  88. 

«8  3  Taunt  37. 

Tarob  iHg.— 17 


I,  I 


258 


CONCEALMENT. 


(Ch.7 


underwriter  would  not  have  accepted  the  risk  if  the  report  at  Lloyd's 
and  its  connection  with  the  property  to  be  insured  had  been  known  to 
him. 

iVhen  Specific  Inquiries  Made. 

As  a  general  proposition,  matters  made  the  subject  of  inquiry  must 
be  deemed  material,  though  otherwise  they  would  not  be  so  regarded,*' 
and  the  insured  is  required  to  make  full  and  free  disclosure  to  questions 
asked. *^  But,  by  the  American  decisions,  at  least,  the  failure  to  answer 
a  question,  or  to  answer  it  fully,  will  not  avoid  a  policy  issued,  unless 
the  imperfect  answer  is  of  such  a  character  as  to  mislead  the  insurer. 
The  law  on  this  point  is  clearly  expressed  by  Mr.  Justice  Gray  in  the 
leading  case  of  Phoenix  Mut.  Life  Ins.  Co.  v.  Raddin:  *•  "Where  an 
answer  of  the  applicant  to  a  direct  question  of  the  insurers  purports  to 
be  a  complete  answer  to  the  question,  any  substantial  misstatement  or 
omission  in  the  answer  avoids  a  policy  issued  on  the  faith  of  the  ap- 
plication.*' But  where  upon  the  face  di  the  application  a  question  ap- 
pears to  be  not  answered  at  all,  or  to  be  imperfectly  answered,  and  the 
insurers  issue  a  policy  without  further  inquiry,  they  waive  the  want  or 
imperfection  in  the  answer,  and  render  the  omission  to  answer  more 
fully  immaterial.*®  The  distinction  between  an  answer  apparently 
.complete,  but  in  fact  incomplete,  and  therefore  untrue,  and  an  answer 
manifestly  incomplete,  and  as  such  accepted  by  the  insurers,  may  be 
illustrated  by  two  cases  of  fire  insurance,  which  are  governed  by  the 
same  rules  in  this  respect  as  cases  of  life  insurance.  If  one  applying 
for  insurance  upon  a  building  against  fire  is  asked  whether  the  prop- 
erty is  incumbered,  and  for  what  amount,  and  in  his  answer  discloses 
one  mortgage,  when  in  fact  there  are  two,  the  policy  issued  thereupon  is 
avoided.^ ^  But  if  to  the  same  question  he  merely  answers  that  the 
property  is  incumbered,  without  stating  the  amount  of  incumbrances, 
the  issue  of  the  policy  without  further  inquiry  is  a  waiver  of  the  omis- 
sion to  state  the  amount."  ** 

«•  North  American  Fire  Ins.  Oo.  ▼.  Throop,  22  Mich.  146,  7  Am.  Rep.  638 

«T  Smith  V.  Insurance  Co.,  49  N.  Y.  211. 

«8  PHCENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U.  S.  183,  7  Sup.  Ct 
500,  30  L.  Ed.  644,  Woodruff,  Ins.  Gas.  92,  108,    Richards,  Ins.  Cas.  318. 

»»  Citing  Cazenove  v.  Assurance  Co.,  29  Law  J.  (N.  S.)  160,  affirming  6  C. 
B.  (N.  S.)  437. 

»o  Citing  CONNBOTICTJT  MUT.  LIFE  INS.  CO.  T.  LUCHS,  108  U.  S.  498, 
2  Sup.  Ct  949,  27  L.  Ed.  800;  Hall  v.  Insurance  Co.,  6  Gray  (Mass.)  185; 
Lorillard  Fire  Ins.  Co.  v.  McCullough,  21  Ohio  St.  176,  8  Am.  Rep.  52 ;  Amer- 
ican Life  Ins.  Co.  v.  Mahone,  56  Miss.  180;  Carson  v.  Insurance  Co.,  43  N. 
J.  Law,  300,  39  Am.  Rep.  584;  Jersey  City  Ins.  Go.  t.  Carson,  44  N.  J.  Law, 
210;    Lebanon  Mut  Ins.  Co.  v.  Kepler,  106  Pa.  28. 

•»  Citing  Towne  y.  Insurance  Co.,  7  Allen  (Mass.)  51. 

•«  CJlting  Nichols  v.  Insurance  Co.,  1  Allen  (Mass.)  68.  Pmrther  on  In  the 
opinion  the  court  said:   *^he  case  of  LONDON  ASSUR.  t.  MANSEL,  11  Cb. 


4  j!* 


§95) 


WHEN   DUTY  TO   DISCLOSE   TERMINATES, 


WHEN  DUTY  TO  DISCLOSE  TERMINATES. 


259 


95.  The  duty  of  disclosure  ends  with  the  completion  of  the  contract. 
The  insured  need  not  disclose  facts  learned  after  the  makine 
of  the  contract,  even  though  the  policy  issues  subsequenUy. 

As  a  corollary  to  the  rule  of  materiality  stated  above,  it  follows  that 
no  information  possessed  by  one  party  can  be  material,  in  the  sense  of 
requiring  disclosure,  unless  it  is  possible  that  it  may  influence  the  other 
in  the  making  of  the  contract.  Therefore,  if  the  contract  is  already 
complete  and  binding  before  the  information  in  question  is  acquired, 
there  can  be  no  duty  resting  upon  the  insured  to  disclose  it,  even  though 
the  pohcy  is  yet  to  issue.  If  the  insured  is  entitled  to  receive  a  policy, 
he  may  compel  its  issue,  even  though  the .  loss  has  already  occurred. 
Therefore  it  is  immaterial  to  the  insurer  whether  such  fact  is  disclosed 
at  the  time  of  demanding  the  policy  or  not,  for  he  has  no  option  as  to 
complying  with  the  demand.  This  statement  of  the  law,  which  is 
abundantly  supported  by  authority,*'  as  well  as  in  clear  accord  with 
sound  reason,  is  apparently  in  conflict  with  the  carelessly  written 

Div.  363,  on  which  the  Insurers  relied  at  the  argument,  did  not  arise  on  a 
quesfaon  including  several  interrogatories  as  to  whether  another  application 
had  been  made,  and  with  what  result,  and  the  amount  of  existing  Insurance, 
and  In  what  company.     But  the  apphcatlon  or  proposal  contained  two  sep- 
arate questions-the  first,  whether  a  proposal  had  been  made  at  any  other 
Office,  and,  If  so,  where;  the  second,  whether  it  was  accepted  at  the  ordinary 
premium,  or  at  an  increased  premium,  or  decUned— and  contained  no  third 
question  or  interrogatory  as  to  the  amount  of  existing  insurance  and  In  what 
company.    The  single  answer  to  both  questions  was:    'Insured  now  In  two 
offices  for  £16,000  at  ordinary  rates.     Policies  effected  last  year.'    There  be- 
ing no  specific  interrogatory  as  to  the  amount  of  existing  insurance,  that  an- 
swer could  apply  only  to  the  question  whether  a  proposal  had  been  made, 
or  to  the  question  whether  it  had  been  accepted,  and  at  what  rates,  or  de- 
clmed;   and,  as  applied  to  either  of  those  questions,  it  was  in  fact,  but  not 
upon  Its  face.  Incomplete,  and  therefore  untrue.    At  applied  to  the  first  ques- 
tion, it  disclosed  only  some,  and  not  all,  of  the  proposals  which  had  in  fact 
been  made;   and.  as  applied  to  the  second  question,  it  disclosed  only  the  pro- 
f,?^^  I  Yu  *^^  ^^^  ^^'^  accepted,  and  not  those  which  had  been  declined 
though  the  question  distinctly  embraced  both.    That  case  Is  thug  clearly  dis- 
tinguished In  its  facts  from  the  case  at  bar.     So  much  of  the  remarks  of 
feir  George  Jessel.  M.  R.,  In  delivering  judgment,  as  Implies  that  an  insurance 
company  is  not  bound  to  look  with  the  greatest  attention  at  the  answers  of 
an  applicant  to  the  great  number  of  questions  framed  by  the  company  or  its 
agents,  and  that  the  intentional  omission  of  the  insured  to  answer  a  ques- 
f^^,J^    4       ?^™  *^  ^  concealment  which  will  avoid  a  policy  issued  without 
IcaTdecStos^'  ""^  ^^""^^^  ^  reconciled  with  the  uniform  current  of  Amer- 
83  Cory  V.  Patton,  L.  R.  9  Q.  B.  577;  Michigan  Pipe  Co.  t.  Michigan  Plre 
&  Marme  Ins  Co.,  92  Mich.  482,  52  N.  W.  1070,  20  L.  R.  A.  277;   Mutual  llJ^ 
Ins.  Co.  V.  Thomson,  94  Ky.  253,  22  S.  W.  87;   Commercial  Iii.  Ca  y   Hal- 


260 


CONCEALMENT. 


(Ch.7 


opinion  of  Mr.  Justice  Miller  in  Merchants'  Mut.  Ins.  Co.  v.  Lyman.'* 
In  that  case  the  insured  claimed  that  a  complete  oral  contract  of  insur- 
ance had  been  made  upon  a  certain  vessel  on  December  31,  1869,  to 
extend  from  January  1st  to  April  1st,  following.     On  January  15, 
1870,  he  applied  for  and  received  a  policy  without  disclosing  the  fact 
— ^known  to  him — that  the  vessel  had  been  lost  on  January  8th.    The 
evidence  clearly  showed  that  there  was  no  binding  parol  contract  made 
as  claimed,  and  that  the  delivery  of  the  policy  when  applied  for  on  Jan- 
nary  15th  was  wholly  optional  with  the  insurer,  and  might  have  been 
refused  without  liability.     Consequently  it  is  plain  that  the  insured's 
duty  of  disclosure  had  not  terminated  at  the  time  the  policy  was  deliv- 
ered, and  that  his  fraudulent  concealment  of  his  knowledge  of  such  a 
material  fact  as  the  vessel's  loss  defeated  any  rights  he  might  otherwise 
have  taken  under  the  contract;  and  the  court  so  held.     But  the  court 
goes  further,  and  seems  to  lay  down  the  doctrine  that  such  nondis- 
closure would  have  been  fraudulent,  even  if  a  previous  parol  contract 
had  been  made,  and,  since  the  policy  thus  fraudulently  applied  for  and 
obtained  had  merged  all  prior  negotiations,  evidence  of  the  previously 
made  parol  contract  was  inadmissible.     To  quote  the  language  of  the 
court:     "When  the  company  came  to  make  this  instrument,  they  were 
entitled  to  the  information  which  plaintiffs  had  of  the  loss  of  the  ves- 
sel.    If,  then,  they  had  made  the  policy,  it  would  have  bound  them,  and 
no  questions  would  have  been  raised  of  the  validity  of  the  instrument, 
or  of  fraud  practiced  by  the  insured.     On  the  other  hand,  if  they  had 
refused  to  make  a  policy,  no  injury  would  have  been  done  to  the  plain- 
tiffs, and  they  would  then  have  stood  on  their  parol  contract,  if  they  had 
one,  and  did  not  need  a  policy  procured  by  fraudulent  concealment  of  a 
material  fact  at  the  time  it  was  executed  and  the  premium  paid.    To 
permit  the  plaintiffs,  therefore,  to  prove  by  parol  that  the  contract  of 
insurance  was  actually  made  before  the  loss  occurred,  though  executed 
and  delivered  and  paid  for  afterward,  is  to  contradict  and  vary  the  terms 
of  the  policy  in  a  matter  material  to  the  contract,  which  we  understand 
to  be  opposed  to  the  rule  on  that  subject  in  the  law  of  Louisiana,  as 
well  as  at  the  common  law."    It  can  scarcely  be  true,  assuming  that 
a  binding  contract  was  made  on  December  31st,  that  there  existed  any 
further  duty  of  disclosure  on  either  side.    The  obligation  of  the  insurer 
to  issue  and  of  the  insured  to  receive  a  policy  in  accordance  with  their 
agreement  had  become  fixed.     Upon  the  loss  of  the  vessel  on  January 
8th,  the  liability  of  the  insurer  on  the  contract  of  insurance  became 
fixed;  and  it  would  seem  passing  strange  if  he  were  discharged  from 

lock,  27  N.  J.  Law,  645,  72  Am.  Dec.  379;   Keim  y.  Insurance  Co.,  42  Mo.  38, 
97  Am.  Dec.  291;   Baldwin  v.  Insurance  Co.,  56  Mo.  151,  17  Am.  Rep.  671. 
t«  15  WalL  (U.  8.)  664,  21  L.  Ed.  246. 


I 


96)  DISCLOSUBE  BENDEBED  UNNECESSABY.  261 

such  liability  by  issuing  a  policy,  as  he  was  absolutely  bound  to  do, 
without  knowledge  of  the  vessel's  loss. 

A  leading  English  case  *"  goes  so  far  as  to  hold  that  the  duty  of 
the  insured  to  communicate  material  facts  in  his  knowledge  terminates 
with  a  preliminary  contract  that  is  binding  only  as  a  moral  obligation, 
by  reason  of  a  custom  among  underwriters.  Accordingly,  when  the 
insured  failed  to  disclose  to  the  insurer  a  loss  that  had  occurred  after 
making  such  an  imperfect  preliminary  contract,  but  before  the  execu- 
tion of  the  policy,  it  was  held  that  the  concealment  was  not  ground 
for  avoiding  the  policy  when  issued. 


DISCLOSUBE  RENDERED  UNNECESSARY  BY  SPECIAIL 

CIRCUMSTANCES. 

96.   The  insured  is  under  no  obligation  to  disclose  facts  known  to  him 
(a)    When  such  facts  are  known,  or  are  reasonably  believed  by  the 

insured  to  be  kno-wn,  to  the  insurer. 
Cb)  When  they  relate  to  risks  expressly  excepted  by  the  policy,  or 

excluded  by  w^arranties. 
<o)   When  the  conununioation  of  such  facts  is  waived  by  the  insurer. 

The  circumstances  of  the  parties  to  an  insurance  contract,  or  the 
conditions  under  which  it  is  executed,  may  be  such  as  to  render  it  un- 
necessary, in  the  absence  of  questions  requiring  it,  for  the  insured  to 
disclose  to  the  insurer  facts  that  would  otherwise  be  material.  The 
common-law  rule,  as  laid  down  by  Lord  Mansfield  in  Carter  v.  Boehm," 
is  thus  analytically  stated  in  the  Civil  Code  of  California :  •*  "Neither 
party  to  a  contract  of  insurance  is  bound  to  communicate  information 
of  the  matters  following,  except  in  answer  to  the  inquiries  of  the  other : 
(1)  Those  which  the  other  knows;**  (2)  those  which,  in  the  exercise 
of  ordinary  care,  the  other  ought  to  know,  and  of  which  the  former 

«»  Cory  V.  Patton,  L.  R.  9  Q.  B.  677. 

»«  CARTER  V.  BOEHM,  3  Burrows,  1905. 

•T  Civ.  Code,  S  2564. 

-»•  In  Sun  Mut  Ins.  Co.  v.  Ocean  Ins.  Co.,  107  U.  S.  485,  1  Sup.  Ct  582,  27 
L.  Ed.  337,  the  following  statement  from  2  Duer,  Ins.  398,  is  quoted  and  ap^ 
proved:  "The  assured  will  not  be  allowed  to  protect  himself  against  the 
charge  of  an  undue  concealment  by  evidence  that  he  had  disclosed  to  the 
underwriters,  in  general  terms,  the  information  that  he  possessed.  Where 
his  own  information  is  specific,  it  must  be  communicated  in  the  terms  in 
which  it  was  received.  General  terms  may  include  the  truth,  but  may  fail 
to  convey  it  with  its  proper  force  and  in  all  its  extent.  Nor  will  the  assured 
be  permitted  to  urge,  as  an  excuse  for  his  omission  to  communicate  material 
facts,  that  they  were  actually  known  to  the  underwriters,  unless  it  appears 
that  their  knowledge  was  as  particular  and  full  as  his  own  information.  It 
is  the  duty  of  the  assured  to  place  the  underwriter  in  the  same  situation  as 
himself;  to  give  to  him  the  same  means  and  opportunity  of  Judging  of  the 
^alue  of  the  risks;  and,  when  any  circumstance  is  withheld,  however  slight 


262 


CONCEALMENT. 


(Ch.7 


\ 


has  no  reason  to  suppose  him  ignorant ;  (3)  those  of  which  the  other 
waives  communication;  (4)  those  which  prove  or  tend  to  prove  the  ex- 
istence of  a  risk  excluded  by  a  warranty,  and  which  are  not  otherwise 
material ;  and  (5)  those  which  relate  to  a  risk  excepted  from  the  policy 
and  which  are  not  otherwise  material." 

Same— Matters  which  the  Insurer  Ought  to  Know. 

The  general  principle  that  the  insured  cannot  be  penalized  for  failing 
to  disclose  what  ought  to  be  known  to  the  insurer  or  his  agent,  unless 
aware  that  in  fact  it  is  not  so  known,  is  clear.**  To  hold  other- 
wise would  be  to  charge  the  insured  with  the  default  of  the  insurer  or 
his  agent  But  the  application  of  the  principle  is  not  so  clear.  In  the 
first  place,  we  must  note  that  the  insured  cannot  expect  the  insurer  to 
infer  from  facts  known  to  him  other  facts  not  communicated.  Thus 
the  failure  of  an  underwriter  to  infer  that  a  vessel  insured  by  him  was 
a  notorious  Confederate  cruiser  of  the  same  name  did  not  excuse  the 
failure  of  the  insured  to  communicate  to  him  that  fact.** 

The  insurer  must  know  any  trade  usages  that  may  affect  the  risk, 
and  likewise  the  laws  and  political  conditions  of  other  countries.*^ 
After  some  vacillation  among  the  English  decisions,  it  has  become  set- 
tled that  the  mere  fact  that  an  item  of  material  information  has  been 
published  in  "Lloyd's  Lists"  does  not  excuse  the  insured's  failure  to 
communicate  it.**  So  it  is  held  that  an  insurer  is  not  charged  with 
jcnowledge  of  events  or  facts  published  in  the  newspapers,  even  though 
it  be  proved  that  the  paper  containing  the  information  in  question  was 

and  Immaterial  It  may  have  seemed  to  himself,  that,  If  disclosed,  would 
probably  have  influenced  the  terms  of  the  insurance,  the  concealment  viti- 
ates the  policy." 

»»  Buck  V.  Insurance  Co.,  1  Pet.  (U.  S.)  160,  7  L.  Ed.  90;  De  Longuemere 
v.  Insurance  Co.,  10  Johns.  (N.  Y.)  120;  Norris  v.  Insurance  Co.,  3  Yeates 
(Pa.)  84,  2  Am.  Dec.  360. 

The  following  statement  of  Lord  Mansfield  in  CARTER  ▼.  BOEHM,  8  Bur- 
rows, 1909,  is  often  quoted:  "The  assured  need  not  mention  what  the  under- 
writer knows,  what  way  soever  he  came  by  that  knowledge,  or  what  he 
ought  to  know  or  takes  upon  himself  the  knowledge  of,  or  waives  being  in- 
formed of,  or  what  lessens  the  risk  agreed  and  understood  to  be  run,  or  gen- 
eral topics  of  speculation,  or  every  cause  which  may  occasion  natural  perils, 
as  the  difficulty  of  the  voyage,  kind  of  seasons,  probability  of  hurricanes, 
earthquakes,  etc.,  or  every  cause  which  may  occasion  political  perils,  from 
the  rupture  of  states,  from  war,  and  the  various  operations  of  it,  upon  the 
probability  of  safety  from  the  continuance  and  return  of  peace,  or  from  the 
imbecility  of  the  enemy." 

*o  BATES  V.  HEWITT,  L.  R.  2  Q.  B.  595. 

*i  Buck  V.  Insurance  Co.,  1  Pet  (U.  S.)  160,  7  L.  Ed.  90.  See  Am.  Ina.  (7th 
Ed.)  §  609  et  seq.,  where  there  is  a  good  discussion  of  this  question.  See, 
also,  CARTER  v.  BOEHM,  3  Burrows,  1905. 

*»  Morrison  v.  Insurance  Co.,  Lb  R.  8  Kxch.  187;  BATES  t.  HEWITT.  L. 
R.  2  (^  B.5d& 


§  OTj      FACTS  UNKNOWN   TO  INSURED,  BUT  KNOWN  TO  AGENT. 


263 


•i^!fc 


kept  on  file  in  the  insurer's  office.    It  must  be  proved  that  the  insurer 
actually  read  that  part  of  the  paper  containing  the  information.** 

The  insured  need  not  communicate  public  events,  such  as  the  status 
of  a  war  then  flagrant,  the  sources  of  his  information  being  equally 
open  to  both  parties ;  nor  need  he  make  known  his  apprehensions  for 
the  future,  provided  there  is  no  concealment  of  facts  giving  rise  to  those 
apprehensions.** 

Excepted  Risks. 

That  the  insurer  cannot  complain  of  the  insured's  failure  to  disclose 
facts  that  concern  only  risks  excepted,  either  expressly  or  by  warranty, 
from  the  liability  assumed  under  the  policy,  is  too  clear  to  require  any 
citation  of  authority  in  its  support.  Under  such  circumstances,  the 
facts  are  wholly  immaterial.  Likewise  the  insurer  is  estopped  to  set  up 
in  defense  concealment  of  material  facts,  when  he  has  waived  com- 
munication of  such  facts.** 


FACTS  UNKNOWN  TO  INSUBED,  BUT  KNOWN  TO  HIS  AGENT. 

97.  The  insured  is  nnder  obligation  to  disclose  not  only  sneh  material 
facts  as  are  known  to  Mni,  bnt  also  those  facts  known  to  his 
agents     Provided 

(a)  It  was  the  duty  of  the  agent  to  acquire  and  oomnanaioate  in- 

formation of  the  facts  in  question;   and 

(b)  It  was  possible  for  the  agent,  in  the  exercise  of  reasonable  dili- 

gence, to  have  made  such  communication  before  the  making  of 
the  insurance  contract. 

Facts  Known  to  Applicanfs  Agent. 

In  marine  insurance  the  applicant  is  under  obligation  to  communicate 
not  only  all  the  material  facts  actually  known  to  him,  but  also  those 
which,  under  all  the  circumstances  of  the  case,  ought  to  be  known  to 
him.  Therefore  the  insurer  is  entitled  to  rely  upon  securing  all  the  in- 
formation concerning  the  risk  which  has  been  acquired  by  the  agent  of 
the  insured,  provided  it  was  the  duty  of  the  agent  to  communicate 
such  information  to  his  principal,  and  the  means  of  doing  so  were  rea- 
sonably at  hand.  And  a  failure  on  the  part  of  the  insured  to  disclose 
such  facts  known  to  his  agent,  due  wholly  to  the  default  of  the  agent, 

*»  Of  course,  mere  items  of  ordinary  shipping  Intelligence  In  the  public 
papers,  and  too  general  to  lead  to  any  particular  application  to  the  risk  in- 
sured, need  not  be  communicated.  In  support  of  the  statements  made  in  the 
text,  see  Greene  v.  Insurance  Co.,  10  Pick.  (Mass.)  402;  Dickenson  v.  Insur- 
ance Co.,  Anth.  N.  P.  (N.  Y.)  92;   1  Am.  Ins.  (7th  Ed.)  p.  705,  i  617. 

**  CARTER  V.  BOEHM,  3  Burrows,  1909. 

*6  PHOENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U.  a  183,  7  Sup.  Ct 
500,  30  L.  Ed.  644»  Woodruff,  Ins.  Cas.  92,  lOtt,  Richards,  Ins.  Gas.  SIH. 


264 


CONCEALMENT, 


(Ch.7 


will  avoid  the  policy,  despite  the  perfect  good  faith  of  the  insured.** 
This  principle  is  well  illustrated  by  the  leading  case  of  Proudfoot  v. 
Montefiore.*^  An  English  merchant,  having  information  from  his 
agent  at  Smyrna  that  a  cargo  of  madder  bought  for  him  had  been  ship- 
ped from  that  port,  procured  insurance  upon  the  shipment.  Shortly 
after  the  dispatch  of  the  letter  containing  the  information  upon  which 
the  principal  acted,  the  agent  learned  that  the  vessel  was  aground  and 
the  cargo  lost.  The  agent  purposely  refrained  from  telegraphing  news 
of  the  disaster  to  his  principal,  lest  he  should  forestall  the  insurance. 
In  holding  that  the  knowledge  of  the  agent  was  imputable  to  the  prin- 
cipal, and  the  policy  void  for  concealment,  notwithstanding  the  inno- 
cence of  the  latter,  Cockburn,  C.  J.,  thus  clearly  expressed  the  reason 
for  his  judgment :  "Notwithstanding  the  dissent  of  so  eminent  a  jurist 
as  Mr.  Justice  Story,  we  are  of  opinion  that  the  cases  of  Fitzherbert  v. 
Mather,**  and  Gladstone  v.  King  *•  were  well  decided,  and  that  if  an 
agent  whose  duty  it  is,  in  the  ordinary  course  of  business,  to  commu- 
nicate information  to  his  principal  as  to  the  state  of  a  ship  and  cargo, 
omits  to  discharge  such  duty,  and  the  owner,  in  the  absence  of  infor- 
mation as  to  any  fact  material  to  be  communicated  to  the  underwriter, 
effects  an  insurance,  such  insurance  will  be  void  on  the  ground  of  con- 
cealment or  misrepresentation.  The  insurer  is  entitled  to  assume,  as 
the  basis  of  the  contract  between  him  and  the  assured,  that  the  lat- 

«•  It  must  be  borne  In  mind  that  the  same  principles  apply  to  the  Insurer, 
though.  In  the  nature  of  things,  the  question  does  not  occur  so  frequently. 
Thus,  If  an  Insurer  should  effect  insurance  upon  a  vessel  lost  or  not  lost, 
when  his  agent,  under  a  duty  of  disclosing  to  him,  knew  that  the  vessel  had 
in  fact  arrived  safely,  the  insurance  would  be  void,  and  the  insured  would 
be  entitled  to  a  return  of  his  premium.  See  CARTER  v.  BOEHM,  8  Bur- 
rows, 1900. 

4T  PROUDFOOT  v.  MONTEFIORB,  L.  R.  2  Q.  B.  611,  Rlcharda,  Ins.  Gas. 
324,  Woodruff,  Ins.  Oas.  106. 

4«  FITZHERBERT  v.  MATHER,  1  Term  R,  12.  In  this  case  an  agent  of 
the  assured  was  employed  to  ship  a  cargo  of  oats,  and  to  communicate  the 
shipment  to  another  agent,  who  was  employed  to  effect  an  assurance.  An 
omission  on  the  part  of  the  former,  who  had  written  to  announce  the  sailing 
of  the  ship,  to  communicate  the  fact  that  the  ship  had  gone  ashore,  which  he 
might  have  done  by  the  same  post,  was  held  fatal  to  the  policy. 

«•  1  Maule  &  S.  35.  In  this  case,  which  was  an  action  on  a  policy  on  a 
ship,  "lost  or  not  lost,"  the  master  had  neglected  to  notify  his  owners  that 
the  ship  had  been  driven  on  a  rock — a  fact  as  to  which,  on  arriving  at  the 
port  of  discharge,  he  made  a  protest,  detailing  the  accident,  and  stating  that 
the  ship's  bottom  must  have  been  chafed.  The  owners,  in  ignorance  of  this 
accident,  had  effected  an  insurance.  It  was  held  that  inasmuch  as  the  captain 
was  bound  to  communicate  the  fact,  the  antecedent  damage  was  an  Implied  ex- 
ception from  the  insurance,  for  want  of  such  communication,  and  the  plaintiffs 
could  not  recover  the  loss  arising  from  the  repairs  rendered  necessary  by  the 
accident  This  case  has  been  severely  criticised  on  the  ground  that  the  entire 
insurance  should  havt  been  avoided:  See  1  Arn.  Ins.  (Tth  Ed.)  pp.  668,  669,  il 
584,  68& 


t 


' 


§  97)      FACTS  UNKNOWN  TO  INSURED,  BUT  KNOWN   TO  AGENT.  26^ 

ter  will  communicate  to  him  every  material  fact  of  which  the  assured 
has,  or,  in  the  ordinary  course  of  business,  ought  to  have,  knowledge, 
and  that  the  latter  will  take  the  necessary  measures,  by  the  employment 
of  competent  and  honest  agents,  to  obtain,  through  the  ordinary  chan- 
nels of  intelligence  in  use  in  the  mercantile  world,  all  due  information 
as  to  the  subject-matter  of  the  insurance.  This  condition  is  not  com- 
plied with  where,  by  the  fraud  or  negligence  of  the  agent,  the  party 
proposing  the  insurance  is  kept  in  ignorance  of  a  material  fact  which 
ought  to  have  been  made  known  to  the  underwriter,  and  through  such 
ignorance  fails  to  disclose  it." 

There  are  several  earlier  English  cases  not  to  be  reconciled  with 
Proudfoot  v.  Montefiore,  and  one  American  case,'**  weighted  with  the 
great  name  of  Mr.  Justice  Story,  and  mentioned  with  such  respect  by 
Lord  Cockburn,  maintains  a  contrary  view;  but  the  doctrine  of  the 
English  case  seems  to  have  received  practically  universal  approval 
from  subsequent  authorities.'* 

An  important  qualification  was  put  upon  the  rule  as  laid  down  in 
Proudfoot  V.  Montefiore  by  another  leading  English  case,'^  decided 
some  twenty  years  later,  upon  the  following  facts :  The  plaintiffs,  desir- 
ing reinsurance  upon  an  overdue  vessel,  employed  a  firm  of  brokers 
to  procure  it.  One  of  the  members  of  this  firm  learned  that  the  ves- 
sel had  been  lost,  but  did  not  communicate  this  fact  to  either  the 
plaintiffs,  his  principals,  or  to  the  firm's  London  representatives, 
through  whom  a  policy  was  procured.  The  following  day  the  plain- 
tiffs, having  closed  all  communications  with  the  brokers  above  men- 

80  Buggies  V.  Insurance  Co.,  opinion  by  Mr.  Justice  Story,  in  4  Mason,  47, 
Fed.  Gas.  No.  12,119.  The  result  of  this  decision  was  affirmed  in  the  Su- 
preme Court  (12  Wheat.  408,  6  L.  Ed.  674)  on  the  ground  that  by  the  loss  of 
the  vessel  the  master  had  ceased  to  be  the  agent  of  the  assured. 

Bi  Joyce,  Ins.  §  636  et  seq.;  1  Am.  Ins.  (7th  Ed.)  §  582.  See  Phil.  Ins.  § 
549,  where  it  is  said:  "But  it  is  not  merely  a  case  where  one  of  two  parties 
must  be  prejudiced  by  the  fraud  of  a  third.  The  real  question  is  whether 
one  party  shall  be  defrauded,  and  the  other  shall  be  entitled  to  the  proceeds 
of  the  fraud,  for  the  assured  could  not  suffer  by  the  master  doing  his  duty  in 
communicating  information  of  the  loss.  He  could  only,  at  the  most,  be  pre- 
vented from  profiting  by  the  master's  fraud  in  concealing  it"  Prior  to  the 
decision  in  PROUDFOOT  v.  MONTEFIORE,  Judge  Duer  had  said:  "From 
this  review  of  the  decisions,  it  certainly  appears  that  the  weight  of  authority 
is  greatly  in  favor  of  the  doctrine  that  the  omission  of  an  agent,  whether 
proceeding  from  fraud  or  neglect,  to  give  intelligence  of  a  loss  which  he  is 
bound  to  communicate,  may  operate  as  a  fatal  concealment.  Although  our 
first  impressions  may  be  that,  where  the  good  faith  of  the  assured  is  wholly 
unsuspected,  the  rule,  in  its  application  to  defeat  his  recovery,  is  harsh  and 
inequitable,  our  subsequent  refiections,  it  is  not  improbable,  will  lead  us  to 
a  different  conclusion,  and  produce  the  conviction  that  the  rule  is  well  sus- 
tained by  the  analogies  of  the  law,  and  by  cogent  reasons  of  public  policy. ' 
Lect  13,  p.  1,  §  27,  vol.  2,  p.  420,  Duer,  Ins. 

fts  BLACKBURN  y.  VIGORS,  L.  R.  17  Q.  B.  D.  553,  12  App.  Gas.  541. 


I 


/ 


il 


266 


CONCEALMBNT. 


(Ch.7 


g§  98-99) 


BEPBESfiNTATIONS  AND   WABBANIIBa. 


267 


tioned,  and  still  having  no  knowledge  of  the  vessel's  loss,  secured  fur- 
ther insurance  through  another  firm  of  brokers,  who  were  equally 
ignorant  of  the  loss.  The  first  policy  was  clearly  void,  and  the  second 
policy  was  likewise  held  in  the  Court  of  Appeal  "■ — reversing  the  court 
below — ^to  be  avoided  by  the  nondisclosure  of  the  knowledge  that  had 
been  acquired  by  the  plaintiflFs'  former  agent.  But  in  the  House  of 
Lords  *'*  the  judgment  of  the  Court  of  Appeal  was  reversed  on  the 
ground  that  the  knowledge  of  an  agent  could  be  imputed  to  a  prin- 
cipal innocently  procuring  insurance  only  when  the  agent  was  em- 
ployed for  the  purpose  of  procuring  and  communicating  such  infor- 
mation as  that  in  question,'^^  as  in  the  case  of  the  master  of  the  vessel 
in  Gladstone  v.  King,*^  or  the  purchasing  agent  in  Proudfoot  v.  Mon- 
tefiore,*^  or  when  the  insurance  was  procured  through  the  agent  pos- 
sessing the  information. 

Insurance  Procured  by  Agent  of  Insured. 

Insurance  procured  by  an  agent  ignorant  of  facts  that  have  come 
to  the  knowledge  of  his  principal  after  his  appointment  will  be  valid 
only  when  the  insurance  had  been  effected  before  the  principal,  by 
m^  the  exercise  of  due  and  reasonable  diligence,  could  have  communicated 
his  knowledge  to  his  agent,  or  laid  it  before  the  insurer.'®    The  Eng- 
lish authorities  require  of  the  principal  in  such  cases  the  utmost  de- 
'0^      gree  of  reasonable  diligence  in  his  effort  to  communicate  with  his 
i-  agent.** 

»8  L.  R.  17  Q.  B.  Div.  553. 

»*  12  App.  Cas.  541. 

85  See,  also,  Patton  v.  Janney,  Fed.  Cas.  No.  10,836,  2  Oranch,  C.  0.  71. 

»« 1  Maule  &  S.  35. 

»T  PROUDFOOT  V.  MONTEFIORIi;  L.  R.  2  Q.  B.  511. 

88  McLanahan  v.  Insurance  Co.,  1  Pet  (U.  S.)  170,  7  L.  Ed.  98;  Snas^. 
.  Insurance  Co.,  61  N.  Y.  164;  Andrews  v.  Insurance  Co.,  9  Johns.  (N.  Y035; 
Watson  V.  Delafield,  2  Johns.  (N.  Y.)  526. 

8»  See  PROUDFOOT  v.  MONTEFIORE,  L.  R.  2  Q.  B.  611,  where  it  was 
said  that  the  telegraph  should  have  been  used.  See,  also.  Grieve  y.  Young 
<1782)  MlUar,  Ins.  65. 


CHAPTER  VnX 

THE  CONSENT  OF  THE  PARTIES— REPRESENTATIONS  AND 

WARRANTIES. 

88-99.  The  Nature  and  Effect  of  Representationa, 

100.  Representations  as  to  Opinion  and  Belief. 

101.  Promissory  Representations. 
102-103.  Construction  of  Representationa 

104.  Warranties — In  General. 

105.  Affirmative  and  Promissory  Warranties. 
106-107.    Warranties  Distinguished  from  Representationa. 


THE  NATURE  AND  EFFECT  OF  REPRESENTATIONS. 

08.  Representations  are  statements  made  to  give  information  to  the 
insurer,!  and  otherxeise  induce  hini  to  enter  into  the  insurance 
contract.  They  may  be  oral  or  written,  and  may  be  niade  before 
or  at  the  time  of  the  execution  of  the  contract. 

99.  False  representations,  whether  innocent  or  fraudulent,  will  in  all 
cases  render  a  contract  of  insurance  voidable,  provided  they  are 
material,  but  immaterial  representations  are  xrholly  without 
effect,  save  under  the  provisions  of  statutes. 

As  stated  in  the  preceding  sections,  it  becomes  the  duty  of  the  per- 
son applying  for  insurance  upon  a  risk  of  whatever  kind  to  give  to 
the  insurer  all  such  information  concerning  that  risk  as  will  be  of  use 
to  him  in  estimating  its  character,  and  in  determining  whether  or 
not  to  assume  it.  This  information  may  be  given  orally  and  volun- 
tarily, or  it  may  be  given  in  writing,  in  response  to  questions  asked,* 
the  course  of  business  in  this  respect,  as  we  have  seen,  very  greatly 
varying  the  extent  of  this  duty  of  disclosure  in  some  branches  of  in- 
surance. But  however  communicated,  this  information  forms  the 
basis  of  the  contract  as  made.  It  describes,  marks  out,  and  defines 
the  risk  assumed.  If  this  description,  as  relied  on  by  the  insurer, 
proves  to  be  untrue  in  any  material  respect,  the  insurer  may  decline 
to  be  bound  by  the  agreement,  saying,  "I  have  made  no  such  contract." 
The  ground  of  the  insurer's  discharge  is  not  the  fraud  of  the  insured, 

1  Representations  may  also  be  made  by  the  insurer  to  induce  the  insured 
to  enter  into  the  contract,  and  such  representations  are  subject  to  all  the 
rules  of  law  to  be  discussed  under  this  heading.  But  as  the  insured  seldom 
desires  to  avoid  the  contract,  the  cases  nearly  always  refer  to  representa- 
tions made  by  the  insured. 

»  "A  representation  may  be  oral  or  written."    Civ.  Code  Cal.  §  2571. 

"A  representation  may  be  made  at  the  same  time  with  issuing  the  policy 
or  before  iV*    Ut.  Code  CaL  i  2572. 


% 


268 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


( 


but  merely  that  the  loss  which  he  is  called  upon  to  indemnify  occurred 
under  a  risk  different  from  that  assumed.  Clearly  an  underwriter  who 
has  insured  a  steamer  cannot  be  required  to  pay  for  the  loss  of  a  sailing 
vessel ;  nor  will  he,  under  a  policy  written  upon  a  vessel  represented  toy 
be  safe  in  port,  be  liable  for  the  loss  of  a  vessel  which  at  the  time  of  the 
underwriting  was  at  sea  and  storm-tossed  for  the  simple  reason  that  he 
had  never  insured  that  vessel.  The  insurer  of  a  brick  house  is  not  liable 
for  the  loss  of  a  frame  house ;  nor  is  he  who  insures  a  man  of  thirty 
liable  for  the  death  of  a  man  who  was  then  thirty-five,  even  though  in 
every  other  respect  he  may  answer  to  the  description  of  the  person 
insured.  But  the  insurer  could  not  decline  to  pay  for  the  loss  of  a 
white-painted  house  or  ship  because  the  one  insured  was  described  as 
being  painted  green,  though  otherwise  identical  in  description  with 
the  subject  of  the  loss. 

Hence  arises  the  reasonable  and  commendable  rule  that  thefuntruth 
of  any  material  representation  relied  on  by  the  insurer  in  making  the 
contract  will  avoid  »  the  contract,  wholly  irrespective  of  the  character 
of  the  intent,  whether  innocent  or  fraudulent,  with  which  such  mis- 
representation was  made.  As  a  complement  to  this  rule,  the  authQrities 
add  that  the  untruth  of  an  immaterial  representation  will  not  affect 
the  contract,  unless  the  representation  was  made  fraudulently.*  From 
this  statement  arises  an  implication,  which  is  sometimes  stated  in 
express  terms,*  fhat  a  fraudulent  misrepresentation  will  avoid  a  con-, 
tract  of  insurance,  even  though  wholly  immaterial.  ^  Vlt  is  also  some-' 
times  said  that  the  materiality  of  a  fraudulently  made  misrepresenta- 
tion is  conclusively  presumed.  |  It  is  submitted  that  these  statements 
are  misleading,  and  not  in  accord  with  the  cases  or  the  analogies  of 
the  law.  It  must  be  borne  in  mind  that,  in  order  that  a  representa- 
tion shall  be  immaterial,  it  must  have  had  absolutely  no  weight  with 
the  insurer  in  making  the  contract  in  question;  it  must  not  in  the 
slightest  degree  have  induced  him  "to  enter  into  a  contract  which  he 
would  otherwise  have  declined,  or  to  take  a  less  premium  than  he 
would  otherwise  have  demanded."  •  If  the  fraudulent  misrepresenta- 
tion did,  as  a  matter  of  fact,  influence  the  insurer  to  assume  the  risk, 

»  The  word  "avoid"  la  used  in  the  sense  In  which  it  is  ordinarily  under- 
stood to  apply  in  insurance  law;  t  e.,  render  voidable  at  the  option  of  the 
injured  par^,  and  not  absolutely  void. 

*  Hazard  v.  Insurance  Co.,  8  Pet  (U.  S.)  557,  8  L.  Bd.  1043;  Higgle  v. 
ALmerican  Lloyd's  (D.  C.)  14  Fed.  143;  DENNISON  v.  INSURANCE  CO.,  20 
Me.  125,  37  Am.  Dec.  42;  Continental  Ins.  Co.  v.  Kasey,  25  Grat  (Va.)  268, 
18  Am.  Rep.  681;  ARMOUR  v.  INSURANCE  CO.,  90  N.  Y.  450;  McVey  v. 
Grand  Lodge,  53  N.  J.  Law,  17,  20  Atl.  873 ;  Daniels  v.  Insurance  Co.,  12  Cush, 
(Mass.)  416.  59  Am.  Dec  192 ;  Barteau  v.  Insurance  Co.,  67  N.  T.  595. 

8  See  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS*  SAVINGS  BANK  & 
TRUST  CO.,  72  Fed.  413,  1»  a  a  A.  286,  88  L.  B.  ▲.  33. 

•  PLil.  Ins.  S  537. 


A 


S§  98-99)   THE  NATURE  AND  EFFECT  OF  REPRESENTATIONS. 


269 


it  is  clear  that  the  misrepresentation  was  material,  and  the  courts  may 
well  say  that  the  insured  will  not  be  heard  to  deny  its  materiality. 
But  such  a  sound  conclusion  by  no  means  justifies  a  general  state- 
ment that  the  I  materiality  of  a  fraudulent  misrepresentation  is  con- 
clusively presumed.  \  A  diligent  search  among  the  authorities  fails  to 
disclose  a  single  case  in  which  a  contract  was  actually  avoided  be- 
^cause  of  a  false  representation  that  was  really  immaterial.  •In  each 
case  in  which  the  rule  is  stated,  it  will  be  found  that  the  fraud  com- 
plained of  had  injuriously  affected  the  insurer.'^  But,  by  way  of  illus- 
tration, let  us  suppose  it  clearly  proved  that  the  owner  of  an  ancient 
colonial  dwelling  had,  with  conscious  falsehood,  assured  the  insurer 
to  whom  application  was  made  that  the  bricks  of  which  the  building 
was  constructed  had  been  brought  from  England,  erroneously  sup- 
posing that  the  insurer  would  more  readily  insure  a  dwelling  believed 
to  possess  that  distinction.  Let  us  further  suppose  that  the  insurer 
had  neither  sentiment  nor  superstition  such  as  would  lead  him  to 
think  English  bricks  in  any  respect  better  or  less  inflammable  than 
American  bricks,  and  that  he  gave  no  heed  whatsoever  to  the  colonial 
story.  Could  any  court  be  induced  to  hold  the  contract  avoided  by 
the  insured's  harmless,  though  fraudulent,  garrulity?  Surely  the  gen- 
eral rule  of  law  applies,  that  one  is  held  responsible  to  another  for  his 
fraudulent  misstatements  only  when  that  other  has  relied  upon  them 
to  his  prejudice.® 

In  view  of  these  considerations,  the  rule  as  to  the  effect  of  misrep- 
resentations should  be  amended  to  read  thus:  A  false  representation 
avoids  a  contract  of  insurance  only  when  material,  wholly  without 
reference  to  the  intent  witli  which  it  is  made,*  unless  it  is  otherwise 
provided  by  statute.*" 

T  Examine  the  cases  cited  in  note  4,  supra. 

8  In  ANDERSON  v.  FITZGERALD,  4  H.  L.  Cas.  484,  at  page  504,  Lord 
Chancellor  Cranworth  said:  "Indeed,  whether  made  bona  fide  or  not,  if  it 
is  not  material,  the  untruth  is  quite  unimportant.  If  the  man  on  entering 
into  the  policy  had  said  that  he  arrived  at  Dublin  three  days  previously, 
whereas  he  had  only  arrived  that  morning,  and  such  statement  did  not  form 
part  of  the  contract,  then,  though  false,  it  would  be  quite  immaterial."  See, 
also,  2  Pars.  Cont.  769;  Clark,  Cont  344,  345. 

»  Farmers*  Ins.  &  Loan  Co.  v.  Snyder,  16  Wend.  (N.  T.)  481,  30  Am.  Dec.  118. 

In  VIVAR  V.  SUPREME  LODGE,  52  N.  J.  Law,  455,  20  Atl.  36,  the  court 
said:  "If  the  representation  made,  though  known  by  the  insured  to  be  false, 
did  not  differ  from  the  truth  in  any  respect  which  was,  either  in  fact  or  in 
the  view  of  the  insurer,  material  to  the  contract,  then  the  falsehood  did  not 
mislead  the  insurer  or  induce  the  contract,  and  should  not  be  allowed  to 
avoid  it.  Usually  the  materiality  of  a  representation  will  be  inferred  from 
the  fact  that  it  was  made  pending  the  negotiations,  in  response  to  a  specific 
inquiry  by  the  insurer;  but  this  rale  is  not  universal,  for  the  purpose  of  the 

10  See  note  10  on  following  page. 


I 


270 


BBPRBSBNTATIONS  AND   WARRANTIES. 


(Ch.8 


The  rule  just  stated  seems  at  first  inconsistent  with  the  cases  in- 
volving another  and  somewhat  different  class  of  representations;  that 
is,  representations  of  opinion,  belief,  intention,  and  information,  in 
which  intent  is  vital.  These  will  be  separately  considered  in  the  next 
section. 

Grounds  upon  Which  Contract  is  Avoided  by  Misrepresentation. 

There  can  be  little  doubt  that  the  rule  that  insurances  are  avoided 
by  misrepresentations  has  its  origin  in  the  general  doctrine  of  fraud, 
and  Mr.  Amould  thought  it  should  still  be  regarded  as  a  phase  of  that 
doctrine,  in  order  to  preserve  a  consistent  relationship  with  the  gen- 
eral body  of  the  law,  and  that,  "although  no  pretense  existed  for  alleg- 
mg  actual  fraud,  yet  the  policy  was  to  be  considered  void  on  the 
ground  of  constructive  or  legal  fraud— that  is,  such  conduct  on  the  part 
of  the  assured  as,  though  it  does  not  imply  any  moral  turpitude  in 
himself,  yet,  from  the  effect  it  has  in  fact  of  misleading  the  under- 
writer, is,  in  legal  language,  said  to  be  fraudulent."  " 

Inqnlry  must  be  considered,  to  see  whether  the  information  is  sought  to  aid 
the  insurer  in  fixing  the  terms  on  which  he  will  contract,  or  with  an  en- 
tirely different  object.  Thus,  if  a  mutual  insurance  company  should  require 
Its  premiums  to  be  paid  within  a  definite  time  after  the  mailing  of  notice 
addressed  to  the  residence  of  the  insured,  and,  with  this  rule  in  view,  should 
require  every  applicant  for  insurance  to  state  his  residence  in  his  applica- 
tion, and  an  applicant  should  give  as  his  residence  not  the  truth,  but  the 
place  where  he  ordinarily  received  his  mail,  it  would  seem  absurd  to  hold 
that  such  circumstance  could  Invalidate  the  contract"  The  view  taken  In 
the  text  is  approved  by  Am.  Ins.  §  53G  (7th  Ed.). 

10  In  framing  legislation  intended  to  mitigate  the  harshness  of  the  com- 
mon-law rule  as  to  warranties  by  transforming  them  into  represent/  dons, 
the  loose  statement  of  the  rule,  as  discussed  in  the  text,  has  in  many  in- 
stances been  incorporated  in  the  statute.  Thus  in  the  Kentucky  act  we  read: 
"Nor  shall  any  misrepresentations,  unless  material  or  fraudulent,  prevent  a 
recovery  on  the  policy."  Ky.  St,  (Barbour  &  (Carroll)  c.  32,  §  639.  The  Vir- 
ginia statute  is  even  more  unsatisfactory  In  Its  statement  of  the  rule:  "No 
answer  to  any  Interrogatories  made  by  an  applicant  for  a  policy  of  insur- 
ance shall  bar  the  right  to  recover  upon  any  policy  issued  upon  said  applica- 
tion, by  reason  of  any  warranty  in  such  application  or  policy  contained,  un- 
less it  be  clearly  proved  that  such  answer  was  willfully  false,  or  fraudu- 
lently made,  or  that  it  was  material."  Acts  1899-1900,  p.  55,  c.  515.  Statutes 
of  similar  import  exist  in  many  other  states.  Under  the  wording  of  these 
statutes,  it  would  seem  clear  that  a  fraudulent  immaterial  representation 
will  avoid  the  contract  See  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS* 
SAVINGS  BANK  &  TRUST  CO.,  72  Fed.  413,  19  C.  C.  A.  286,  38  L.  R.  A. 
33;  Id.,  73  Fed.  653,  19  C.  O.  A.  316,  38  L.  R.  A.  33,  in  which  the  effect  of 
the  Pennsylvania  statute  (Laws  1885,  p.  134,  §  1)  Is  discussed. 

11  See  Arn.  Ins.  (7th  Ed.)  §  536.  It  seems  that  this  was  the  view  taken  by 
Mr.  Arnould  In  the  first  edition  of  his  work  (495-498).  In  the  second  edition 
(vol.  1,  p.  549)  he  took  the  view  advanced  by  Judge  Duer,  and  in  the  latest 
edition  (7th  [19011  8  535,  voL  1,  p.  622)  the  editors  adopt  the  view  of  PhilUps 
as  the  correct  oneit 


4^ 


^S  98-99)   THE  NATUBE  AND  EFFECT  OF  KEFKESENTATIONS.     273 

Judge  Duer,  in  his  interesting  and  acute  lectures  on  Marine  In- 
surance,^* contends  that  a  material  representation  is  essentially  a  part 
of  the  contract,  whether  written  in  the  policy  or  not,  and  that  its 
untruth  amounted  to  a  breach  of  contract  discharging  the  insurer. 
This  view,  however,  can  scarcely  be  correct,  and  was  objected  to  by 
Lord  Esher  in  Blackburn  v.  Vigors,^*  as  apt  to  give  rise  to  new  compli- 
cations in  the  law. 

It  would  seem  from  what  is  written  above  as  to  the  nature  of  repre- 
sentations, and  from  the  clear  statement  of  Mr.  Phillips"  on  this 
point,  that  the  true  theory  upon  which  an  untrue  representation  of  a 
material  fact  avoids  an  insurance,  in  the  absence  of  any  suspicion  of 
fraud,  is  that  there  is  implied  by  the  sound  policy  of  the  law  from 
the  customs  of  underwriters  a  condition  that  the  contract  shall  be  en- 
forceable only  when  all  representations,  on  the  faith  of  which  the 
contract  was  entered  into,  shall  be  substantially  in  accordance  with 
the  facts. 

How  Representations  Are  Made — Oral  and  Written. 

The  very  nature  of  representations  requires  that  they  precede  the  ex- 
ecution of  the  contract  which  they  are  made  to  induce.  They  may 
subsequently  be  set  forth  in  the  written  contract,  but,  if  proper  rep- 
resentations, and  not  the  so-called  promissory  representations,  they  do 

i«  2  Duer,  Ins.  648-655. 

i«  L.  R.  17  Q.  B.  Div.  553,  561,  12  App.  Cas.  539. 

1*  In  BLACKBURN  v.  VIGORS,  L.  R.  17  Q.  B.  Div.  653.  at  page  561,  the 
following  statement  of  the  law  in  Phil.  Ins.  §  537,  is  approved:  "The  effect 
of  a  misrepresentation  or  concealment  in  discharging  the  underwriters  does 
not  seem  to  be  merely  on  the  ground  of  fraud,  as  has  been  usually  laid  down 
by  writers  on  insurance,  but  also  on  the  ground  of  a  coE'iition  implied  by  the 
fact  of  entering  Into  the  contract,  that  there  is  no  misrepresentation  or  con- 
cealment Mr.  Duer  criticises  the  phraseology  of  the  books  In  putting  the 
effect  of  a  misrepresentation  or  concealment  upon  the  contract  entirely  upon 
the  ground  of  fraud.  Mr.  Amould  adheres  to  this  application  of  that  term 
for  the  sake  of  consistency  with  the  general  legal  doctrine  that  what  passes 
between  the  parties  preliminary  to  a  contract  is  not  a  part  of  it,  and  should 
not  be  imported  into  it;  and  since  a  representation  through  mistake  or  in- 
advertence has  the  same  effect,  in  reference  to  the  underwriter,  as  an  in- 
tentional and  literally  fraudulent  misrepresentation  or  concealment,  namely, 
it  induces  him  to  enter  into  a  contract  which  he  would  otherwise  have  de- 
clined, or  to  take  a  less  premium  than  he  would  otherwise  have  demanded, 
he  deems  it  to  be  excusable  to  apply  the  term  "fraud,'*  and  thus  bring  the 
doctrine  on  this  subject  nominally  within  the  acknowledged  general  principle 
applicable  to  other  contracts.  But  I  cannot  think  that  this  anomalous  use 
of  the  term  is  justifiable  on  this  ground,  since  ambiguous  phraseology  is  not 
to  be  tolerated  in  any  science,  and  least  of  all  in  that  of  law,  where  it  can 
possibly  be  avoided,  as  it  may  easily  be  in  this  case  by  stating  the  practical 
doctrine  in  direct  terms,  namely,  that  it  is  an  implied  condition  of  the  con- 
tract of  insurance  that  it  is  free  from  misrepresentatioii  or  concealment, 
whether  fraudulent  or  through  mistake." 


272 


REPRESENTATIONS  AND  WARRANTIES. 


(Ch.8 


§100) 


REPRESENTATIONS  AS  TO   OPINION   AND  BELIEF. 


273 


not  become  any  part  thereof,  because  not  contractual  in  nature.  Being, 
therefore,  merely  collateral  inducements  to  the  contract,  they  may  be 
communicated  in  any  manner  whatsoever  that  is  intelligible.  They 
may  be  oral,  or  written  in  papers  not  connected  with  the  contract, 
such  as  circulars  and  prospectuses,**  or  in  the  application  or  examiner's 
report,  or  they  may  appear  in  the  policy  itself.  When  statements  pur- 
porting to  be  representations  made  by  the  insured  appear  for  the  first 
time  in  the  policy  as  written  and  tendered  by  the  insurer,  it  seems 
that  they  become  binding  upon  the  insured  only  when  he  accepted 
the  policy  with  actual  knowledge  of  their  presence.  By  accepting  the 
policy,  the  insured  is  conclusively  presumed  to  have  assented  to  all  of 
its  terms  so  far  as  contractual,  but  he  will  not  be  held  to  have  adopted 
at  the  same  time  all  the  representations  that  the  insurer  or  his  agents 
may  have  endeavored  to  foist  upon  him.** 


BEFBESENTATIONS  AS  TO  OPINION  AND  BEUEF. 

100.  Representations  as  to  fntnre  conduct  or  events,  or  as  to  other 
things  not  susceptible  of  present,  actual  knoxeledge,  amount 
only  to  statements  of  opinion,  intention,  or  belief.  As  to  suob 
representations  the  good  faith  of  the  insured  furnishes  the 
criterion  of  truth,  for  they  can  be  false  only  urhen  the  opinion, 
intention,  or  belief  as  stated  is  not  honestly  entertained. 

The  descriptive  representations  of  previous  and  present  conditions 
and  past  events  which  have  been  discussed  above,  and  which  are  sus- 
ceptible of  exact  knowledge  and  correct  statement,  may  conveniently 
be  termed  "objective  representations,"  as  applicable  to  external  realities. 
The  other  class  of  representations  as  to  the  deponent's  opinion,  belief, 
or  intention,  in  so  far  as  they  are  really  representations,  can,  in  the 
nature  of  things,  set  forth  only  a  mental  state,  and  may  therefore 
conveniently  be  termed  "subjective  representations."  Representations 
of  this  latter  class  cannot  be  descriptive  in  the  strict  sense  of  the  word, 
but  they  may  have  much  value  to  the  insurer  in  reaching  a  conclusion 
concerning  the  risk.  Thus  the  insured  may  express  an  opinion  that 
his  house  is  of  a  certain  value,  or  that  his  body  is  wholly  free  from 
a  certain  disease.    The  insurer  cannot  for  a  moment  be  justified  in 

18  Wood  V.  Dwarris,  11  Exch.  (H6rl.  &  G.)  493;  Oollett  v.  Morrison,  9 
Hare,  162;  Solvin  v.  James,  6  East,  571.  But  see  Wheelton  v.  Hardisty, 
S  El.  &  Bl.  285,  92  B.  Com.  Law,  231 ;  RUSE  v.  INSURANCE  CO.,  23  N.  Y. 
516;    Id.,  24  N.  Y.  653. 

i«  See  Dooly  v.  Insurance  Co.,  16  Wash.  155,  47  Pac.  507,  68  Am.  St  Rep. 
26;  O'Brien  v.  Insurance  Co.,  52  Mich.  131,  17  N.  W.  726;  HALL  v.  INSUR- 
ANCE CO.,  93  Mich.  184,  53  N.  W.  727,  18  L.  R.  A.  135,  32  Am.  St.  Rep.  497; 
Union  Assur.  Soc.  v.  Nails,  101  Va.  613,  44  S.  E.  896;  Morotock  Ins.  Co.  v. 
Rodefer.  92  Va.  747,  24  S.  E.  393,  53  Am.  St.  Rep.  846. 


thinking  that  the  value  of  the  house  is  really  just  what  the  owner  esti- 
mates it  to  be,  for  he  must  be  deemed  to  know  that  the  value  of  prop- 
erty is  ordinarily  capable  of  exact  ascertainment  only  by  a  sale.  Nei- 
ther can  the  insurer  rely  upon  the  statement  of  the  insured  that  he  is 
free  from  some  specific  disease,  the  discovery  of  which  might  baffle 
the  skill  of  the  most  experienced  physician.  But  he  is  entitled  to  be- 
lieve that  the  insured  honestly  thinks  his  house  to  be  of  the  value 
stated,  or  that  he  is  free  from  the  disease  mentioned.^ ^  The  insurer 
knows  that  the  insured's  opinion  may  be  mistaken,  but  the  fact  that 
such  an  opinion  is  honestly  entertained  by  the  insured  may  be  of  great 
value  to  him  in  reaching  a  conclusion  as  to  the  risk.  So  an  expression 
of  an  intention  as  to  a  future  course  of  conduct  with  reference  to 
property  or  life  to  be  insured,  if  merely  a  representation,  and  not  made 
part  of  the  contract,  can  be  relied  on  only  as  to  the  bona  fide  existence 
of  such  an  intention  in  the  mind  of  the  insured.  Likewise,  when  a 
statement  is  made  as  upon  information  of  another,  as  between  the  in- 
surer and  the  insured  the  insurer  cannot  rely  upon  the  truth  of  the 
statement,  but  he  may  rely  upon  the  fact  that  such  information  was 
in  reality  received.^* 

^^  It  is  now  apparent  that  all  representations  of  this  class,  termed  above 
"subjective,"  are  statements  of  the  fact  of  the  existence  of  certain 
mental  states.  Hence  the  question  of  intent,  which  is  immaterial  in 
the  case  of  objective  or  descriptive  representations,  becomes  vital 
when  the  representation  is  subjective.  Thus  suppose  a  man  who  owned 
a  building  of  the  actual  value  of  $10,000,  with  an  incumbrance  thereon 
to  the  extent  of  $5,000,  should  represent  in  an  application  for  insurance, 
subsequently  issued,  that  the  building  was  worth  $15,000,  and  incum- 
bered to  the  amount  of  only  $3,000.  Here  the  representation  as  to  the 
incumbrance,  which  is  plainly  material,  is  false,  and  will  avoid  the 
insurance,  even  though  due  to  accident  or  mistake,  and  despite  the 

"  Kenton  Ins.  Co.  v.  Wigginton,  89  Ky.  330,  12  S.  W.  668,  7  L.  R.  A.  81; 
Barnes  v.  Association,  191  Pa.  618,  43  Atl.  341,  45  L.  R.  A.  264;  Phenix  Ins. 
Co.  V.  Wilson,  132  Ind.  449,  25  N.  E.  592;  Supreme  Ruling  of  the  Fraternal 
Mystic  Circle  v.  Crawford  (Tex.  Civ.  App.  June,  1903)  75  S.  W  844  •  DEN- 
NISON  V.  INSURANCE  CO.,  20  Me.  125.  37  Am.  Dec.  42.  Where  it  is  stated 
that  the  answers  given  are  true  to  the  best  of  the  applicant's  knowledge  and 
belief,  good  faith  is  all  that  is  required  of  the  applicant    ^ETNA  LIFE  INS 

K?^  l.l^^^^^'  ^^  ^-  ^-  ^^^'  24  L.  Ed.  287;   Clapp  v.  Association,  146  Mass^ 
519,  16  N.  E.  433.    See,  also,  BOWDEN  v.  VAUGHAN,  10  East,  415 

18  Tidmarsh  v.  Insurance  Co.,  Fed.  Cas.  No.  14,024,  4  Mason,  439.  "When 
a  person  insured  has  no  personal  knowledge  of  a  fact,  he  may  nevertheless 
repeat  information  which  he  has  upon  the  subject,  and  which  he  believes  to 
be  true,  with  the  explanation  that  he  does  so  on  the  information  of  others, 
or  he  may  submit  the  information,  in  its  whole  extent,  to  the  insurer;  and 
in  neither  case  is  he  responsible  for  its  truth,  unless  It  proceeds  from  an 
agent  of  the  insured,  whose  duty  it  is  to  give  the  intelligence."    Civ.  Code 

Vance  Ins. — 18 


274 


BEPBESENTATIONS  AND   WARRANTIES. 


(Ch.8 


total  absence  of  any  fraudulent  intent.  The  subject  of  the  representa- 
tion is  an  external  fact.  The  statement  as  to  the  value  of  the  house 
was  far  from  being  accurate,  but  that  fact  alone  will  not  justify  the 
insurer  in  declaring  the  insurance  avoided.*'  He  must  first  show 
ihat  the  insured  did  not  really  think  the  house  to  be  of  that  value; 
that  is,  that  he  did  not,  in  truth,  entertain  the  opinion  he  professed  to 
hold.  Put  briefly,  the  subject  of  the  opinion  was  the  value  of  the  prop- 
erty, but  the  subject  of  the  representation  was  the  opinion.  Therefore 
in  all  of  this  class  of  representations  the  existence  of  the  opinion,  be- 
lief, or  intention  as  represented  is  necessary  to  the  truth  of  the  repre- 
sentation. Consequently  they  also  fall  within  the  general  rule  stated 
above — that  a  false  material  representation  renders  an  insurance  con- 
tract voidable,  whether  made  innocently  or  fraudulently. 

i»  In  Phenix  Ids.  Co.  v.  Pickel,  119  Ind.  155,  21  N.  E.  546;    Id.,  119  Ind. 
291,  21  N.  E.  898— both  in  12  Am.  St.  Rep.  393,  the  following  statement  of 
the  law  as  laid  down  by  Wood,  Ins.  pp.  568,  569,  is  approved:   "How  is  value 
determined?    Is  it  not  a  matter  of  judgment  and  opinion  wholly,  except,  it 
may  be,  in  special  instances?    How  is  the  value  of  real  estate  to  be  esti- 
mated?   What  is  the  standard  by  which  to  ascertain  the  value  of  a  building? 
Is  it  what  this  man  or  that  says  it  is  worth?    Is  it  what  it  would  cost  to 
build  another  of  the  same  style  and  materials?    The  ascertainment  of  any  of 
these  facts  is  a  mere  matter  of  judgment     Has  not  the  assured  the  same 
right  to  exercise  his  judgment.  If  he  exercises  it  honestly,  that  his  neighbors 
on  the  jury  have?    When  the  insurers  propound  this  inquiry,  upon  what  basis 
and  by  what  standard  is  it  to  be  presumed  they  expect  the  insured  to  esti- 
mate the  value?    Is  it  reasonable  to  suppose  that  they  expect  him  to  esti- 
mate the  value  of  the  materials  composing  it,  the  cost  of  labor  to  build  it,  or, 
rather,  to  give  his  honest  judgment  and  opinion  upon  the  question?     Sup- 
pose the  question  in  the  application  to  be,  "What,  in  your  honest  judgment 
and  opinion,  is  the  value  of  the  property?"    Would  it  not  be  held  that,  in 
order  to  avoid  the  policy,  the  insurer  must  show  that  the  value  was  not 
given  according  to  the  honest  judgment  and  opinion  of  the  insm-ed?     Most 
certainly.    And  it  is  difficult  to  conceive  how  the  introduction  of  the  words 
"judgment  or  opinion"  into  the  question  can  affect  the  rights  of  the  parties 
at  all,  for  in  nearly  all  instances  the  question  of  value  is  well  known  to  be  a 
mere  matter  of  opinion.    Particularly  is  this  so  as  to  buildings  and  real  es- 
tate generally,  and  all  the  insurer  expects,  or  has  the  right  to  expect,  in  an- 
swer to  a  question  of  the  value  thereof,  is  simply  the  honest  judgment  and 
opinion  of  the  assured;  and  it  is  absurd  to  hold  the  assured  responsible  for 
an  error  of  judgment  honestly  made,  simply  because  his  neighbors  differ  with 
him  in  that  respect    A  doctrine  that  held  the  insured  up  to  a  strictly  exact 
valuation  would  be  extremely  unjust,  and  would  retult  in  vitiating  one-half 
the  policies  issued,  for,  under  the  rule,  the  difference  of  one  cent  is  as  disas- 
trous as  a  difference  of  a  large  amoant." 


f 


§  101) 


PKOMISSORY   REPRESENTATIONS. 


PROMISSORY  REPRESENTATIONS. 


275 


101.   The  term  "promissory  representation"  is  used  in  two  senses^ 

(a)  First,  it  is  used  to  indicate  a  parol  promise  made  in  connection 

with  the  insurance,  but  not  incorporated  in  the  policy.  The 
nonperformance  of  such  a  promise  cannot  be  shown  by  the  in- 
surer in  defense  of  an  action  on  the  policy,  but  proof  that  the 
promise  was  made  with  fraudulent  intent  will  serve  to  defeat 
the  insurance. 

(b)  Secondly,  an  undertaking  by  the  insured,  inserted  in  the  poUoy, 

but  not  specifically  made  a  warranty,  is  also  called  a  "promis- 
sory representation.*'  It  is,  however,  in  such  a  case,  merely  an 
executory  term  of  the  contract,  and  not  properly  a  representa- 
tion at  all. 

"Promissory  representation"  is  a  loose  term  that  has  crept  into  in- 
surance law,  following  in  the  train  of  the  useful  and  correct  expres- 
sion promissory  warranty,"  soon  to  be  discussed.  The  term  is  used 
in  many  different  senses,  in  all  of  which  it  is  misleading,  while  in  some 
It  IS  clearly  a  misnomer.  Thus  a  usually  careful  writer  says :  ««  "Only 
those  promissory  representations  are  available  for  such  a  purpose  [to 
avoid  a  contract  when  bona  fide]  which  are  reduced  to  writing  and 
made  a  part  of  the  contract,  thus  becoming  substantially,  if  not  for- 
mally, warranties"— meaning  thereby  to  state  the  well-known  prin- 
ciple that  a  written  contract  cannot  be  affected  by  the  terms  of  a  prior 
parol  agreement  not  contained  therein.  The  most  apparent  significance 
of  the  expression  "promissory  representation"  is  that  it  is  a  represen- 
tation in  which  a  promise  is  made  to  do  or  to  refrain  from  doing 
something.  But  in  so  far  as  the  promise  is  concerned,  it  is  plainly 
no  representation  at  all."  It  may  be  enforceable  as  a  term  of  the 
policy  if  properly  written  therein,  or  it  may  be  unenforceable  if  not  so 
written,  by  the  operation  of  the  rule  of  evidence  forbidding  the  ad- 
mission of  parol  testimony  to  add  prior  or  contemporaneous  terms  toi 
a  written  instrument.  But  whether  such  promise  is  enforceable  or  | 
unenforceable,  no  question  pertaining  to  the  doctrine  of  representa-  / 
tions  IS  involved.  ' 

Another  meaning  is  given  to  the  expression,  with  more  accuracy  in 
the  statement  of  the  rule  that  promissory  representations  never  aflFect  I      v 
the  contract  of  msurance,  unless  made  in  bad  faith,  however  untrue  I  ^ 
they  may  be."    That  is,  the  making  of  a  promise  may  amount  to  a  * 
representation  that  a  certain  intention  is  entertained  by  the  insured. 

*o  May,  Ins.  §  182. 

«i  ALSTON  V.  INSURANCE  CO.,  4  Hill  (N.  T.)  329. 
Pn.dfn.^?'^^  ""•  I^'SURANCB  CO.,  9  Allen  (Mass.)  640,  85  Am.  Dec.  788; 
Prudential  Assur.  Co.  v.  ^tna  Life  Ins.  Co.  (0.  C.)  23  Fed   438.    See.  al«o 
KNECHT  T.  INSURANCE  CO,  90  Pa.  118,  35  Am.  Sp!  ^  ^  "^^ 


1 


'\ 


276 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


I  If  the  insurer  relies  upon  the  existence  of  that  intention,  and  makes 
I  a  contract  upon  the  faith  of  it,  it  is  clear,  on  principles  already  dis- 
cussed, that  he  will  not  be  bound  by  his  agreement  if  it  appears  that 
P^  the  promise  was  made  in  bad  faith,  and  that  therefore  the  intention 
I  never  existed  as  represented.  Further,  so  far  as  the  promise  is  merely 
a  representation,  and  not  a  contract,  the  failure  of  the  insured  to  carry 
out  his  bona  fide  intention  will  not  avoid  the  contract.*'  It  is  also  to 
be  observed  that  such  a  prior  promise  may  always  be  shown  by  parol, 
in  order  to  prove  a  fraudulent  inducement  to  the  contract,  even  when 
it  would  be  wholly  inadmissible  as  a  term  of  the  contract.  Thus  let 
us  suppose  that  the  owner  of  a  factory,  applying-  for  insurance  thereon, 
in  order  to  secure  a  lower  premium  rate,  promises,  within  a  specified 
time,  to  substitute  steam  heat  for  open  fires,  and  electric  lighting  for 
kerosene  lamps.  It  will  be  further  supposed  that  these  promises  in- 
duce the  insurer  to  issue  at  a  lower  rate  a  policy  in  which  only  the 
agreement  as  to  the  steam  heating  is  set  forth,  that  concerning  the 
lights  being  omitted.  The  factory  is  destroyed  by  fire  within  the  terms 
of  the  policy,  and  the  insurer  sets  up  in  defense  of  an  action  brought 
the  failure  of  the  insured  to  fulfill  his  promises  as  to  heating  and 

28  Thus,  where  an  applicant  for  Insurance  on  a  building  makes  an  express 
oral  promise  that  it  shall  be  occupied,  and  a  policy  is  thereupon  delivered  to 
him,  such  policy  will  not  be  avoided  by  his  subsequent  failure  to  fulfill  such 
promise,  unless  fraud  is  proved,  even  though  the  risk  be  increased  by  the 
building  being  unoccupied.    KIMBALL  v.  INSURANCE  CO.,  9  Allen  (Mass.) 
540,  85  Am.  Dec.  786.    In  this  case  the  court,  per  Gray,  J.,  said:    "The  case 
perhaps  most  often  cited  as  showing  that  an  oral  promissory  representation 
may  be  set  up  to  defeat  a  written  policy  is  DENNISTOUN  v.  LILLIE  (1821) 
3  Bligh,  202.    But  an  examination  of  the  facts  of  the  case  shows  that  the 
representation  to  the  underwriters  was  in  no  sense  promissory,  or  relating 
to  anything  after  the  execution  of  the  policy.    The  representation  was  con- 
tained in  a  letter  received  and  shown  to  the  underwriters  in  June,  which 
stated  that  the  ship  would  sail  from  Nassau  on  the  1st  of  May.     She  had 
sailed  on  the  23d  of  April,  and  been  lost  on  the  11th  of  May,  so  that  the 
representation  as  made  to  the  underwriters  was  an  untrue  statement  of  a 
past  fact.    It  was  so  distinctly  pleaded,  as  appears  by  the  report  of  the  same 
case  in  1  Shaw,  App.  23.     Lord  Eldon  so  treated  it  after  the  argument, 
stating  the  question  to  be  'whether  it  is  a  representation  of  an  expectation, 
or  a  statement  as  of  a  past  fact,  which  is  material  to  the  risk.'    DENNIS- 
TOUN V.  LILLIE,  3  Bligh,  209.    In  announcing  his  final  opinion,  he  omitted 
the  word  *past'  before  'fact,'  and  said:     'There  is  a  diflCerence  between  the 
representation  of  an  expectation  and  the  representation  of  a  fact.    The  for- 
mer is  immaterial,  but  the  latter  avoids  the  policy  if  the  fact  misrepresented 
be  material  to  the  risk.'     Yet  the  report  clearly  shows  that  the  chancellor 
was   merely  reaffirming  his  original  opinion,  and  used  'fact'   as  past   op- 
posed to  'expectation,'  which  was  future,  and  did  not  intend  to  speak  of 
anything  in  the  future,  which  no  human  being  could  control,  as  a  'fact. 
See.  also,  what  is  said  of  DENNISTOUN  v.  LILLIE  in  ALSTON  v.  INSUR- 
ANCE CO.,  4  Hill  (N.  Y.)  329.  at  page  33&     See,  also,  1  Am.  Ins.  (7th  Ed.) 
SS  541-544. 


§101) 


PROMISSORY   REPRESENTATIONS. 


277 


t 


lighting.     In  the  first  place,  it  is  clear  that  the  promise  to  install  the 
steam  heat,  contained  in  the  policy,  is  no  representation  at  all,  but 
a  term  of  the  contract,  the  performance  of  which  may  be  made  a 
condition  of  the  insurer's  liability.    In  that  case  the  breach  of  the  con- 
dition, if  proved,  will  constitute  a  good  defense.     But  suppose  the 
breach  of  this  written  condition  is  not  proved,  and  the  insurer  is  forced 
to  rely  upon  the  nonfulfillment  of  the  insured's  oral  promise  to  put 
electric  lights  in  the  factory.    He  cannot  be  allowed  to  show  this  pret 
vious  parol  agreement  in  order  to  prove  a  breach  of  a  promissory  rep4 
resentation.^*     Any  such  agreement  formerly  made  was  merged  in' 
the  subsequently  written  policy,  and  its  breach  cannot  be  shown  in 
order  to  defeat  the  insured's  rights  under  the  terms  of  the  policy. 
But  this  oral  promise  may  be  shown  for  a  diflFerent  purpose;  that  is, 
to  prove  a  representation  by  the  insured  that  he  had  the  intention  of 
putting  in  electric  lights.    If  this  representation  was  relied  on  by  the 
insurer,  and  was  false,  in  that  the  insured  had  not,  in  good  faith,  en- 
tertained the  intention  as  he  had  represented,  the  insurer  would  clearly 
be  discharged.     But  if,  in  fact,  the  promise  had  been  made  in  good 
faith,  the  subsequent  failure  of  the  insured  to  perform  it  would  not 
be  a  defense  for  the  insurer.     The  oral  "promissory  representation"! 
may  be  proved  for  the  purpose  of  showing  that  the  written  contract  \ 
was  fraudulently  induced,  but  not  for  the  purpose  of  adding  a  term    ^ 
to  the  contract.*' 


^  ALSTON  V.  INSURANCE  CO.,  4  Hill  (N.  Y.)  329. 

26  This  distinction  seems  to  have  been  first  taken  by  Lord  Tenterden  In 
Flinn  v.  Tobin,  1  Moody  &  Malkin,  367,  22  E.  Com.  Law,  336.  The  plaintiff, 
in  obtaining  the  insurance,  had  told  defendant  that  the  vessel  would  carry 
only  fifty  tons  of  salt,  which  would  put  her  in  light  ballast  trim.  As  a  mar 
ter  of  fact,  she  sailed  with  a  cargo  of  one  hundred  and  sixty  tons,  whicl? 
was  a  very  heavy  cargo,  and  was  lost  In  an  action  on  the  policy  the  de- 
fense was  the  alleged  misrepresentation.  In  summing  up,  Lord  Tenterden, 
C.  J.,  said:  "I  think  the  defendant  in  this  case  will  not  be  entitled  to  a  ver- 
dict unless  he  satisfy  the  jury  that  there  was  a  fraudulent  misrepresentation 
of  the  cargo  which  the  Andromache  wag  to  carry.  If  he  does  so,  the  plain 
tiff  cannot  recover;  but  the  mere  fact  of  a  misrepresentation,  without  fraud, 
will  not  be  enough  to  prevent  the  plaintiff's  recovering,  for  the  contract  be» 
tween  the  parties  is  the  policy,  which  is  in  writing,  and  cannot  be  varied  by 
parol.  No  defense,  therefore,  which  turns  on  showing  that  the  contract  was 
different  from  that  contained  in  the  policy,  can  be  admitted;  and  this  is  the 
effect  of  any  defense  turning  on  the  mere  fact  of  misrepresentation,  without 
fraud.  If,  however,  fraud  was  practiced  to  induce  the  defendant,  or  the  first 
underwriter,  to  sign  the  policy,  no  signatures  so  obtained  can  be  binding;. 
The  question,  therefore,  is  whether  you  think  there  was  any  willful  and 
fraudulent  misrepresentation  made,  for  the  purpose  of  getting  the  policy 
signed.  If  you  are  of  that  opinion,  you  will  find  for  the  defendant;  if  not. 
for  the  plaintiff."  In  FLINN  v.  HEADLAM,  9  Bam.  &  C.  693,  Lord  Ten- 
terden instructed  the  jury  to  the  same  effect.  In  Edwards  v.  Footner,  1 
Camp.  530 — ^an  earlier  case — a  week  before  the  policy  was  signed,  it  was  rep- 


i>l 


,    t 


278 


BBPEESENTATIONS  AND   WARRANTIES. 


CONSTRUCTION  OF  BEPRESENTATION8* 


(Ch.8 


102.  BepresentatloBs  are  constmed  liberally  in  faTor  of  ike  imaiirecl» 

and  are  required  to  be  only  substantially  true. 

103.  Tbe  materiality  of  representations  is  determined  in  accordance 

witb  tbe  same  rules  previously  stated  as  applying  to  conceal- 
ments. In  some  states  these  rules  have  been  modified  by  stat- 
ute. Wbetber  a  given  representation  is  material  is  ordinarily 
a  question  for  the  jury. 

Construction  of  Representations—Substantial  Truth  Sufficient 

All  the  circumstances  under  which  representations  are  usually  made 
to  the  insurer,  especially  in  life  insurance,  conspire  to  justify  the 
strong  tendency  manifested  by  the  courts  to  so  construe  the  lan- 
guage of  a  representation  as  to  uphold  the  policy,  if  possible,  and,  by 
holding  the  representation  to  be  substantially  true,  preserve  to  an  inno- 
cent insured  the  benefits  he  expected  to  receive  under  the  policy.  If 
the  representation  is  written  in  the  policy,  the  language  in  which  it 
is  expressed  was  chosen  by  the  insurer;  if  in  answer  to  an  inquiry,  the 
agent  of  the  insurer  usually  phrases  the  answer  to  a  question  worded 
by  the  insurer.  The  great  number  and  particularity  of  the  inquiries 
made,  and  the  nature  of  the  information  asked,  are  such  that  "no  hu- 
man being  could  with  safety  undertake  to  answer  accurately  and  war- 
rant the  correctness  of  his  answers."  *•  Consequently  the  courts  are 
vigorous  in  stretching  the  language  of  these  representations,  sometimes 
beyond  the  limits  set  by  the  lexicographers,  in  order  to  make  them  fit 
the  facts  to  which  honest  but  careless  or  ignorant  applicants  for  insur- 
ance had  applied  them.  Thus,  in  the  leading  case  of  Union  Mut.  Life 
Ins.  Co.  V.  Wilkinson,*^  the  answer,  "No,"  was  given  to  the  question, 
"Has  the  party  ever  had  any  serious  illness,  local  disease,  or  personal 
injury;  if  so,  of  what  nature,  and  at  what  age?"  The  evidence  showed 
that  the  insured,  when  a  girl  of  fourteen,  had  fallen  some  forty  feet 
from  the  top  of  a  pecan  tree,  and,  being  taken  up  insensible,  was  con- 
resented  to  the  underwriters  that  she  was  to  sail  with  two  armed  ships,  and 
to  carry  ten  guns  and  twenty-five  men.  "There  was  no  evidence  of  any  con- 
versation upon  the  subject  having  passed  between  the  parties  either  when 
the  policy  was  signed,  or  in  the  intervening  period."  In  fact,  the  ship  sailed 
by  herself,  and  carried  only  eight  guns  and  seventeen  men.  The  report  does 
not  show  whether  the  ship  had  or  had  not  sailed  when  the  policy  was  signed. 
The  only  point  raised  or  denied  was  whether  the  court  could  look  back  to 
the  previous  conversation,  or  must  be  confined  to  what  took  place  at  the 
time  of  subscribing  the  policy;  and  upon  that  Lord  Ellenborough  ruled  that 
the  previous  conversation  "must  be  referred  to  the  policy,  and  treated  as 
a  representation  which  required  to  be  substantially  complied  with  on  the 
part  of  the  assured."    But  see  the  case  of  Bowden  v.  Vaughan,  10  East,  415. 

«•  Fitch  V.  Insurance  Co.,  59  N.  Y.  557,  567,  17  Am.  Rep.  372. 

•r  13  Wall.  222.  20  L.  Ed.  617. 


§§  102-103)  OONSTBUOTION   OP  BBPRESBNTATION8. 


279 


fined  to  her  bed  for  some  time,  but  with  no  permanent  injury  to  her 
general  health.  In  holding  that  it  was  for  the  jury  to  say  whether 
this  was  a  "serious"  injury  or  not,  the  court  said:  "It  is  insisted  by 
counsel  for  the  defendant  that,  if  the  injury  was  considered  serious 
at  the  time,  it  is  one  which  must  be  mentioned  in  reply  to  the  interroga- 
tory, and  that  whether  any  further  inquiry  is  expedient  on  the  subject 
of  its  permanent  influence  on  the  health,  is  for  the  insurer  to  deter- 
mine before  making  insurance.  But  there  are  grave  and  obvious  dif- 
ficulties in  this  construction.  The  accidents  resulting  in  personal  in- 
juries, which  at  the  moment  are  considered  by  the  parties  serious, 
are  so  very  numerous  that  it  would  be  almost  impossible  for  a  per- 
son engaged  in  active  life  to  recall  them  at  the  age  of  forty  or  fifty 
years;  and,  if  the  failure  to  mention  all  such  injuries  must  invalidate 
the  policy,  very  few  would  be  sustained  where  thorough  inquiry  is 
made  into  the  history  of  the  party  whose  life  is  the  subject  of  in- 
surance. There  is,  besides,  the  question  oi  what  is  to  be  considered  a 
serious  injury  at  the  time.  If  the  party  gets  over  the  injury  completely, 
without  leaving  any  ill  consequence,  in  a  few  days,  it  is  clear  that  the 
serious  aspect  of  the  case  was  a  mistake.  Is  it  necessary  to  state  the 
injury  and  explain  the  mistake  to  meet  the  requirement  of  the  policy? 
On  the  other  hand,  when  the  question  arises,  as  in  this  case,  on  a 
trial,  the  jury,  and  not  the  insurer,  must  decide  whether  the  injury 
was  serious  or  not.  In  deciding  this,  are  they  to  reject  the  evidence 
of  the  ultimate  effect  of  the  injury  on  the  party's  health,  longevity, 
strength,  and  other  similar  considerations?  This  would  be  to  leave 
out  of  view  the  essential  purpose  of  the  inquiry,  and  the  very  matters 
which  would  throw  most  light  on  the  nature  of  the  injury,  with  refer- 
ence to  its  influence  on  the  insurable  character  of  the  life  proposed." 

The  propriety  of  a  liberal  construction  of  representations  in  favor 
of  the  insured  is  well  illustrated  by  the  somewhat  similar  case  of  Fitch 
V.  American  Popular  Life  Ins.  Co.,"®  in  which  the  insured  had  stated 
that  he  had  never  had  "any  illness,  local  disease,  or  injury  in  any 
organ."  In  deciding  that  this  representation  was  substantially  true, 
despite  the  fact  that  the  insured  had  been  discharged  from  the  army 
because  of  inflammation  of  the  eyes,  which,  however,  had  been  en- 
tirely cured  before  the  application  for  the  policy  in  suit  had  been  made, 
the  court  said:  "The  president  of  the  defendant,  who  appears  to 
have  been  a  physician,  enumerates  about  fifty  parts  of  the  human  body 
which  come  under  the  denomination  of  organs,  including  among  others 
the  eye,  the  nerves,  bones,  cartilages,  veins,  glands  of  the  skin,  etc.; 
and  it  is  claimed  by  the  defendant  that  an  injury  to  or  disease  of  any 
of  these  organs  at  any  previous  period  necessarily  rendered  the  answer 
given  by  the  deceased  a  breach  of  warranty  or  a  misrepresentation 

«8  60  N.  Y.  557, 17  Am.  Rep.  372, 


280 


BEPllESENTATIONS  AND   WARRANTIES. 


(Ch.  8 

which  should  avoid  the  policy.  If  a  finger  had  been  broken,  the  skin 
injured,  or  a  vein  cut  at  any  period  of  the  applicant's  life,  the  policy 
would,  according  to  this  doctrine,  be  void." 

An  equally  liberal  construction  in  favor  of  the  insured  has  usually 
been  given  to  a  representation  that  the  insured  is  of  correct  and  tem- 
perate habits.  Indeed,  the  courts  have  allowed  juries  to  render  ver- 
dicts as  to  the  truth  of  such  a  representation  so  greatly  at  variance 
with  popular  judgment  in  such  matters  as  somewhat  to  shake  the  con- 
fidence of  insurers,  and  even  of  some  disinterested  parties,  in  the  Eng- 
lish language  as  understood  in  the  courts  of  law.  Thus,  in  Knicker- 
bocker Life  Ins.  Co.  v.  Foley,**  the  court  held  that  a  man  was  to  be 
considered  temperate  if  his  habits  were  ordinarily  temperate,  even 
though  he  may  have  had  an  occasional  attack  of  delirium  tremens  from 
exceptional  overindulgence.  This  holding  has  been  approved  in  a 
subsequent  case  »®  in  the  federal  Supreme  Cour^,  and  also  in  several 
state  courts,"  but  has  been 'repudiated  by  the  House  of  Lords  in  the 
case  of  Thomson  v.  Weems,"*  in  which  Lord  Watson,  speaking  of 
the  Foley  Case,  said :  "An  American  jury  had  found  that  a  man  was 
of  temperate  habits,  although  it  had  been  proved  at  the  trial  that  he 
had  an  attack  of  delirium  tremens,  and  the  court  refused  to  disturb 
the  verdict ;  the  main  reason  assigned  for  that  decision  being  a  state- 
ment occurring  in  some  treatise  on  medical  jurisprudence  to  the  effect 
that,  in  the  case  of  an  intemperate  man,  delirium  tremens  is  occa- 
sioned by  abstinence  from  drink,  and  in  the  case  of  a  temperate  man 
by  indulgence  in  liquor.  Even  if  it  had  been  laid  down  as  a  matter 
of  law,  I  should  hesitate  veiy  much  to  adopt  such  a  standard  as  that. 
A  man  suffering  from  delirium  tremens  occasioned  by  recent  drink- 
ing may  possibly  be  more  temperate  than  another  man  who  is  simi- 
larly afflicted  in  consequence  of  his  having  abstained  from  his  usual 
potations ;  but  I  should  not  like  to  affirm  that  either  of  them  was,  in 
the  ordinary  sense  of  the  term,  a  man  of  temperate  habits." 

The  most  reasonable  and  satisfactory  statement  of  the  law  on  this 
point  is,  perhaps,  to  be  found  in  an  Ohio  case,  in  which  the  court 
said :  "    "Where  the  general  habits  of  a  man  are  either  abstemious  or 

«» 105  U.  S.  350,  26  L.  Ed.  1055. 

so  Northwestern  Mut.  Life  Ins.  Co.  v.  Muskegon  Nat.  Bank,  122  U.  S.  501, 
7  Sup.  Ct.  1221,  30  L.  Ed.  1100.  See,  also,  ^tna  Life  Ins.  Go.  y.  Davey,  123 
U.  S.  739,  8  Sup.  Ct.  331,  31  L.  Ed.  315. 

ai  MUTUAL  LIFE  INS.  CO.  v.  SIMPSON  (Tex.  Civ.  App.)  28  S.  W.  837. 
See,  also,  Van  Valkenburgh  v.  Insurance  Co.,  70  N.  Y.  605. 

32  THOMSON  V.  WEEMS,  9  App.  Cas.  671  (1884),   Richards,  Ins.  Cas.  339. 

His  lordship,  however,  was  mistaken  in  saying  that  the  decision  of  Knick- 
erbocker Life  Ins.  Co.  v.  Foley,  supra,  merely  resulted  in  a  refusal  to  set 
aside  a  verdict  The  question  before  the  court  was  the  correctness  of  the 
Instruction  given  by  the  lower  court. 

«»  UNION  MUT.  LIFE  INS.  CO.  v.  REIF,  36  Ohio  St  596,  38  Am.  Rep.  613. 


§§  102-103)  CONSTRUCTION   OF  REPRESENTATIONS. 


28] 


T 


f^ 


temperate,  an  occasional  indulgence  to  excess  does  not  make  him 
a  man  of  intemperate  habits.  But  if  the  habit  is  formed  of  drinking 
to  excess,  and  the  appetite  for  liquor  is  indulged  to  intoxication, 
either  constantly  or  periodically,  no  one  will  claim  that  his  habits  are 
temperate,  though  he  may  be  duly  sober  for  longer  or  shorter  periods 
in  the  intervals  between  the  times  of  his  debauches." 

Representations  Need  be  Only  Substantially  True. 

These  cases  are  also  illustrations  of  the  general  rule  that  represen- 
tations are  not  required  to  be  literally  true,  as  are  warranties,  but  that 
substantial  truth  only  is  necessary.  An  old  English  case  ®*  further 
illustrates  this.  The  armament  of  the  vessel  insured  was  represented 
as  consisting  of  twelve  guns  and  twenty  men,  whereas  the  real  arma- 
ment was  of  equal  strength  with  that  represented,  but  not  identical 
with  it.  It  was  held  that  there  was  no  misrepresentation,  though  it 
would  have  been  otherwise  if  the  statements  had  been  made  war- 
ranties. 

Statements  of  Opinion,  etc. 

As  heretofore  shown,*"  the  statement  of  an  erroneous  opimon,  be- 
lief, or  information,  or  of  an  unfulfilled  intention,  will  not  avoid  the 
contract  of  insurance,  unless  fraudulent.  Hence  the  courts  are  in- 
clined to  construe  a  statement  as  being  one  of  opinion  whenever  it  is 
possible  to  do  so,  in  order  to  prevent  the  forfeiture  of  policies  by  rea- 
son of  innocent  mistakes  Thus  statements  of  value,  as  already  said, 
are  held  but  expressions  of  opinion;  and  so  are  representations  as  to 
the  health  of  the  insured,  so  far  as  latent  diseases  are  concerned,^® 

•*PAWSON  v.  WATSON,  Cowp.  785.  Where  there  Is  a  representation 
that  the  ship  wil  sail  In  ballast,  such  representation  is  sufficiently  complied 
with  by  her  sailing  with  one  trunk  of  merchandise  and  ten  kegs  of  powder. 
Suckley  v.  Delafield,  2  Caines  (N.  Y.)  222.  The  description  in  the  represen- 
tation may  differ  very  considerably  from  the  actual  state  of  the  property 
insured;  if  such  variation  did  not  in  fact  aflPect  the  rate  of  insurance,  or 
change  the  actual  risk,  the  policy  is  not  avoided.  Jefferson  Ins.  Co.  v. 
Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567. 

»5  Supra,  p.   272. 

««  MOULOR  V.  INSURANCE  CO.,  Ill  U.  S.  335,  4  Sup.  Ct.  466,  28  L.  Ed. 
447;  Goucher  v.  Association  (C.  C.)  20  Fed.  596.  and  note;  Schwarzbach  v. 
Union,  25  W.  Va.  622,  52  Am.  Rep.  227;  Endowment  Rank  Knights  of 
Pythias  v.  Rosenfeld,  92  Tenn.  508,  22  S.  W.  204 ;  Endowment  Rank  Knights  of 
Pythias  v.  Cogbill,  99  Tenn.  28,  41  S.  W.  340. 

See,  also,  as  to  representations  and  wan*anties  of  health  of  Insured  when 
he  has  an  undiscovered  disease,  note  to  Fidelity  Mut.  Life  Ass'n  v.  Jeffords, 
53  L.  R.  A.  193. 

In  MOULOR  v.  INSURANCE  CO.,  supra,  the  court,  by  Mr.  Justice  Harlan, 
said:  "If  those  who  organize  and  control  life  insurance  companies  wish  to 
exact  from  the  applicant,  as  a  condition  precedent  to  a  valid  contract,  a 
guaranty  against  the  existence  of  diseases,  of  the  presence  of  which  in  his 
system  he  has  and  can  have  no  knowledge,  and  which  even  skillful  physi- 


282 


BBPBBSENTATIONS  AND   WARRANTIES. 


(Ch.8 


although  there  is  some  authority  to  the  contrary."  But  if  the  insured 
represents  himself  to  be  free  from  a  specific  disease,  with  which  he 
knows  he  is  really  afflicted,  though  not  in  such  a  serious  form  as  to 
disable  him,  the  untruth  of  the  statement  will  avoid  his  policy.*'  So 
generally,  a  representation  as  to  any  future  event  or  condition  over 
which  the  insured  has  no  control  will  be  deemed  a  mere  expression  of 
opinion,  which  will  avoid  the  contract  only  when  made  in  bad  faith.'* 
And  even  a  representation  written  in  the  policy  in  such  form  as  to 
admit  of  its  being  construed  as  an  executory  agreement  or  "promissory 

clans  are  often  unable,  after  the  most  careful  examination,  to  detect,  the 
terms  of  the  contract  must  be  so  clear  as  to  exclude  any  other  conclusion. 
♦  ♦  ♦  If  It  be  said  that  an  individual  could  not  be  afflicted  with  the  dis- 
eases specified  In  the  application  [scrofula,  asthma,  and  consumption]  with- 
out being  cognizant  of  the  fact,  the  answer  is  that  the  Jury  would  in  that 
case  have  no  serious  difficulty  in  finding  that  he  had  failed  to  communicate 
to  the  company  what  he  knew  or  should  have  known  was  material  to  the 
risk,  and  that  consequently,  for  want  of  fair  and  true  answers,  the  policy 
was,  by  its  terms,  null  and  void.  But  whether  a  disease  is  of  such  a  char- 
acter that  its  existence  must  have  been  known  to  the  individual  afflicted 
with  It,  and  therefore  whether  an  answer  denying  its  existence  was  or  not 
a  fair  and  true  answer,  is  «  matter  which  should  have  been  submitted  to 
the  jury." 

In  Endowment  Rank  Knights  of  Pythias  v.  Rosenfeld,  supra,  the  court 
said:  "A  man  cannot,  however,  know  with  such  exact  certainty  the  condi- 
tion of  his  system  as  he  can  the  status  and  condition  of  his  property.  The 
presence  or  absence  of  any  disease,  or  predisposition  to  disease,  is  to  some 
extent  a  matter  of  opinion.  There  may  be  hidden  or  undeveloped  disease,  of 
which  an  applicant  for  insurance  may  be  wholly  ignorant,  and  of  which  he 
may  or  may  not  have  the  slightest  suspicion,  and  which  may  or  may  not  be 
ascertained  by  an  examiner  upon  his  medical  examination.  This  cannot  be 
said  of  his  property.  A  man  may  always  know  or  ascertain  the  condition 
and  status  of  his  property.  While  the  rule  Is  the  same  in  both  cases,  the 
application,  from  the  very  nature  of  the  case,  must  be  to  some  extent  differ- 
ent If  the  assured,  when  he  makes  his  application,  know,  or  have  any 
reason  or  ground  to  believe,  that  he  has  any  disease,  even  though  it  may 
be  latent  and  undeveloped,  he  is  in  duty  bound  to  make  it  known,  whether 
specially  questioned  or  not,  and,  if  he  fail  to  do  so,  it  will  amount  to  a  mis- 
statement or  concealment,  as  the  case  may  be,  that  will  avoid  hlf  policy; 
but  if  there  should  be  in  him  some  latent  disease,  of  which  he  knows  and 
suspects  nothing,  and  has  no  means  of  ascertaining,  he  cannot  be  said  to 
have  either  misrepresented  or  concealed  the  facts  in  guch  a  sense  as  to  avoid 
his  policy.  There  can  be  no  concealment  of  a  fact  which  Is  not  known,  and 
cannot  be  known  by  proper  inquiry."  See,  also.  Royal  Neighbors  of  America 
V.  Wallace  (Neb.  1904)  99  N.  W.  256. 

87  MAINE  BENEFIT  ASS'N  v.  PARKS,  81  Me.  79,  16  Atl.  339,  10  Am.  St. 
Kep.  240.  See,  also,  CAMPBELL  v.  INSURANCE  CO.,  98  Mass.  381;  Vose 
▼.  Insurance  Co.,  6  Cush.  (Mass.)  42. 

« 8  Jeffrey  v.  United  Order,  97  Me.  176,  53  Atl.  1102. 

8»  Herrick  v.  Insurance  Co.,  48  Me.  558,  77  Am.  Dec.  244,  where  It  was  held 
that  the  statement  that  a  building  would  be  occupied  by  a  tenant  was  a 
mere  statement  of  opinion. 


§§  102-103)     CONSTRUCTION  OF  REPRESENTATIONS. 


283 


representation"  will  rather  be  construed,  when  possible,  as  an  affirma- 
tive representation  of  a  present  fact,  in  order  to  save  a  policy  from 
forfeiture.  Thus,  when  the  insured  states  that  the  building  is  used 
for  a  certain  purpose,*®  or  that  no  smoking  is  allowed  *^  on  the  prem- 
ises, the  truth  of  the  representation  at  the  time  it  is  made  is  sufficient 
to  validate  the  insurance,  which  will  not  be  aifected  by  a  subsequent 
change  in  the  use  to  which  the  building  is  put,  or  in  the  practice  as  to 
smoking  on  the  premises. 

But  where  the  subject  of  the  representation  is  susceptible  of  actuai 
knowledge  the  insured  cannot  escape  the  fatal  consequences  of  an  un- 
true statement  of  fact  by  claiming  that  his  honestly  entertained  opinion 
on  the  subject  was  mistaken.**     Thus,  whether  a  man  is  temperate  or 

*o  Bryan  v.  Insurance  Co.,  8  W.  Va.  605;    Burlington  Ins.  Co.  v.  Brock- 
way,  138  111.  644,  28  N.  E.  799;   Joyce  v.  Insurance  Co.,  45  Me.  168,  71  Am. 
Dec.  536;   Cumberland  Valley  Mut.  Protection  Co.  v.  Douglas,  58  Pa.  419,  98 
Am.  Dec.  298.    In  a  policy  of  insurance  on  sundry  buildings,  they  were  de- 
scribed as  barns,  to  which  this  clause  was  added:   "All  the  above-described 
barns  are  used  for  hay,  straw,  grain   unthreshed,   stabling,   and  shelter"; 
and  on  the  trial,  after  proof  of  a  loss,  it  appeared  that  on  the  day  preceding 
the  night  of  the  fire  the  insured  had  caused  about  two  bushels  of  lime  and 
six  or  eight  pails  of  water  to  be  placed  in  a  tub  standing  in  a  room  generally 
used  for  keeping  therein  unthreshed  corn,  in  one  of  the  barns,  for  the  pur- 
pose of  preparing  the  lime  for  rolling  in  it  some  wheat  which  he  was  about 
to  sow  upon  his  farm;    that  a  short  time  previous  to  the  fire  he  had  com- 
menced the  painting  of  his  house,  and  his  painter  had  mixed  his  paints  in 
the  same  room,  and  at  the  time  of  the  fire  there  were  in  it  au  oil  barrel, 
containing  about  a  gallon  of  oil,  and  a  pot  with  about  a  pint  of  mixed  paint; 
that  in  another  building,  described  in  the  policy  as  used  In  part  as  a  cider 
mill,  the  insured,  before  and  after  the  execution  of  the  policy,  had  been  in 
the  habit  of  repairing  his  farming  utensils,  and  had  also  made  in  It  a  bee- 
hive, and  planed  some  boards  for  a  room  In  his  house,  but  a  day  or  two 
before  the  fire  the  building  had  been  cleaned  out,  leaving  nothing  in  It  but 
some  apples.    Held  that  the  clause  relating  to  the  use  of  the  buildings  insured 
was  not  an  agreement  that  they  should  be  used  in  that  manner,  and  in  no 
other,  but  was  Inserted  merely  for  the  purpose  of  designating  the  buildings 
insured,  and  not  to  limit  their  use,  or  to  deprive  the  insured  of  the  enjoyment 
of  his  property  in  the  same  manner  as  buildings  of  that  description  are  gen- 
erally used  and  enjoyed.     Billings  v.  Insurance  Co.,  20  Conn.  139,  50  Am. 
Dec.  277.    In  Catlin  v.  Insurance  Co.,  Fed.  Cas.  No.  2,522,  1  Sumn.  434,  the 
house  was  described  in  the  policy  as  "at  present  occupied  as  a  dwelling 
house,  but  to  be  occupied  hereafter  as  a  tavern,  and  privileged  as  such"; 
and  It  was  held  that  this  was  not  a  warranty  that  the  house  should,  dur- 
ing the  continuance  of  the  risk,  be  constantly  occupied  as  a  tavern,  but  that 
it  was,  at  farthest,  a  mere  representation  of  the  Intention  to  occupy  it  as 
such,  and  a  license  or  privilege  that  it  might  be  so  occupied. 

*i  This  Is  true  even  where  the  answer  to  the  question,  "Is  smoking  al- 
lowed on  the  premises?"  is  made  a  warranty.  HOSFORD  v.  INSURANCE 
CO.,  127  U.  S.  399,  8  Sup.  Ct.  1199,  32  L.  Ed.  196. 

*2  "When  the  insurer  is  Induced  to  enter  into  the  contract  through  a  mis- 
apprehension as  to  a  material  matter  occasioned  by  the  conduct  or  declara- 
tions of  the  opposite  party,  he  is  entitled  to  be  relieved,  whether  the  misap- 


284 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


H 


intemperate  is  a  question  of  fact,  however  difficult  of  legal  definition 
that  fact  may  be.  Consequently,  if  the  insured  was  in  fact  intem- 
perate, whether  drinking  to  excess  daily,  or  only  at  long  intervals, 
his  policy  cannot  be  saved  from  avoidance  according  to  its  terms  by 
showing  that  the  insured  really  regarded  his  habits  as  being  correct 
and  temperate.** 

Tivie  to  Which  Representations  Refer. 

Representations  refer  only  to  the  time  of  making  the  contract.  As 
shown  above,**  statements  promissory  of  conditions  to  exist  subsequent 
to  the  completion  of  the  contract  may  be  conditions  or  warranties. 
They  cannot  be  representations.  Hence  conditions  represented  as  ex- 
isting must  be  so  during  the  making  of  the  contract,  but  not  after- 
wards. And  representations  found, to  be  untrue  may  be  withdrawn 
prior  to  the  completion  of  the  contract,  but  not  afterwards.** 

Materiality — Statutes — Evidence, 

The  rule  heretofore  discussed  *•  as  determining  the  materiality  of 
concealments  applies  equally  to  representations ;  that  is,  any  statement 
is  material  which  in  any  wise  induced  the  insurer  to  make  a  contract 
which  he  otherwise  would  not  have  made,  or  would  have  made  only 
on  different  terms.*^  In  many  states,  however,  this  rule  has  been  some- 
what narrowed  by  statute.  Thus  in  Massachusetts  *®  it  has  been  en- 
acted that  "no  oral  or  written  misrepresentation  made  in  the  nego- 
tiation of  a  contract  or  policy  of  insurance  by  the  assured,  or  in  his 
behalf,  shall  be  deemed  material,  or  defeat  or  avoid  the  policy,  or  pre- 
vent its  attaching,  unless  such  misrepresentation  is  made  with  actual 
intent  to  deceive,  or  unless  the  matter  misrepresented  or  made  a  war- 
ranty increased  the  risk  of  loss."  The  Missouri  statute  *®  goes  still 
further,  and,  in  effect,  provides  that  a  representation  shall  not  be 

prehension  be  produced  by  fratid  or  Innocent  mistake."  Continental  Ins.  Co. 
V.  Kasey,  25  Grat.  (Va.)  268,  18  Am.  Rep.  681. 

43  THOMSON  V.  WEEMS,  9  App.  Cas.  671;  Richards,  Ins.  Cas.  839;  Stand- 
ard Life  &  Accident  Ins.  Co.  v.  Lauderdale,  94  Tenn.  (10  Pickle)  635,  30  S.  W. 
732. 

i*  Supra,  p.  275. 

*5  "A  representation  may  be  altered  or  withdrawn  before  the  insurance  la 
effected,  but  not  afterwards."    Civ.  Code  Cal.  §  2576. 

46  Supra,  p.  257. 

4T  "The  materiality  of  a  representation  is  determined  by  the  same  rule 
as  the  materiality  of  a  concealment"    Civ.  Code  Cal.  §  2581. 

48  St.  1895,  c.  271.  For  the  history  of  this  act,  see  White  v.  Society,  163 
Mass.  108,  39  N.  E.  771,  27  L.  R.  A.  398,  and  cases  cited.  See,  also,  Levle  v. 
Insurance  Co.,  163  Mass.  117,  39  N.  E.  792.  The  Minnesota  act  is  similar  in 
terms,  with  the  omission  of  the  words  "or  made  a  warranty"  inserted  by  the 
act  of  1895.     See  Minnesota  Laws  1895,  p.  400,  c.  175,  §  20. 

4»Rev.  St  1879,  §  5976.  See  Franklin  Life  Ins.  Co.  v.  Galligan  (March. 
1903)  71  Ark.  295.  73  S.  W.  102. 


§104) 


WAEEANTIES — IN   GENEBAL. 


285 


deemed  material  unless  it  contributes  to  the  loss  or  damage  for  which 
indemnity  is  claimed.  The  provisions  of  such  statutes  prevail  over 
the  express  agreement  of  the  parties.'**  "It  is  as  much  the  duty  of  the 
courts  to  enforce  such  rules  as  it  is  to  administer  the  statute  of  frauds 

and  perjuries."  *^  ,      •         t.  *  *i. 

The  materiality  of  any  given  representation  is  for  the  jury,  but  the 
fact  that  a  statement  is  made  in  response  to  an  inquiry  raises  a  powerful 
presumption  that  it  is  material.^^  And  the  burden  of  proving  both  the 
materiality  and  the  falseness  of  a  representation  rests  upon  the  in- 

surer.  ^^ 

By  the  great  weight  of  authority,  both  in  England  and  this  country, 
experts  in  insurance  will  not  be  permitted  to  testify  as  to  whether  any 
particular  representation  is  material,  but  they  may  state  to  the  jury 
usages  of  insurers  generally  as  to  rejecting  risks  or  accepting  them  only 
at  a  higher*  rate,  when  informed'of  the  fact  in  question.** 

WARRANTIES— IN  GENERAL. 

104.  A  warranty  is  a  representation  or  promise  set  forth  in  til*  policy, 
or  by  reference  incorporated  therein,  which  by  the  terms  of  the 
policy  is  made  an  essential  part  of  the  contract,  and  the  untruth 
or  nonfulfillment  of  which,  it  is  agreed,  shall  render  the  policy 
voidable  by  the  insurer,  wholly  irrespective  of  the  materiality 
of  such  representation  or  promise* 

It  is  generally  agreed  by  the  parties  to  the  contract  of  insurance 
thai  certain  representations  or  promises  contained  in  the  policy  itself, 
or  incorporated  in  it,  by  an  express  conditio*  of  the  policy,  shall  con- 
stitute warranties,  upon  the  truth  or  fulfillment  of  which  shall  depend 
all  rights  of  the  insured  in  the  policy.  Stipulations  of  this  character 
art  necessary  for  the  protection  of  the  insurer,  who  is  thereby  relieved 

60  Fidelitv-  Mut.  Life  Ass'n  v.  Miller,  92  Fed.  63,  34  C.  C.  A.  211;  Fidelity 
Mut.  Life  Ass'n  v.  Ficlilin,  74  Md.  172,  21  Atl.  680,  23  Atl.  197;  Hermany  v. 
Association,  151  Pa.  17,  24  Atl.  1064;  Lutz  v.  Insurance  Co.,  186  Pa.  527,  40 
Atl.  1104.  The  case  of  Farmers'  &  Drovers'  Ins.  Co.  v.  Curry,  13  Bush  (Ky.) 
312,  26  Am.  Rep.  194,  which  is  opposed  to  the  text,  was  apparently  overruled 
by  Qermania  Ins.  Co.  v.  Rudwig,  80  Ky.  223. 

Bi  Hermany  v.  Association,  151  Pa.  17,  24  Atl.  1064,  per  Sterrett,  J.  This 
statement  does  not  apply,  however,  to  statutes  of  a  foreign  state.  Mutual  Life 
Ins.  Co.  v.  Hill,  193  U.  S.  551,  24  Sup.  Ct.  538,  48  L.  Ed.  788. 

62  VIVAR  V.  KNIGHTS  OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36. 

63  Piedmont  &  A.  Ins.  Co.  v.  Ewing,  92  U.  S.  377,  23  L.  Ed.  610;  PENN 
MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAV.  BANK  &  TRUST  CO.,  72  Fed. 
413,  19  C.  C.  A.  286,  38  L.  R.  A.  33;   Jones  v.  Insurance  Co.,  61  N.  Y.  79. 

64  For  a  full  and  learned  discussion  of  all  the  English  and  American  cases 
on  this  interesting  question,  see  the  able  and  carefully  written  opinion  of 
Taft,  J.,  in  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAV.  BANK  & 
TRUST  CO.,  72  Fed,  413,  19  C.  C.  A.  28G,  38  L.  R.  A.  33. 


286 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


i 

lit 


from  any  liability  which  he  might  otherwise  sustain  through  the  as- 
sumption of  hazardous  risks,  which,  but  for  the  false  statements  or 
promises  of  the  applicant,  would  have  been  promptly  rejected 

Representations  or  promises  which  it  is  thus  agreed  shall  consti^ 
tute  warranties  are  usually  those  of  such  a  character  as  to  be  mani« 
festly  matenal  to  the  risk  assumed,  but  their  materiality  is  to  be  de- 
termined  solely  by  the  parties  to  the  contract,  who  may,  if  they  see 
^S^'"^^^  that  an  apparently  trivial  statement  shall  constitute  a  war- 
ranty. When  It  can  be  clearly  seen  that  such  was  their  intention,  the 
courts  ivill  consider  no  further  the  question  of  its  materiality,  but 
will  hold  Its  untruth  a  good  defense  to  an  action  on  the  policy."  As 
IS  wen  stated  in  the  leading  case  of  Jeffries  v.  Economical  Mut.  Life 
ins.   Lo.:  Many  cases  may  be  found  which  hold  that,  where 

false  answers  are  made  to  inquiries  which  do  not  relate  to  the  risk 
the  policy  is  not  necessarily  avoided,  unless  they  influenced  the  mind 
of  the  company,  and  that  whether  they  are  material  is  a  question  for 
the  jury  ^  But  we  know  of  no  respectable  authority  which  so  holds 
where  it  is  expressly  covenanted  as  a  condition  of  liability  that  the 
statements  and  declarations  made  in  the  application  are  true,  and  when 
the  truth  of  such  statements  forms  the  basis  of  the  contract " 

In  order  to  constitute  a  stipulation  a  warranty,  however,  it  must  not 
only  be  clearly  shown  that  the  parties  intended  it  as  such,"  but  it 

"  Ripley  v.  Insurance  Co.,  30  N.  T.  136,  86  Am.  Dec  362-  Davev  v  Tn- 
TvTim  S^'^VV.'^'J'''^  Metropolitan  Life^!  Ca' v'^RTherford, 
587  li  ItTa  '^'  n  '  ?^^«%^-  Insurance  Co.,  84  Mich.  309,  47  N.  W. 
kJi'iJ  ^  n,  i^'  ^'  ?fr"^^  ^-  Insurance  Co.,  109  La.  341,  33  South.  361; 
Kelly  TClearing  Co.,  113  Ala.  453,  21  South.  361.  "When  once  it  Is  ascer 
I^ptf"'  the  statement  Is  a  warranty,  and  that  it  Is  fale  a^d  the  pohcy 

fn  «n?io       ^  .  *  ^^°^^^n«  a  n^a«er  of  Blight  importance  and  may  not 

iA  V  ^' A  ol*  ^*  ^^*  ^"^^^  ^-  Association,  153  Mass.  176,  26  N.  B  230 
W«H  m  i\  ^  'o?T^;  ®i;  ^®P-  ^^^'  JEFFRIES  v.  INSURANCE  CO.,  22 
7m  Jl'  ^^^\f  ^.^^-  ^/  ^™^  ^^^^  INS.  00.  y.  FRANCE,  91  U.  f 
510,  23  L.  Ed.  401;  Flippen  v.  Insurance  Co.,  30  Tex.  Civ.  App.  362,  70  S.  W. 

It  is  held  in  a  recent  Illhiois  case  that,  where  a  landlord  enters  Into  a  con- 
tract of  insurance  providing  that  no  gasoline  except  that  contained  in  the 
reservoir  of  a  gasoline  stove  shall  be  kept  within  the  building,  it  is  his  duty 
to  see  to  It  that  the  provisions  of  the  policy  are  not  violated,  even  by  the 

1    *  ^n  K^^    °'-  ^-  ^-  Norwaysz,  104  111.  App.  390.     See,  further,  as  to 
what  will  be  construed  as  amounting  to  a  breach  of  warranty,   Henn  v 
Insurance  Co.,  67  N.  J.  Law,  310.  51  Atl.  689  ""^anty,    uenn  v. 

»«  JEFFRIES  V.  INSURANCE  CO.,  22  Wall.  (U.  S.)  47,  22  L.  Ed  833  See 
also,^TNA  LIFE  INS.  CO.  v.  FRANCE,  91  U.  S.  616.  23  L.  Ed.^1  ' 

57  Descriptive  phrases  will  be  considered  warranties  if  used  to  describe 
the  risk  Itself,  but  not  if  used  merely  for  purposes  of  identifying  t^e  e^b?^ 


§104) 


WARRANTIES — ^IN  GENERAL. 


287 


must  also  form  a  part  of  the  contract,  itself.'^  If  the  representations 
or  promises  which  are  regarded  as  warranties  are  not  contained  in 
the  policy  itself,  but  in  some  other  instrument,  such  as  the  by-laws, 
application,  or  survey,  they  can  only  be  incorporated  in  the  contract, 
so  as  to  be  given  the  effect  of  warranties,  by  an  express  condition  con- 
tained in  the  policy.**  Mere  reference,  alone,  is  not  sufficient  to  give 
them  this  effect.*® 

Nature  of  a  Warranty. 

Warranties  are  in  the  nature  of  conditions  precedent,  in  that  upon  a 
strict  compliance  with  them  in  every  particular  depend  all  rights  of 

of  the  insurance.  Thus,  where  the  vessel  insured  was  described  at  nhe 
good  American  ship  called  Rodman,"  It  was  held  that  the  ship  was  war- 
ranted to  be  American.  Barker  v.  Insurance  Co.,  8  Johns.  (N.  Y.)  307,  5 
Am.  Dec.  339.  So  where  the  vessel  was  described  as  "the  Mount  Vernon,  an 
American  ship."  Baring  v.  Claggett,  3  Bos.  &  P.  201,  5  East,  398.  See,  also, 
Lewis  V.  Thatcher,  15  Mass.  431.  But  calling  a  vessel  by  an  English  transla- 
tion of  her  Spanish  name  is  not  a  warranty  that  she  is  Eiiglish.  OLAPHAM 
V.  COLOGAN,  3  Camp.  382.  In  Le  Mesurier  v.  Vaughan,  6  East,  382,  a  state- 
ment that  the  goods  insured  were  shipped  in  the  vessel  "called  the  Ameri- 
can ship  President"  was  held  not  to  be  a  warranty  that  the  ship  was 
American,  but  merely  a  statement  of  her  name. 

In  the  leadhig  case.  BURLEIGH  v.  INSURANCE  CO.,  90  N.  T.  220,  Rich 
ards,  Ins.  Cas.  350,  a  description  of  the  building  insured  as  "detached  at  least 
one  hundred  feet"  was  held  to  warrant  that  the  building  was  distant  at  least 
one  hundred  feet  from  any  other  building  of  such  character  as  would  in- 
crease the  risk.    See,  also.  Wall  v.  Insurance  Co.,  7  N.  Y.  370. 

88  Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  416,  59  Am.  Dec.  192;  Jeffer- 
son Ins.  Co.  V.  Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567;  GODDARD  v. 
INSURANCE  CO.,  67  Tex.  69,  1  S.  W.  906,  60  Am.  Rep.  1.  The  fact  that 
representations  are  made  a  part  of  the  contract  does  not,  however,  neces- 
sarily make  them  warranties.  They  will  only  be  given  the  effect  of  war- 
ranties, when  it  is  manifest  from  an  examination  of  the  entire  policy  that 
such  was  the  intention  of  the  parties.  VIVAR  v.  KNIGHTS  OP  PYTHIAS. 
52  N.  J.  Law,  455,  20  Atl.  36;  Supreme  Council  of  Royal  Arcanum  v.  Brash- 
ears,  89  Md.  624,  43  Atl.  866,  73  Am.  St  Rep.  244;  Hoose  v.  Insurance  Co.. 
84  Mich.  309,  47  N.  W.  587,  11  L.  R.  A.  340;  MOULOR  v.  INSURANCE  00., 
Ill  U.  S.  335,  4  Sup.  Ct  466,  28  L.  Bd.  447;  Fitch  v.  Insurance  Co.,  59  N.  Y. 
557,  17  Am.  Rep.  372. 

5»  Printed  proposals  to  be  construed  as  warranties  should  be  referred  to  by 
the  policy,  which  should  in  express  terms  declare  that  it  had  been  made  and 
accepted  in  reference  to  them.    Jefferson  Ins.  Co.  r.  Cotheal,  7  Wend.  (N 
Y.)  72,  22  Am.  Dec.  567. 

For  cases  hi  which  applications  were  held  Incorporated  In  the  policy,  so 
that  statements  contained  in  them  constituted  warranties,  see  Chaffee  v.  In- 
surance Co.,  18  N.  Y.  376;  Bobbitt  v.  Insurance  Co.,  66  N.  C.  70,  8  Am.  Rep. 
494.  See,  also,  Glendale  Woolen  Co.  v.  Protection  Ins.  Co.,  21  Oonn.  19,  54 
Am.  Dec.  309,  where  statements  contained  In  a  lurvey  were  given  a  like  con- 
struction. 

•0  SNYDER  V.  LOAN  CO.,  13  Wend.  (N.  Y.)  92;  TAYLOR  T.  INSURANCE 
CO.,  120  Mass.  254;  Lebanon  Mut.  Ins.  Co.  v.  Losch,  109  Pa.  100;  Hartford 
Protection  Ins.  Co.  v.  Harmer,  2  Ohio  St  452,  59  Am.  Dec.  684. 


I 


288 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


§105) 


AFFIRMATIVE  AND  PROMISSORY  WARRANTIES. 


289 


■-h 


the  insured  in  the  policy.**  They  differ  from  such  conditions,  how- 
ever, in  that  where  the  insured  seeks  to  recover  on  the  policy  he  need 
not  set  forth  the  warranties  and  recite  his  compliance  with  each;  but 
by  the  weight  of  authority  it  is  held  that,  in  order  to  defeat  a  recovery 
on  the  ground  of  a  breach  of  warranty,  it  is  incumbent  upon  the  de- 
fendant to  allege  breaches,  and  to  prove  them  as  alleged.** 

The  reason  for  this  exception  to  the  general  rule  regarding  the  . 
burden  of  proof  in  cases  where  the  performance  of  certain  stipula- 
tions is  a  necessary  condition  precedent  to  the  right  of  action  may  be 
gathered  from  the  opinion  of  Mr.  Justice  Miller  in  Piedmont  &  A. 
Life  Ins.  Co.  v.  Ewing,*^  where  it  is  said :  "The  number  of  the  ques- 
tions now  asked  of  the  assured  in  every  application  for  a  policy,  and 
the  variety  of  subjects  and  length  of  time  which  they  cover,  are  such 
that  it  may  be  safely  said  that  no  sane  man  would  ever  take  a  policy 
if  proof  to  the  satisfaction  of  a  jury  of  the  truth  of  every  answer  were 
made  known  to  him  to  be  an  indispensable  prerequisite  to  payment  of 
the  sum  secured;  that  proof  to  be  made  only  after  he  was  dead,  and 
could  render  no  assistance  in  furnishing  it.  On  the  other  hand,  it 
is  no  hardship  that,  if  the  insurer  knows  or  believes  any  of  these  state- 

•1  FOWLER  V.  INSURANCE  CO.,  6  Cow.  (N.  Y.)  673,  16  Am.  Dec.  460; 
Jefferson  Ins.  Oo.  v.  Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567;  Alabama 
Gold  Life  Ins.  Co.  v.  Johnston,  80  Ala.  467,  2  South.  125,  59  Am.  Rep.  816; 
Metropolitan  Life  Ins.  Co.  v.  Rutherford,  98  Va.  195,  35  S.  E.  361;  Price  ▼. 
Insurance  Co.,  17  Minn.  497  (GU.  473),  10  Am.  Rep.  166. 

See,  to  the  contrary,  a  dictimi  of  Judge  Mitchell  to  the  effect  that  a  war- 
ranty is  in  the  nature  of  a  defeasance,  rather  than  a  condition  precedent. 
CHAMBERS  V.  INSURANCE  CO.,  64  Minn.  495,  67  N.  W.  367,  58  Am.  St 
Rep.  549. 

•2  Piedmont  &  A.  Life  Ins.  Co.  v.  Ewing,  92  U.  S.  377,  23  L.  Ed.  610.  See, 
also,  PENN  MUT.  LIFE  INS.  OO.  v.  MECHANICS'  SAV.  BANK  &  TRUST 
CO.,  72  Fed.  413,  19  C.  C.  A.  286,  38  L.  R.  A.  33;  Jones  v.  Insurance  Co.,  61 
N.  Y.  79;  O'Connell  v.  Knights  of  Damon,  102  Ga.  143,  28  S.  E.  282,  66  Am. 
St.  Rep.  159. 

"If  a  life  insurance  policy  provides  that  the  application  for  insurance  shall 
be  a  part  of  the  policy,  and  that  if  any  false  or  fraudulent  representation, 
statement,  or  warranty  is  made  in  such  application  the  policy  shall  be  null 
and  void,  the  burden  of  proof  is  on  the  insurer  to  allege  and  show  the 
falsity  of  such  representations  or  statement,  and  he  must  allege  specifically 
which  of  the  representations  he  claims  to  be  false,  and  he  is  limited  in  his 
proof  to  those  alleged."  CHAMBERS  v.  INSURANCE  CO.,  64  Minn.  495, 
67  N.  W.  367,  58  Ahl  St  Rep.  549,  Elliott,  Ins.  Cas.  121,  Woodruff,  Ins.  Cas. 
124,  disapproving  a  dictum  in  Price  v.  Insurance  Co.,  17  Minn.  497  (Gil.  473), 
10  Am.  Rep.  166,  to  the  effect  that  warranties  are  conditions  precedent,  the 
truth  of  which  must  be  pleaded  and  proved  by  the  assured.  There  is  au- 
thority, however,  for  the  view  taken  by  the  court  in  the  earlier  case.  Mc- 
Loon  V.  Insurance  Co.,  100  Mass.  472,  97  Am.  Dec.  116,  1  Am.  Rep.  129; 
iSweeney  v.  Insurance  Co.,  19  R.  L  171,  36  Atl.  9,  38  L.  R.  A.  297,  61  Am.  St 
Rep.  751. 

••  92  U.  S.  377,  23  L.  Ed.  610. 


ments  to  be  false,  he  shall  furnish  the  evidence  on  which  that  knowl- 
edge or  belief  rests.  He  can  thus  single  out  the  answer  whose  truth 
he  proposes  to  contest,  and,  if  he  has  any  reasonable  grounds  to  make 
such  an  issue,  he  can  show  the  facts  on  which  it  is  founded." 


AFFIRMATIVE  AND  PROMISSORY  WARRANTIES. 

105.  Warranties  are  affirmative  or  promissory  in  accordance  with 
whether  they  represent  facts  as  existing  at  the  time  they  are 
made,  or  promise  that  certain  things  shall  be  done  or  that 
specified  conditions  shall  exist  dnring  the  currency  of  the  policy. 

Warranties  are  affirmative  or  promissory  according  as  they  are 
made  concerning  an  existing  fact  or  state  of  facts,  or  relate  to  the  ex- 
istence or  nonexistence  of  certain  conditions  in  the  future.'*  The  un- 
truth of  an  affirmative  warranty  will  prevent  the  insured  from  ever 
acquiring  any  rights  in  the  policy.''^  A  promissory  warranty,  how- 
ever, as  relating  solely  to  the  future,  is  in  the  nature  of  a  subsequent 
condition  of  defeasance,  the  nonfulfillment  of  which  renders  the  policy 
voidable."  ^      ^ 

^  The  language  used  by  the  parties  and  the  nature  of  the  risk  assumed 
in  each  case  will  usually  prevent  any  difficulty  in  determining  whether 
the  insured  intends  a  certain  statement  as  a  representation  of  an  exist- 

M  't^o.;^^^  ""'  I^^SURANCE  CO.,  3  N.  Y.  122;  Smith  v.  Insurance  Co..  32 
^>-  ^'  399;  Gilliat  v.  Insurance  Co.,  8  R.  I.  282,  91  Am.  Dec.  229;  Schultz  v. 
Insurance  Co.  (O.  C.)  6  Fed.  672. 

But  the  parties  must  have  clearly  intended  to  promise  the  existence  of  the 
specified  conditions.  A  mere  expression  of  intention  is  not  enough.  See 
Grant  v.  Insurance  Co.,  15  Moore,  P.  O.  515;  Benham  v.  United,  etc.,  Co.,  7 
Exch.  744;  Catlin  v.  Insurance  Co.,  1  Sumn.  434,  Fed.  Gas.  No.  2,522.  But 
on®x?"^^°"^*^  ^*  Insurance  Co.,  5  Duer  (N.  Y.)  587;  Ripley  v.  Insurance  Co., 
60  N.  Y.  136,  86  Am.  Dec.  362.  In  accordance  with  the  general  rule  of  con- 
struction as  to  warranties,  a  promissory  term  of  the  policy  will  not  be  con- 
sidered a  warranty  unless  clearly  made  so.  And  the  breach  of  such  a  prom- 
issory term,  not  a  warranty,  will  not  avoid  the  contract,  though  it  may  give 
rise  to  an  action  for  damages.  Commercial  Mut.  Ace.  Co.  v.  Bates,  176  111 
194,  52  N.  E.  49.  The  law  is  thus  stated  in  Civ.  Code  Gal.  §  2608:  "A  state- 
ment in  a  policy  which  imports  that  it  is  intended  to  do  or  not  to  do  a  thin'^ 
which  materially  affects  the  risk  is  a  warranty  that  such  act  or  omission 
shall  take  place."  It  is  not  believed  that  this  is  a  correct  statement  of  the 
common-law  rule.  See  Catlin  v.  Insurance  Co.,  1  Sumn.  434,  Fed.  Cas.  No. 
2,522;   Barb.  Ins.  §  66. 

•«  See  cases  cited  supra,  note  55. 

••Schultz  V.  Insurance  Co.  (C.  C.)  6  Fed.  672;  Qlendale  Woolen  Co.  t. 
Protection  Ins.  Co.,  21  Conn.  19,  54  Am.  Dec.  309. 

A  mere  declaration  of  future  expectation  or  Intention,  as  distinguished 
from  an  actual  promise,  is  not  a  warranty.  Herrick  v.  Insurance  Co  48 
Me.  558.  77  Am.  Dec.  244;   KNECHT  v.  INSURANCE  00..  90  Pa.  llS,  35 

Vance  Ins. — 19 


290 


REPRESENTATIONS  AND  WARRANTIES. 


rCh.8 


ing-  fact,  or  a  promise  for  the  future.  Unless  the  latter  is  clearly 
shown  to  have  been  intended,  the  courts  will  presume  that  the  warranty 
is  merely  affirmative.*^  As  it  is  well  stated  in  the  opinion  of  the  court 
in  Smith  v.  Mechanics'  &  Traders'  Fire  Ins.  Co.:  "If  an  insurance 
company  desires  to  protect  itself  by  a  warranty  as  to  future  or  con- 
tinued use  in  the  same  manner  as  when  insured,  it  may  always  do  so 
by  language,  the  object  and  meaning  of  which  will  be  understood  by 
both  parties ;  and  the  courts  should  not  thus  construe  words  which  are 
fully  satisfied  as  a  description  of  a  present  use  or  condition  into  a 
promissory  warranty  unless  the  inference  is  natural  and  irresistible 
that  such  was  the  understanding  and  design  of  both  parties."  •* 

In  the  case  cited,  it  was  held  that  where  a  policy  described  the  prop- 
erty insured  as  being  "a  two-story  framed  building,  used  for  winding 
and  coloring-  yarn,  and  for  the  storage  of  spun  yarn,"  there  was  no 
warranty  that  such  building  should  continue  to  be  so  used. 

So  it  was  held  in  a  leading  case  decided  by  the  Supreme  Court  of 
the  United  States  that  a  warranty,  in  a  contract  of  fire  insurance, 
that  "smoking  is  not  allowed  on  the  premises,"  was  not  broken  by  the 
fact  that  the  assured  or  others  afterwards  smoked  there,  provided  it 
was  forbidden  at  the  time  the  contract  was  entered  into.**  In  a  Vir- 
ginia case,^**  in  answer  to  the  question,  "Who  sleeps  in  the  store?"  the 
plaintiff  had  written,  "Watchman  on  premises  at  night."  This  state- 
ment, made  a  warranty  by  the  policy,  was  held  to  refer  only  to  the 
time  of  making  the  contract,  and  not  to  be  a  warranty  that  a  watchman 
would  be  kept  continuously  on  the  premises  thereafter. 

•7  0*NIEL  V.  INSURANCE  CO.,  3  N.  Y.  122;  Smith  T.  Insurance  Co.,  82 
N.  T.  399 ;  Gilliat  v.  Insurance  Co.,  8  R.  I.  282,  91  Am.  Dec.  229 ;  HOSFORD 
V.  INSURANCE  CO.,  127  U.  S.  399,  8  Sup.  Ct.  1199,  32  L.  Bd.  196.  So  the 
words,  "Clerk  sleeps  in  the  store,"  in  an  application,  have  been  construed 
as  merely  a  description  of  occupancy,  and  not  a  promissory  warranty.  Fris- 
bie  v.  Insurance  Co.,  27  Pa.  325.  But  see  Glendale  Woolen  Co.  v.  Protection 
Ins.  Co.,  21  Conn.  19,  54  Am.  Dec.  309,  where  the  statement,  **There  is  a 
watchman  nights,"  was  held  to  constitute  a  warranty  for  the  future,  as  well 
as  the  present. 

«8  32  N.  Y.  399. 

«•  HOSFORD  V.  INSURANCE  CO.,  127  U.  S.  399,  8  Sup.  CL  1199,  32  U  Ed. 
196. 

TO  Virginia  Fire  &  Marine  Ins.  Co.  v.  Buck,  88  Va.  617,  13  S.  B.  973.  See, 
also.  United  States  Fire  &  Marine  Ins.  Co.  v.  Kimberly,  34  Md.  224,  0  Am. 
Rep.  325;  Fiisbie  t.  Insurance  Co..  27  Pa.  32& 


§§  106-107) 


DISTINCTION  BETWEEN   THEM. 


291 


^ 


WAKRANTIES  DISTINGUISHED  FROM  REPRESENTATIONS. 


106.  Wappantie.  are  distingruished  from  representation,  in  tliats 

W  Warranties  are  parts  of  the  contract,  agreed  to  be  essential; 
n.s  '^^'^■^"♦^^ioas  are  but  coUateral  inducements  to  it. 
CI>)  Warranties  are  always  written  on  the  face  of  the  policy,  actnaUy 
or  by  reference.  Representations  may  be  written  in  the  poUcy 
x^^  *  totally  disconnected  paper,  or  may  be  oral, 
(c;  Warranties  are  conclusively  presumed  to  be  material.  The  bup- 
/-!'.    Twr  ****  *^®  insurer  to  prove  representations  material, 

(d)   Warranties   must  be  strictly  complied  with,  while  substantial 
truth  only  is  required  of  representations. 

107.  STATUTORY  PROVISIONS-In  many  states  statute,  ha^e  been 

enacted,  which,  in  effect,  abolish  all  distinction  between  repre- 
.entations  and  warranties.  It  is  generally  provided  by  such 
statutes  that  in  no  case  will  a  policy  be  avoided  by  a  false  rep- 
resentation or  promise,  unle^aLMlch  representation  or  promise 
be  also  material,  or  made  with  a  fraudulent  intent. 

As  previously  shown,  a  representation  or  promise  will  only  be  Riven 
the  effect  of  a  warranty  when  it  forms  a  part  of  the  contract  of  in- 
surance. In  order  to  become  a  part  of  the  contract,  it  must  be  con- 
tamed  m  the  policy  itself,  or  expressly  incorporated  therein  by  ref- 
erence. /    *V,A 

A  representation,  on  the  other  hand,  while  constituting  an  induce- 
ment to  the  contract,  is  collateral  to  it.  and  not  only  need  not  be  made 
a  part  of  the  contract,  either  actually  or  by  reference,  but  may  be  con- 
tained in  some  paper  totally  disconnected  with  the  policy,  or  may  even 
be  oral."  Manifestly,  therefore,  no  difficulty  can  arise  in  cons^r^W 
contracr"***'°"*  statements  or  promises  which  form  no  part  of  the 

A  more  difficult  question  presents  itself,  however,  when  the  policy 
expressly  states  that  the  insured  warrants  the  truth  of  certain  r^rZ 

Do?ifv    "^^  '''°'",!''''  ""•*''  ?'"^'*y  "^  ^^'■^"'■"e  all  rights  in  the 
pohcy.    When  such  representations  or  promises  are  contained  in  the 

thrl"'-'''/"  J    '*  ^?  "°  °*^''  Provisions  in  it  which  would  seem  to 

tiue^  t  "P°."  %  '%^  '"''"*^°"  °^  *^  P^^«^'  *^y  """St  be  con- 
not  m,v!  l^"^*"^-"  ?ut  merely  calling  statements  warranties  does 
not  make  tiiem  so.    If  otiier  provisions  in  the  policy  would  seem  to  in- 

"  CLARK  T.  INSURANCE  CO.,  8  How.  (tJ.  S.)  235   12  L.  Eii    10«1  •    i^r 
f^^  f.^-  INSURANCE  CO.,  22  Wall.  (D.  S.)  47.  22  L.  Bd  ffiS- ^TOA  mfb 


292 


REPRESENTATIONS  AND  WARRANTIES. 


(Ch.8 


§§  106-107) 


DISTINCTION  BETWEEN  THEM. 


293 


% 


dicate  that  the  parties  only  intended  that  the  stipulations  in  question 
should  be  given  the  effect  of  representations,  the  courts  are  ever  ready 
to  construe  them  as  such.*"  So,  in  all  other  doubtful  cases,  a  state- 
ment will  be  construed  as  a  representation  rather  than  a  warranty,''* 
and  thus,  whenever  possible,  a  forfeiture  will  be  prevented,  where  it 
is  sought  to  avoid  a  policy  because  of  a  false  statement  as  to  an  im- 
material matter  J* 

When  a  statement  or  promise  is  contained  in  an  instrument  other 
than  the  policy,  the  presumption  is  that  such  a  statement  or  promise 

7»  Wheaton  v.  Insurance  Co.,  76  Cal.  415,  18  Pac.  758,  9  Am.  St  Kep.  216; 
Fitch  V.  Insurance  Co.,  59  N.  Y.  557,  17  Am.  Rep.  372;  VIVAR  v.  KNIGHTS 
OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36;  Continental  Life  Ins.  Co.  v. 
Rogers,  119  111.  474,  10  N.  E.  242,  59  Am.  Rep.  810. 

74PHCENIX  MUT.  LIFE  INS.  CO.  V.  RADDIN,  120  U.  S.  183,  7  Sup.  Ct 
500,  30  L.  Ed.  644. 

For  this  reason,  gratuitous  answers  written  in  the  application — ^that  is,  an- 
swers not  responsive  to  any  questions  asked — are  held  not  to  be  warranties, 
even  though  the  policy  makes  the  statements  of  the  application  warranties. 
Thus,  when  the  insured  had  added  to  his  correct  answer  to  a  question  as  to 
other  insurance,  the  uncalled-for  statement,  "Will  drop  Star  July  15,  '96," 
it  was  held  that  his  failure  to  perform  the  promise  so  made  was  not  a  breach 
of  warranty,  and  did  not  affect  the  validity  of  the  contract.  Commercial 
Mut.  Ace.  Co.  V.  Bates,  176  111.  194,  52  N.  E.  49. 

76  FIRST  NAT.  BANK  v.  HARTFORD  FIRE  INS.  CO.,  95  U.  S.  673,  24  L. 
Ed.  563 ;  MOULOR  v.  INSURANCE  CO.,  Ill  U.  S.  335,  4  Sup.  Ct.  466,  28  L.  Ed. 
477.  In  a  leading  Alabama  case  the  following  are  mentioned  as  among  the  set- 
tled rules  for  the  construction  of  policies  of  insurance:  (1)  All  the  conditions 
and  obligations  of  the  contract  will  be  construed  liberally  in  favor  of  the 
insured,  and  strictly  against  the  insurer.  (2)  The  clearest  and  most  unequiv- 
ocal language  is  necessary  to  create  a  warranty,  and  all  statements  of  doubt- 
ful meaning  will  be  construed  as  representations,  merely.  (3)  E3ven  though 
a  warranty  In  name  or  form  be  declared  by  the  terms  of  the  contract,  its 
effect  may  be  modified  by  other  parts  of  the  policy  or  of  the  application,  in- 
cluding the  questions  and  answers,  so  that  answers  to  questions  not  material 
to  the  risk  will  be  construed  as  warranting  only  their  honesty  and  good  faith. 
Alabama  Gold  Life  Ins.  Co.  v.  Johnston,  SO  Ala.  467,  2  South.  125,  59  Am. 
R6p.  816;  Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  416,  59  Am.  Dec.  192; 
PHCENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U.  S.  183,  7  Sup.  Ct.  500,  30 
L.  Ed.  6i4 ;  Providence  Life  Assur.  Soc  ▼.  Rentllnger,  58  Ark.  528,  25  S.  W. 
835. 

A  warranty  Is  never  created  by  construction.  A  statement,  to  be  given 
the  effect  of  a  warranty,  must  have  been  expressly  declared  as  such,  or  must 
necessarily  result  frcnn  the  terms  of  the  contract.  Jefferson  Ins.  Co.  v. 
Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567. 

Even  though  expressly  declared  a  "warranty,"  however,  a  representation 
will  not  in  all  cases  be  construed  as  such.  Fitch  v.  Insurance  Co.,  59  N.  Y. 
557,  17  Am.  Rep.  372;  Provident  Sav.  Life  Assur.  Soc.  v.  Cannon,  103  111. 
App.  534;  Id.,  201  111.  260,  66  N.  B.  388.  See,  also,  Missouri,  K.  &  T.  Trust 
Co.  V.  German  Nat.  Bank,  77  Fed.  119,  23  C.  C.  A.  65;  Rogers  v.  Insurance 
Co.,  121  Ind.  677,  23  N.  £.  498;  Garretson  Y.  Association,  93  Iowa,  409,  61 
N.  W.  954. 


was  intended  as  a  representation ;  and,  in  order  to  give  it  the  effect  of 
a  warranty,  it  must  be  clearly  shown  that  such  was  the  intention  of  the 
parties. ''•  As  said  by  the  court  in  a  leading  Massachusetts  case,  in 
which  it  was  sought  to  give  to  statements  contained  in  the  application 
the  effect  of  warranties:  "The  application  is,  in  itself,  collateral 
merely  to  the  contract  of  insurance.  The  statements,  whether  of  facts 
or  agreements,  belong  to  the  class  of  representations.  They  are  to  be 
so  construed  unless  converted  into  warranties  by  force  of  a  reference 
in  the  policy,  and  a  clear  purpose,  manifest  in  the  papers  thus  con- 
nected, that  the  whole  shall  form  one  entire  contract."  " 

Warranty — Conclusively  Presumed  Material. 

When  it  is  once  determined  that  a  certain  representation  or  promise 
contained  in  the  contract  was  intended  as  a  warranty,  it  is  conclusively 
presumed  that  it  is  material  to  the  risk  assumed  by  the  insurer,  and  the 
insured  can  only  recover  on  the  policy  in  case  the  representation  was 
exactly  true,  or  the  promise  has  been  literally  fulfilled.'' • 

A  representation,  on  the  other  hand,  will  only  avoid  the  policy  if 
both  false  and  material.  The  insurer  must  show  the  materiality  of  the 
representation  in  order  to  defeat  an  action  on  the  policy.''*  A  sub- 
stantial compliance  with  a  representation,  even  when  material,  is  suffi- 
cient to  prevent  a  forfeiture  of  the  policy,®®  while  a  warranty  must  be 
strictly  true."     This  rule  is  strikingly  illustrated  in  the  decisions  of 

76  Price  V.  Insurance  Co.,  17  Minn.  497  (Gil.  473),  10  Am.  Rep.  166;  VIVAR 
V.  KNIGHTS  OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36;  Jefferson  Ins. 
Co.  V.  Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567. 

7T  CAMPBELL  V.  INSURANCE  CO.,  98  Mass.  381,  cited  and  approved  in 
Price  V.  Insurance  Co.,  17  Minn.  497  (Gil.  473),  10  Am.  Rep.  166. 

78  See  cases  cited  supra,  note  55. 

The  doctrine  is  well  stated  in  an  early  New  York  case:  "A  warranty 
by  the  assured  in  relation  to  the  existence  of  a  particular  fact  must  be 
strictly  true,  or  the  policy  will  not  take  effect;  and  this  is  so  whether  the 
thing  warranted  be  material  to  the  risk  or  not.  It  would  perhaps  be  more 
proper  to  say  that  the  parties  have  agreed  on  the  materiality  of  the  thing 
warranted,  and  that  the  agreement  precludes  all  inquiry  on  the  subject' 
BURRITT  V.  INSURANCE  CO.,  5  Hill,  193,  40  Am.  Dec.  345. 

7  8  Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  416,  59  Am.  Dec.  192;  Jeflfer 
son  Ins.  Co.  v.  Cotheal,  7  Wend.  (N.  Y.)  72,  22  Am.  Dec.  567;  Fidelity  & 
Casualty  Co.  v.  Alpert,  67  Fed.  460,  14  O.  C.  A.  474;  Mulville  v.  Adams  (0. 
C.)  19  Fed.  887;  PHCENIX  MUT.  LIFE  INS.  CO.  v.  RADDIN,  120  U  & 
183,  7  Sup.  Ct  500,  30  L.  Ed.  644. 

80  Hartford  Protection  Ins.  Co.  v.  Harmer,  2  Ohio  St  452,  59  Am.  Dec.  684; 
Daniels  v.  Insurance  Co.,  12  Cush.  (Mass.)  416,  59  Am.  Dec.  192;  Higgle  v! 
American  Lloyds  (D.  O.)  14  Fed.  143;  Missouri,  K.  &  T.  Trust  Co.' v.  German 
Nat  Bank,  77  Fed.  117,  23  C.  C.  A.  65. 

«i  A  curious  departure  from  this  rule  is  found  in  Continental  Ins.  Co.  v. 
Kasey,  25  Grat  (Va.)  268,  18  Am.  Rep.  681,  in  which  it  is  held  that  the  breach 
of  an  immaterial  warranty,  not  in  fact  relied  on,  does  not  avoid  the  contract 
There  the  insured  had  warranted  the  building  insured  to  be  frame,  whereas 


294 


REPRESENTATIONS  AND   WARRANTIES. 


(Ch.8 


cases  involving  statements  by  the  insured  as  to  the  condition  of  his 
health.  As  shown  above,  the  applicant's  statement  that  he  is  not  af- 
flicted with  a  specified  disease,  or  that  he  is  in  good  health,  if  but  a 
representation,  is  held  to  be  merely  a  statement  of  opinion,  the  incor- 
rectness of  which  does  not  invalidate  the  contract  unless  the  opinion 
was  fraudulently  given.    But  if  such  a  statement  is  warranted  to  be 

itrue  in  every  respect,  by  the  weight  of  authority,"  its  incorrectness 
in  fact  will  wholly  avoid  the  policy,  even  though  the  insured  acted  in 
perfect  good  faith,  and  had  no  means  of  knowing  that  he  was  dis- 
eased. A  few  courts  take  the  different  view  that  the  insured  war- 
rants only  his  good  faith  in  making  the  representation  as  to  his  health,^' 
and  the  latter  holding  is  based  on  the  sounder  reasoning.  The  doc- 
trine of  warranties  finds  its  sole  justification  in  the  right  of  the  insurer 
to  stipulate  beforehand  that  all  representations  made  shall  be  material, 
in  order  to  escape  the  hazard  of  a  verdict.  But  beyond  the  recogni- 
tion of  this  right  the  law  should  not  go.  Warranties  should  be  con- 
sidered merely  as  representations  conclusively  material,  and  the  same 
rule  as  to  truthfulness  applied  to  both.  It  seems  scarcely  necessary 
to  hold  that  by  an  agreement  of  warranty  the  party  insured  intended  to 
assume  the  hazard  of  stating  as  an  ascertained  fact  a  matter  which,  in 
its  nature,  often  can  be  only  a  subject  of  opinion. 

Effect  of  Statutory  Enactments. 

There  can  be  no  doubt  but  that  the  highly  technical  doctrine  of  war- 
ranty often  works  not  only  hardship,  but  also  substantial  injustice,  upon 

it  was  in  fact  built  partly  of  logs.  The  agent  of  the  insurer  inspected  the 
building  and  concurred  with  the  insured  in  the  description  as  made.  Both 
insured  and  agent  acted  in  good  faith.  It  was  held  that  under  the  circum- 
stances the  breach  of  warranty  did  not  discharge  the  insurer.  On  the  facts 
of  the  case,  the  decision  was  correct,  as  the  representation  was  not  really 
untrue,  but  the  theory  of  the  opinion  is  scarcely  sound. 

82  Provident  Savings  Life  Assur.  Soc.  v.  Llewellyn,  58  Fed,  940,  7  C.  O.  A. 
579,  16  U.  S.  App.  405;  Day  v.  Insurance  Co.,  1  MacArthur  (U.  S.)  41,  29  Am. 
Rep.  565;  CAMPBELL  v.  INSURANCE  CO.,  98  Mass.  381;  Mutual  Ben.  Life 
Ins.  Co.  V.  Miller,  39  Ind.  475;  Powers  v.  Association,  50  Vt  630;  Baumgart 
V.  Modern  Woodmen,  85  Wis.  546,  55  N.  W.  713;  Metropolitan  Life  Ins.  Co.  v. 
Howie  (Ohio)  68  N.  E.  4;  Richards  v.  Association,  85  Me.  99,  20  Atl.  1050; 
McClain  v.  Society  (C.  C.)  105  Fed.  834;  Swick  v.  Insurance  Co.,  2  Dill.  160, 
Fed.  Cas.  No.  13,692;  Continental  Life  Ins.  Co.  v.  Yung,  113  Ind.  159,  15  N. 
E.  220,  3  Am.  St  Rep.  630;  Woehrle  v.  Insurance  Co.,  21  Misc.  Rep.  88,  46 
N.  Y.  Supp.  862;  Metropolitan  Life  Ins.  Co.  v.  Dempsey,  72  Md.  288,  19  Atl. 
642.  But  see  MOULOR  v.  INSURANCE  CO.,  Ill  U.  S.  335,  4  Sup.  Ct.  466,  28 
L.  Ed.  447;  Northwestern  Mut.  Life  Ins.  Co.  v.  Woods,  54  Kan.  663,  39  Pac. 
189;  Tucker  v.  Association,  133  N.  Y.  548,  30  N.  E.  723. 

«»  Grattan  v.  Insurance  Co.,  92  N.  Y.  274,  44  Am.  Rep.  372;  Ames  v.  In- 
surance Co.,  40  App.  Div.  465,  58  N.  Y.  Supp.  244;  Schwarzbach  v.  Protec- 
tive Union,  25  W.  Va.  622,  52  Am.  Rep.  227;  Knights  of  Honor  v.  Dickson, 
102  Tenn.  255,  52  S.  W.  862;  Endowment  Rank  K.  P.  v.  Cogbill,  99  Tenn.  28, 
41  S.  W.  340. 


§§  106-107) 


DISTINCTION  BETWEEN  THEM. 


295 


parties  insured.**  Hence  in  many  states  acts  have  been  passed  for  the 
purpose  of  either  wholly  abolishing  the  doctrine,  or  of  moderating  the 
harshness  of  its  operation.  The  terms  of  these  statutes  vary  greatly 
in  the  several  states,  but  their  general  intent  is  to  transform  warranties 
into  common-law  representations,  thus  saving  policies  of  insurance 
from  forfeiture  for  false  statements  contained  therein  unless  they  are 
found  to  be  material.*'  But  as  shown  above,  some  of  these  statutes 
accomplish  very  different  results;  some  apparently  laying  down  a  rule 
of  decision  less  liberal  to  the  insured  than  that  of  the  common  law, 
seemingly  making  a  fraudulent  immaterial  misrepresentation  fatal  to 
the  insured's  rights,**  while  others  make  an  honest  misrepresentation 
harmless  unless  it  is  material  to  the  risk  itself,  or  concerns  a  fact  that 
contributes  to  the  loss  or  damage  suffered.*^  In  some  states  the  stat- 
ute does  not  apply  to  all  warranties,  but  only  to  those  made  as  an- 
swers to  interrogations  in  the  application.** 


^> 


«*  See  Metropolitan  Life  Ins.  Co.  v.  Rutherford,  98  Va.  195,  35  S.  B.  361. 
In  Continental  Fire  Ins.  Co.  v.  Whitaker  (Tenn.  1904)  79  S.  W.  119,  the  court 
quot-es  as  follows  from  the  New  Hampshire  court:  "The  policy  and  purpose 
of  the  law  were  to  promote  honest  and  open  fair  dealing,  to  do  equal  justice, 
to  protect  the  confidence  reposed  by  the  insured  in  those  with  whom  he  may 
contract,  and  (especially  disclaiming  any  reference  to  this  defendant  com- 
pany), to  spring  the  traps  'concealed  in  the  mass  of  rubbish'  before  the  un- 
wary traveler  shall  have  put  his  foot  in  them,  to  prevent  and  prohibit  in 
short,  the  farce  and  fraud  by  which  It  has  too  often  been  found  that  the 
party  apparently  Insured  by  the  stipulations  written  upon  one  side  of  a  piece 
of  paper  was  uninsured  by  the  conditions  involved  in  the  'insurance  typog- 
raphy' indorsed  upon  the  other  side  of  the  same  piece  of  paper." 

8»  For  examples  of  such  statutes,  see  Code  Ga.  1882,  §§  2803,  2804;  McClain's 
Code  Iowa,  §  1743 ;  Laws  Md.  1894,  c.  662 ;  Ky.  St  c.  32,  §  639 ;  Rev.  St  Me. 
c.  49,  §  20 ;  Laws  Mich.  1897,  p.  214,  No.  167 ;  Laws  Minn.  1895,  c.  175,  §  20 ; 
Rev.  St  Mo.  1889,  §  5849 ;  Laws  N.  H.  1885,  c.  73 ;  Rev.  St  Ohio  1890,  §  3625 ; 
Laws  Pa.  1885,  p.  134,  §  1 ;  Laws  Va.  1900,  c.  515,  p.  550. 

8«  See  supra,  p.  284. 

«7  These  statutes  have  been  held  constitutional.  John  Hancock  Mut  Life 
Ins.  Co.  V.  Warren,  181  U.  S.  73,  21  Sup.  Ct.  535,  45  L.  Ed.  955;  McGannon  v. 
Insurance  Co.  (Mich.)  87  N.  W.  62,  54  L.  R.  A.  739.  In  this  case  the  Michi- 
gan statute  (Comp.  Laws  1897,  §  5180)  was  held  broad  enough  to  cover  all 
policies,  whether  they  be  regarded  as  Michigan  standard  policies  or  not. 
This  statute  reads  as  follows:  "That  no  policy  of  fire  insurance  shall  here- 
after be  declared  void  by  the  insurer  for  the  breach  of  any  condition  of  the 
policy  if  the  insurer  has  not  been  injured  by  such  breach;  or  where  a  loss 
has  not  occurred  during  such  breach  or  by  reason  of  such  breach  of  condi- 
tion." The  court,  per  Moore,  J.,  said:  "The  defendant  corporation  is  a 
creature  of  the  statute.  It  could  not  engage  in  the  business  of  insurance 
except  by  virtue  of  the  statute.  It  is  entirely  competent  for  the  Legislature 
to  prescribe  the  forms  of  its  contracts  and  the  limitations  in  relation  to  for- 
feitures therein." 

88  See  Acts  Va.  1899-1900,  p.  550.  Also,  see  Union  Cent  Life  Ins.  Co.  v. 
Pollard,  94  Va.  146,  26  S.  E.  421,  36  L.  R.  A.  271,  64  Am.  St  Rep.  715. 
construing  a  similar  Ohio  statute  (Rev.  St  Ohio  1880,  §  3625). 


A. 

''t 


'     ) 


296 


BEPRESBNTATIOXS  AND   WARRANTIES. 


(Ch.8 


§§  106-107) 


DISTINCTION   BETWEEN   THEM. 


297 


When  the  word  "representation"  is  used  in  a  statute  in  its  ordinary 
sense,  it  includes  both  representations  and  warranties  ^»  in  the  techni- 
cal sense;  the  same  rule  of  materiality  applying  to  both.  And  the 
question  of  materiality  of  any  such  statement  is  always  for  the  jury,»<» 
unless  all  the  facts  are  ascertained,  when  it  is  for  the  court.  Nor  can 
the  parties,  by  expressly  agreeing  upon  the  materiality  of  a  statement 
made,  withdraw  the  question  from  the  jury."  The  provisions  of  the 
statute  cannot  be  so  waived. 

As  has  been  already  shown,  in  connection  with  another  subject, 
statutes,  such  as  those  under  consideration,  which  provide  that  the  in- 
surer must  comply  with  certain  conditions  before  declaring  a  forfeiture, 
have  no  extraterritorial  effect,  unless  it  can  be  plainly  seen  that  the 
parties  intended  the  statute  to  form  a  part  of  the  contract.**  It  would 
seem  that  a  different  conclusion  has  been  reached  by  the  Maryland 
court,*'  but  the  view  taken  by  it  is  cleariy  in  conflict  with  that  of  the 
United  States  Supreme  Court  as  laid  down  in  the  case  of  Mutual  Life 
Ins.  Co.  V.  Cohen.** 

When  the  validity  of  these  statutes  has  been  brought  into  question, 
the  courts  have  uniformly  sustained  them,  as  being  cases  of  the  valid 

8»  White  V.  Society,  163  Mass.  108,  39  N.  E.  771,  27  I*  R.  A.  398;  Germania 
Ins.  Co.  V.  Rudwig,  80  Ky.  223.  overruling  Farmers'  &  Drovers'  Ins.  Co.  v. 
Curry,  13  Bush  (Ky.)  312,  26  Am.  Rep.  194;  PENN  MUX.  LIFE  INS.  CO  v. 
MECHANICS'  SAV.  BANK  &  TRUST  CO.,  72  Fed.  413,  19  C.  C.  A.  286,  38 
L.  R.  A.  33;  March  v.  Insurance  Co.,  186  Pa.  629,  40  Atl.  1100,  65  Am  St 
Rep.  887;    Hermany  v.  Association,  151  Pa.  17,  24  Atl.  1064 

»o  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAV.  BANK  &  TRUST 
CO.,  72  Fed.  413,  19  0.  C.  A.  286,  38  L.  R.  A.  33;  Hermany  v.  Association. 
151  Pa.  17,  24  Atl.  1064. 

But  where  the  matter  Involved  is  manifestly  material  to  the  risk,  the 
court  will  so  pronounce  it.  March  v.  Insurance  Co.,  186  Pa.  629,  40  Atl. 
1100,  65  Am.  St.  Rep.  887;  Lutz  v.  Insurance  Co.,  186  Pa.  527,  40  Atl.  1104' 
Fidelity  Mut.  Life  Ass'n  v.  Miller,  92  Fed.  63,  34  C.  C.  A.  211. 

•1  Germania  Ins.  Co.  v.  Rudwig,  80  Ky.  223;  Hermany  v.  Association  151 
Pa.  17,  24  Atl.  1064. 

»2  Mutual  Life  Ins.  Co.  v.  Cohen,  179  U.  S.  262,  21  Sup.  Ct.  106,  45  L.  Ed. 
181.  See  supra,  p.  226,  where  this  question  is  discussed  under  the  subject 
of  statutory  requirements  for  giving  notice  of  premiums  due. 

See,  also,  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAV.  BANK  & 
TRUST  CO.,  72  Fed.  413,  19  C.  C.  A.  286,  38  L.  R.  A.  33.  In  this  case  the 
Pennsylvania  statute  was  made  a  part  of  the  contract  The  insured  resided 
In  New  Jersey. 

»«  The  court  bases  its  opinion  upon  the  fact  that  a  corporation  has  only 
such  powers  as  are  conferred  upon  it  by  the  state  in  which  it  was  created. 
"Everywhere  within  and  without  the  state  which  created  it,  its  contracts 
are  limited,  construed,  and  sustained  according  to  its  character  and  the  laws 
which  affect  its  operation."  Fidelity  Mut  Life  Ass'n  v.  Ficklin.  74  M<L  172 
21  Atl.  680.  * 

»*  179  U.  a  262,  21  Sup.  Ct  106,  45  L.  Ed.  181. 


exercise  of  the  police  power  of  the  state  over  corporations,  and  not  in 
violation  of  the  Constitution  of  the  United  States.** 

•8  PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAV.  BANK  &  TRUST 
CO.,  72  Fed.  413,  19  0.  O.  A.  286.  38  L.  R.  A.  33.  As  to  the  validity  of  similar 
statutes,  see  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St  409,  24  N.  E.  1072,  9  L.  R. 
A.  45;  Equitable  Life  Assur.  Soc.  v.  Pettus,  140  U.  S.  226,  11  Sup.  Ct  822, 
35  L.  Ed.  497;  Eagle  Ins.  Co.  v.  State  of  Ohio,  153  U.  S.  446,  14  Sup.  Ct  868, 
38  L.  Ed.  778;  Hancock  Mut  Life  Ins.  Co.  v.  Warren,  181  U.  S.  73,  21  Sup. 
Ct  635,  45  L.  Ed.  955;  Continental  Fire  Ins.  Co.  v.  Whitaker  (Tenn.  1904)  79 
S.  W.  119. 


J 

• 

k 


298 


UiSU&ANCB  AGENTS  AND   THEIB   FOWBBS. 


(Ch.9 


INSUBANOB  AGENTS  AND  THEIB  POWERS, 

108.  The  Doctrine  of  Agency  In  Insurance  Law. 

10^110.  Classes  of  Agents  and  Their  Powers. 

111-113.  Subagents— Their  Appointment  and  Powera, 

114-117.  Limitations  upon  the  Powers  of  Agents. 


THE  DOCTBINE  OP  AGENCY  IN  INSUBANCE  LAW. 

108.  The  relation  of  principal  and  agent  in  the  conduct  of  insnranoe 
business  is  created  and  terminated  in  accordance  with  the  rules 
of  the  general  law  of  agency,  and  characterized  by  the  same 
incidents  as  the  same  relation  existing  under  similar  condi- 
tions in  any  other  business.  For  the  purpose  of  clearing  the 
view  of  other  questions,  the  following  settled  principles  should 
be  noted: 
<a)  There  is  no  presumption  that  one  person  has  authority  to  bind 
another  by  word  or  act.  Such  authority  must  be  proved  to 
have  been  actually  or  apparently  g^ven. 
(b)   The  insurer  is  estopped  to  deny  that  his  agent  possesses  that 

authority  with  which  he  had  apparently  clothed  him. 
(o)   Limitations  upon  the  powers  apparently  possessed  by  an  insur- 
ance agent  cannot  affect  the  insured  unless  communicated. 
<d)   Certain  burdensome  incidents  accompany  the   conduct  of  busi- 
ness through  an  agent,  which,  having  their  basis  in  a  sound 
public  policy,  cannot  be  (escaped.     Among  these  are: 
(1)   Any  fraud  or  wrong  perpetrated  by  the  agent  in  the  course 
of  his  employnient  binds  the  principal,  though  not  author- 
ised. 
C2)   Any  knowledge  possessed  by  the  agent,  material  to  the  trans- 
action in  which  he  is  employed,  will  bind  the  principal, 
irrespective  of  its  actual  communication  by  the  agent. 
(e)   The  person  for  whom  the  agent  acts  is  to  be  determined  by  the 
facts  of  each  case,  and  not  by  the  mere  words  of  the  parties, 
but  an  agent  cannot  aot  for  both  parties  without  the  consent 
of  both. 

Scope  and  Purpose  of  This  Chapter, 

The  fact  that  the  business  of  insurance  is  almost  exclusively  in  the 
hands  of  corporations,  which  can  act  only  through  agents,  makes  the 
principles  of  the  law  of  principal  and  agent  of  great  importance  in  the 
law  of  insurance,  while  the  complex  relations  existing  between  the  va- 
rying orders  of  agents  required  for  the  conduct  of  such  a  widely  ex- 
tended business  as  is  carried  on  by  most  insurance  companies  neces- 
sarily give  rise  to  many  difficult  questions  of  law.    It  is  these  questions, 


1^^ 


§  108)  THE  DOOTEINB  OP  AGENCJY  IN  INSURANCE  LAW. 


299 


peculiar  to  insurance  law,  and  especially  those  connected  with  the  doc- 
trine of  waiver  and  estoppel,  to  be  presently  treated,  that  are  to  be  ex- 
amined in  this  chapter.  It  is  not  purposed  here  to  set  forth  a  treatise 
on  the  general  law  of  agency,  almost  every  phase  of  which  might  find 
illustration  in  the  vast  number  of  insurance  cases.  Therefore,  for  a 
statement  of  the  modes  in  which  an  agency  may  be  established  or  ter- 
minated, or  of  the  incidents  of  the  relation  between  principal  and  agent, 
such  as  their  mutual  rights  and  duties,  or  the  liabilities  of  each  to  third 
parties  in  general,  the  reader  should  consult  a  work  on  agency.^  Nei- 
ther is  it  advisable  to  attempt  to  set  forth  here  the  great  mass  of  insur- 
ance cases  involving  these  general  questions  of  agency.  They  may  be 
found  in  the  digests.* 

The  constant  struggle  made  by  the  courts  to  preserve  the  equitable 
rights  of  parties  insured,  and,  at  the  same  time,  the  established  rules  of 
the  law  of  contracts  and  of  evidence,  has  given  great  importance  to 
the  equitable  doctrines  of  waiver  and  estoppel.  As  will  be  presently 
seen,  the  cases  have  fallen  into  seemingly  hopeless  confusion.  Many 
of  the  difficulties  which  have  given  rise  to  this  confusion  grow  out  of 
uncertainty  as  to  the  powers  of  agents  under  the  facts  of  the  particular 
cases  presented  to  the  courts  for  adjudication.  It  is  therefore  believed 
that  in  the  effort  to  clear  away  the  obstructions  found  in  our  case  law 
in  the  way  of  any  attempt  to  establish  a  series  of  consistent  principles 
that  either  do  govern  or  should  govern  the  decision  of  questions  of 
waiver  and  estoppel  in  insurance  law,  a  statement  of  certain  applied 
principles  of  the  law  of  principal  and  agent  is  necessary.  The  state- 
ment and  establishment  of  such  principles  is,  then,  the  sole  purpose  of 
this  chapter. 

Regulation  of  Insurance  Agencies  by  Statute. 

It  is  first  to  be  noted  that  the  conduct  of  an  insurance  agency  is  so 
far  a  matter  of  public  concern  as  to  make  it  a  proper  subject  of  legisla- 
tive control  by  the  states  without  violating  the  provisions  of  the  four- 
teenth amendment  of  the  federal  Constitution.*  Thus  a  state  may  for- 
bid any  person's  acting  as  an  agent  for  any  insurance  company  with- 
out having  first  procured  a  license.*  So  it  may  absolutely  prohibit 
soliciting  insurance,  or  otherwise  acting  as  agent,  for  any  foreign  insur- 

1  In  the  Hornbook  Series,  see  Tiffany  on  Agency.  See,  also,  Joyce  on  Insur- 
ance, vol.  1,  cc.  17-24. 

*  See  title  "Insurance,"  vol.  28,  Century  Digest,  cols.  583-640  et  passim. 

8  Nutting  V.  Massachusetts,  183  U.  S.  553,  22  Sup.  Ct.  238,  46  L.  Ed.  324» 
affirming  Com.  v.  Nutting,  175  Mass.  154,  55  N.  E.  895,  78  Am.  St  Rep.  483. 

For  the  construction  of  the  anti-rebate  statute  of  Illinois  (Laws  1891,  p. 
148),  see  Metropolitan  Life  Ins.  Co.  v.  People  (111.  1904)  70  N.  E.  643. 

*  See  Acts  Va.  1887,  p.  348.  A  similar  statute  was  held  constitutional  in 
Nutting  V.  Massachusetts,  183  U.  S.  553,  22  Sup.  Ct  238,  46  L.  Ed.  324.  See 
Pierce  v.  People,  106  111.  11,  46  Am.  Rep.  683. 


I 


i 


9 

\ 


300 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


ance  corporation  not  authorized  to  do  business  within  the  state,  and 
a  penalty  may  be  imposed  for  the  enforcement  of  such  a  prohibition.* 

In  many  states,  statutes  have  been  enacted  declaring  that  the  person 
who  solicits  insurance  shall  in  all  cases  be  deemed  the  agent  of  the 
insurer.  The  language  of  the  Iowa  statute «  is  as  follows:  "Any 
person  who  shall  hereafter  solicit  insurance  or  procure  applications 
therefor,  shall  be  held  to  be  the  soliciting  agent  of  the  insurance  com- 
pany or  association  issuing  a  policy  on  such  application,  or  on  a  re- 
newal thereof,  anything  in  the  application  or  policy  to  the  contrary  not- 
withstanding." 

The  Supreme  Court  has  decided  ^  that  the  provisions  of  this  statute 
apply  to  all  kinds  of  insurance,  but  in  other  states  it  is  limited  to  spe- 
cial forms  of  insurance.  In  Virginia  «  the  act  applies  only  to  com- 
panies doing  business  upon  the  assessment  plan.  It  has  been  held, 
however,  that  these  statutes  do  not  prevent  a  broker  employed  by  the 

«  Nutting  V.  Massachusetts,  183  U.  S.  553,  22  Sup.  Ct.  238,  46  L.  Ed.  324; 
Orient  Ins.  Co.  v.  Daggs,  172  U.  S.  557,  19  Sup.  Ct  281,  43  L.  Ed.  552,  affirm- 
ing Daggs  V.  Insurance  Co.,  136  Mo.  382,  38  S.  W.  85,  35  L.  R.  A.  227.  58 
Am.  St.  Rep.  638. 

•  Laws  Iowa  1880,  p.  209,  c  211.    See,  also,  McClain's  Code  Iowa  1888,  S 
1732.    The  Wisconsin  statute  (Rev.  St  §  1977)  is  as  follows:    "Whoever  so- 
licits insurance  on  behalf  of  an  insurance  corporation,  or  transmits  an  ap- 
plication for  insurance  or  a  policy  of  insurance  to  or  from  any  such  cor- 
poration, or  who  makes  any  contract  of  insurance,  or  collects  or  receives  any 
premiums  for  insurance,  or  in  any  manner  aids  or  assists  in  doing  either,  or 
in  transacting  any  business  for  any  insurance  corporation,  or  advertises  to 
do  any  such  thing,  shall  be  held  an  agent  of  such  corporation,  to  all  intents 
and  purposes,  and  the  word  'agenf  whenever  used  in  this  chapter,  shall  be 
construed  to  include  all  such  persons."     For  a  construction  of  this  statute, 
see  Mathers  v.  Association,  78  Wis.  588,  47  N.  W.  1130,  11  L.  R.  A.  83,  in 
which  it  was  held  that  the  statute  conferred  upon  a  local  agent  the  power 
to  make  an  oral  contract  of  insurance,  despite  a  stipulation  in  the  application, 
signed  by  the  insured,  that  the  insurer  should  not  be  liable  imtil  the  appli- 
cation and  premium  had  been  received  by  the  secretary  of  the  company. 
This  statute  applies  to  a  foreign  insurance  company.    Mutual  Ben.  Life  Ins. 
Co.  V.  Robison  (0.  0.)  54  Fed.  580.     These  statutes  have  been  held  constitu- 
tional.   Noble  V.  Mitchell,  164  U.  S.  367,  17  Sup.  Ct  110,  41  L.  Ed.  427.     See 
Code  Ala.  1886,  §  1205;   Gen.  St.  Conn.  1888,  §§  2898,  2923;    Laws  Ga.  1887, 
p.  121,  §  9;  Rev.  St  Me.  1883,  p.  445,  §  19;  St  Mass.  1887,  c.  214,  §  87;   Laws 
Minn.  1895,  c.  175,  §§  25,  88,  91;   Ann.  Code  Miss.  1892,  §  2327;    Rev.  St  Mo. 
1889,  §  5915;    Laws  N.  D.  1891,  p.  203,  §  28;    Comp.  St  Neb.  1891,  c*  16,  § 
8;   Laws  N.  H.  1889,  c.  94,  §  2;    Rev.  St  Ohio,  Smith  &  B.  1890,  §  3644;    St 
Okl.  1890,  p.  637,  §  23;   Pub.  Laws  R.  L  1884,  p.  55;   Pub.  Laws  R.  I.  1885,  p. 
03;  Acts  S.  C.  1883,  p.  460,  S  6;   Rev.  St  Tex.  1895,  art  3093;  Rev.  Laws  Vt 
1880.  §  3620,  p.  697;   Acts  Va.  1887,  p.  349,  c.  271,  §  5. 

f  Continental  Life  Ins.  Co.  v.  Chamberlain,  132  U.  S.  304.  10  Sup.  Ct  87. 
33  L.  Ed.  341. 

8  Acts  Va.  1887,  c.  271,  S  5.  Under  a  similar  statute  in  Wisconsin  it  was 
held  that  an  incorporated  mutual  insurance  company  was  within  the  statute. 
ZeU  ?.  Insurance  Co.,  75  Wis.  521,  44  N.  W.  82a. 


§108) 


THE   DOCTKLNE  OF  AGENCY   IN   INSURANCE  LAW. 


301 


insured  from  binding  the  insured  by  agreements  made  in  procuring  the 
insurance." 

General  Rule  as  to  Agenfs  Powers, 

The  maxim  that  every  one  deals  with  an  agent  at  his  peril  means 
merely  that  there  is  no  presumption  that  any  person  is  authorized  to  act 
for  another.  A  man  can  be  made  liable  to  another  only  through  his 
own  words  or  acts,  unless  it  can  be  clearly  proved  that  he  has  deputized 
another  to  represent  him  in  the  transaction  out  of  which  it  is  alleged  the 
liability  grows.  Therefore,  in  the  absence  of  circumstances  of  estop- 
pel, it  is  incumbent  upon  the  one  seeking  to  charge  another  with  lia- 
bility for  the  act  of  a  third  person  to  prove  that  such  third  person  was 
actually  authorized  to  incur  that  liability  on  behalf  of  that  other,  or 
that  his  unauthorized  act  in  so  doing  was  subsequently  ratified.  Such 
proof  of  actual  authority  need  not,  however,  show  authority  expressly 
conferred.  There  may  be  powers  not  expressly  given  which  are  yet 
necessarily  incidental  to  the  proper  and  efficient  exercise  of  those  pow- 
ers expressly  conferred.^**  Thus,  if  an  agent  is  expressly  authorized 
to  deliver  a  policy  which  can  be  properly  delivered  only  upon  payment 
of  the  first  premium,  that  agent  has  incidental  authority  to  collect  and 
receipt  for  the  premium.*^  So  an  agent  who  is  authorized  to  contract 
for  insurance  and  to  sign  and  issue  policies  has  the  incidental  power 
in  emergencies  to  make  preliminary  oral  contracts.*^ 

Likewise  a  custom  or  usage  may  confer  powers  not  expressly  given, 
but  which  are  none  the  less  actual.  Thus  the  custom  among  fire  insur- 
ance agents  of  giving  credit  for  premiums  authorizes  such  an  agent  to 
make  a  binding  contract  without  requiring  prepayment.^* 

Apparent  Powers — Estoppel. 

But  despite  the  rule  that  every  one  deals  with  an  agent  at  his  peril,  a 
principal  may  sometimes  be  bound  by  acts  of  another  which  were  not 
authorized,  or  which  were  even  prohibited.  This  is  based  upon  the 
principle  of  estoppel  While,  under  the  rule  above  stated,  one  must, 
before  dealing  with  a  person  professing  to  act  as  an  agent,  satisfy  him- 
self that  the  agent  has  been  clothed  with  the  powers  he  proposes  to  ex- 
ercise, yet  iii  so  ccin^  he  is  not  obliged  to  go  beyond  the  requirements 


»  JOHN  R  DAVIS  LUMBER  CO.  v.  HARTFORD  FIRE  INS.  CO.,  95  Wis. 
226,  70  N.  W.  84,  37  L.  E    A.  131. 

10  See,  on  this  subject,  Tififany,  Agency,  pp.  174-179. 

11  Sun  Mut.  Ins.  Co.  v.  Saginaw  Barrel  Co.,  114  111.  99,  29  N.  E.  477;  Riley 
V.  Insiu-ance  Co.,  110  Pa.  144,  1  Atl.  528;  De  Camp  v.  Insurance  Co.,  Fed. 
Cas.  No.  3,719. 

12  Angell  V.  Insurance  Co.,  59  N.  Y.  171,  17  Am.  Rep.  322;  Bames  v.  Inaup- 
ance  Co.,  94  U.  S.  621,  24  L.  Ed.  298. 

18  Long  V.  Insurance  Co.,  137  Pa.  St.  335,  20  Atl.  1014,  21  Am.  St.  Rep.  879; 
Lebanon  Mut  Ins.  Co.  y.  Hoover,  113  Pa.  St  591,  8  Atl.  163»  57  Am.  Rep. 
511. 


t» 


*4 


S02 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


i 


of  good  faith  and  reasonable  diligence.  If  the  conduct  of  the  princi- 
pal has  been  such  as  to  give  the  third  party  reasonable  grounds  for  be- 
lieving, in  good  faith,  that  the  agent  did  really  possess  the  powers  ex- 
ercised, the  principal  will  be  estopped  from  saying  that  the  appearances 
created  by  his  own  conduct  were  false,  and  that  the  agent  acted  with- 
out authority.^*  Thus,  if  the  insurer  had  repeatedly  permitted  his 
agent  to  extend  the  time  for  the  payment  of  premiums,  he  would  be 
esfopped  to  say  that  a  subsequent  agreement  made  by  the  agent  for  such 
an  extension  of  time  was  unauthorized  and  not  binding  on  himself." 

Thus  It  is  seen  that  an  agent's  "apparent  scope  of  authority"  in- 
cludes: (a)  Actual  powers,  which,  in  turn,  are  (1)  those  expressly 
given  (2)  those  incidental  to  the  express  powers,  and  (3)  those  con- 
ferred by  custom  and  usage ;  and  (b)  apparent  powers. 

A/<?  Secret  Limitations  upon  Apparent  Pozvers. 

The  insurer  may  limit  the  powers  of  his  agent  as  narrowly  as  he 
pleases,  provided  these  limitations  are  made  known  to  third  parties 
dealing  with  the  agent.  But  it  is  manifest  from  the  statement  of  the 
rule  as  to  the  pnncipars  liability  for  acts  done  within  the  apparent 
scope  of  his  agent's  authority,  as  made  above,  that  any  secret  limitations 
upon  the  agent's  apparent  powers  are  wholly  inoperative." 

Burdensome  Incidents  of  Agency— Agent's  Fraud— Imputed  Knowl- 
edge. 

Another  important  principle  of  especial  value  in  determining  the 
rights  of  parties  to  insurance  contracts,  and  one  that  must  be  con- 
stantly kept  in  mind,  is  that  the  policy  of  the  law  attaches  certain  bur- 
densome incidents  to  the  conduct  of  business  through  an  agent  These 
incidents  are  not  directly  contractual  in  their  nature,  but  arise,  rather 
out  of  the  existent  relation  of  principal  and  agent ;  that  is,  they  have 

1*  Declarations  of  the  secretary  of  a  fire  Insurance  company  to  the  assured 
that  a  written  approval  of  a  transfer  of  the  policy  was  not  necessary  pre- 
cludes the  company  from  objecting  to  the  want  of  written  approval,  though 
the  policy  required  such  approval.    Stolle  v.  Insurance  Co..  10  W    Va   546 
27  Am.  Rep.  593.  v   tt.    ▼».  ^o, 

Where  an  application  for  fire  insurance  contains  a  diagram  of  the  insured's 
property,  and  the  solicitor  states,  in  response  to  printed  questions  which  it 
is  provided  he  shall  answer,  that  he  has  examined  the  risk,  the  company 
cannot  deny  that  the  solicitor  wag  agent  for  the  purpose  of  examining  the 
property.     Springfield  Fire  &  Marine  Ins.  Co.  v.  McNulty.  8  Ky.  Law  Rep. 

n  ^^Q^^f'  ^""^"ir  ^-  ^°surance  Co.,  78  N.  C.  149;   Anthony  v.  Insurance 
CO..  48  Mo.  App.  65;   Jennings  v.  Insurance  Co.,  148  Mass.  61,  18  N  E   601 
"Knickerbocker  Life  Ins.  Co.  v.  Norton,  96  U.  S.  234,  24  L  Ed  '689 
i«  See   Tiff.    Ag.   p.    195;     Georgia    Home   Ins.    Co.    v.    Kiniiier's   Adm'x 
28  Grat.  88,  109;  Michigan  Fire  &  Marine  Ins.  Co.  v.  Wich.  8  Oolo  Add  416* 


g  108)  THE   DOCTRINE   OF  AGENCY  IN  INSURANCE   LAW.  303 

their  origin  in  status,  rather  than  in  contract,"  and  may  be  more  clear- 
ly understood  by  reference  to  the  civil-law  fiction  of  identity  between 
principal  and  agent.^*  They  are  analogous  to  those  incidents  attached 
by  the  law  to  the  relation  of  husband  and  wife,  such  as  the  husband's 
duty  of  support,  or  to  the  relation  of  master  and  servant,  such  as  the 
master's  obligation  to  afford  the  servant  a  safe  place  in  which  to  work, 
safe  tools  to  work  with,  and  competent  fellow  servants  to  aid  him,  if 
need  be,  or  to  the  relation  of  carrier  and  passenger,  such  as  the  carrier's 
duty  to  carry  safely  and  protect  from  injury  his  passenger. 

Two  of  these  incidents  of  agency  are  of  especi^  importance  in  insur- 
ance law: 

(1)  The  principal  is  liable  for  any  fraud  or  other  wrong  perpetrated  • 
by  his  agent  in  the  course  of  his  employment.  Even  though  such 
wrong  had  its  origin  solely  in  the  wickedness  or  carelessness  of  the 
agent,  a  wholly  innocent  principal  will  be  held  liable  for  it,  provided  it 
was  done  in  the  course  of  the  transaction  in  which  the  agent  was  au- 
thorized to  represent  the  principal.  Thus  the  principal  is  liable  for 
slander  or  libel  uttered  by  the  agent  in  the  course  of  his  employment," 
not  because  such  wrong  was  authorized,  but  because  the  principal  is 
deemed  to  be  acting  in  the  person  of  his  agent,  and,  in  accordance  with 
a  sound  public  policy,  must  be  responsible  for  the  wrong  acting  of  the 
agent  in  the  premises.  In  that  transaction  the  agent  stands  in  the  place 
of  the  principal— according  to  the  fiction,  is  identified  with  him.  So, 
on  the  same  principle,  a  corporation  is  liable  in  deceit  for  the  false  is- 
sue of  certificates  by  its  agent,*^*  and  a  railway  company  for  false  im- 

"  TiflP.  Ag.  p.  10. 

18  See  Sohm's  Institutes  of  Roman  Law,  §  32. 

!•  Washington  Gaslight  Co.  v.  Lansden,  172  U.  S.  534.  19  Sup.  Ct.  296,  43 
L.  Ed.  543;  Sun  Life  Assur.  Co.  v.  Bailey,  101  Va.  443,  44  S.  B.  692,  9  Va. 
Law  Reg.  187.  It  should  here  be  noticed  that  there  is  a  difference  in  the 
grounds  upon  which  a  principal  is  held  liable  for  the  unauthorized  acts  of 
his  agent  within  the  apparent  scope  of  his  authority,  and  for  those  not  with-  -* 
in  the  apparent  scope  of  his  authority,  but  within  the  course  of  his  employ- 
ment In  the  first  case  the  basis  of  the  principal's  liability  is  clearly  found 
in  the  doctrine  of  estoppel.  The  principal  is  liable,  not  because  he  has  au- 
thorized the  agent  thus  to  act,  but  because  he  has  allowed  the  agent  to  mis- 
lead the  party  to  his  injury.  But  the  principle  upon  which  a  principal  is 
held  liable  for  the  unauthorized  acts  of  his  agent  within  the  course  of  his 
employment,  but  without  the  apparent  scope  of  his  authority,  is  entirely  dif- 
ferent Here  the  principal's  liability  is  based  upon  the  fiction  of  identity. 
The  basis  of  the  injured  party's  right  to  compensation  from  the  principal  in 
these  cases  is  the  duty  which  rests  upon  every  man  to  conduct  his  business, 
whether  in  person  or  by  agents,  so  as  to  injure  no  one.  Sic  utere  tuo  ut 
alienum  non  Isedas. 

20  New  York  &  N.  H.  R.  Co.  v.  Schuyler,  34  N.  Y.  30.    Upon  this  question 
there  is  a  direct  conflict  of  authority.    In  England  it  is  held  that  the  princi 
pal  is  liable  only  when  the  wrong  was  for  his  (the  principal's)  benefit.     See 
British  Mut  Banking  Co.  v.  Charnwood  Forest  R.  Co.,  18  Q.  B.  Div.  714; 


I, 


304 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


prisonment  by  its  conductor.'*  So,  if  an  insurance  agent  fraudulently 
induces  the  insured  to  make  a  contract  that  otherwise  he  would  not 
have  made,  the  insurer  becomes  responsible  for  the  fraud,  and  may  be 
estopped  to  claim  any  advantage  growing  out  of  that  fraud,  even 
though  perpetrated  without  authority  or  expressly  forbidden.  ^^ 

Nor  would  any  other  rule  be  just  or  reasonable,  despite  the  fact  that 
dishonest  or  careless  agents  thus  often  inflict  great  hardships  upon  in- 
nocent principals,  for  otherwise  the  person  who  carried  on  his  business 
through  representatives  would  occupy  a  far  more  favorable  position 
than  if  acting  in  his  own  proper  person,  while  the  third  party  dealing 
with  such  representatives  would  be  put  at  a  gross  disadvantage. 
/  Again,  (2)  a  second  incident  of  the  relation  of  principal  and  agent  is 
that  any  information  material  to  the  transaction  either  possessed  by 
the  agent  at  the  time  of  the  transaction,  or  acquired  by  him  before  its 
completion,  is  deemed  to  be  the  knowledge  of  the  principal,  at  least  as 
lar  as  that  transaction  is  concerned,  even  though  in  fact  the  knowledge 
is  not  communicated  to  the  principal  at  all.** 

It  is  here  to  be  observed — and  the  importance  of  the  principle  is  so 
great  that  it  cannot  be  too  strongly  emphasized — ^that  these  incidents  of 
J     agency  are  created  by  the  law,  and  not  by  the  parties.     The  insurer  is 
charged  with  the  knowledge  acquired  by  his  agent  in  making  or  nego- 
tiating a  contract  of  insurance,  not  because  he  has  consented  to  be  so 

Barwick  v.  Bank,  L.  R.  2  Exch.  259.  While  there  is  no  decision  of  the  Unit- 
ed States  Supreme  Court  directly  in  point,  it  is  clear  that  the  tendency  of 
that  court  is  to  follow  the  English  view.  See  Moores  v.  Bank,  111  U.  S.  156, 
4  Sup.  Ct.  345,  28  L.  Ed.  385;  Friedlander  v.  Railway  Co.,  9  Sup.  Ct.  570,  130 
U.  S.  416,  32  L.  Bd.  991.  But  the  weight  of  authority  and  the  clear  weight 
of  reasoning  seem  to  be  as  stated  in  the  text  The  leading  case  (New  York 
&,  N.  H.  R.  Co.  V.  Schuyler,  34  N.  Y.  30)  has  been  followed  by  the  later  deci- 
sions. See  Fifth  Ave.  Bank  v.  Forty-Second  St.  &  G.  St.  Ferry  R.  Co.,  137 
N.  Y.  231,  33  N.  E.  378,  19  L.  R.  A.  331,  33  Am.  St  Rep.  712;  Allen  v.  Rail- 
road Co.,  150  Mass.  200,  22  N.  E.  917,  5  L.  R.  A.  716,  15  Am.  St  Rep.  185. 
For  a  full  and  clear  discussion  of  this  subject,  see  Tiff.  Ag.  pp.  290-294. 

»i  Palmeri  v.  Railway  Co.,  133  N.  Y.  261,  30  N.  B.  1001,  16  L.  R.  A.  136,  28 
Am.  St  Rep.  632;   Krulevitz  v.  Railroad  Co.,  143  Mass.  228,  9  N.  E.  613. 

22  KAUSAL  V.  ASSOCIATION,  31  Minn.  17,  16  N.  W.  430,  Woodruff,  Ins. 
Cas.  517,  47  Am.  Rep.  776;  .^tna  Live  Stock  Fire  &  Tornado  Ins.  Co.  v.  Olm- 
stead,  21  Mich.  246,  4  Am.  Rep.  483. 

28  Forward  v.  Insurance  Co.,  142  N.  Y.  382,  37  N.  E.  615,  25  L.  R.  A.  637; 
Mesterman  v.  Insurance  c8.,  5  Wash.  524,  32  Pac.  458,  34  Am.  St  Rep.  877. 
In  Story  on  Agency,  §  140,  it  is  said:  "Notice  of  facts  to  an  agent  is  con- 
structive notice  thereof  to  the  principal  himself,  when  It  arises  from  or  is 
connected  with  the  subject-matter  of  his  agency,  for,  upon  general  principles 
of  public  policy,  it  is  presumed  that  the  agent  has  communicated  such  facts 
to  his  principal,  and,  if  he  has  not,  still,  the  principal  having  intrusted  the 
agent  with  the  particular  business,  the  other  party  has  the  right  to  deem  his 
acts  and  knowledge  obligatory  upon  the  principal;  otherwise  the  neglect  of 
the  agent,  whether  designed  or  undesigned,  might  operate  mogt  injuriously 
to  the  rights  and  interests  of  such  party." 


g  108)  THE  DOCTRINE  OF  AGENCY  IN  INSURANCE  LAW.  305 

• 

charged,  nor  because  he  has  authorized  his  agent  so  to  bind  him,  but 
because,  as  a  legal  consequence  of  the  relation  he  sustains  to  the  agent, 
the  latter 's  knowledge  is  imputed  to  him.  It  therefore  follows  that  this 
incident  created  by  the  law  in  response  to  the  demands  of  public  policy, 
irrespective  of  agreement,  cannot  be  destroyed  or  altered  by  the  agree- 
ment of  the  parties.  The  parties  cannot  by  their  contract  contravene 
the  policy  of  the  law  in  this  instance  any  more  than  the  husband,  by 
contract,  can  escape  his  duty  to  support  the  wife,  or  the  carrier  can  by 
contract  exempt  himself  from  liability  for  his  negligent  failure  to  carry 
safely  his  passenger.  Those  cases  which  ignore  this  principle,  and  re- 
gard these  legal  incidents  as  powers  conferred  and  subject  to  limitation, 
are  much  to  be  deplored.**  Insurers  should  undoubtedly  be  allowed  to 
protect  themselves,  in  any  legal  way  possible,  against  the  fraud  of  their 
unfaithful  agents,  but  not  at  the  expense  of  innocent  third  parties. 
And  when  a  loss  caused  by  a  dishonest  agent  must  fall  upon  his  prin- 
cipal or  a  third  party,  both  equally  innocent,  the  courts  should  not,  and 
do  not,  ordinarily,  hesitate  in  putting  the  burden  upon  the  person  who 
selected  and  controlled  the  agent.* • 

Vor  Whom  the  Agent  Acted, 

Controversy  has  not  infrequently  arisen  as  to  who  was  represented 
by  an  agent  taking  part  in  the  negotiation  of  the  insurance  contract, 
and  it  is  often  sought  to  avoid  such  controversy  by  an  agreement  set 
forth  in  the  policy  or  application.  But  it  is  clear  that  this  is  a  question 
of  fact,  not  of  stipulation.  Hence  it  is  to  be  determined  from  alTfhe 
facts  of  each  c^,  anSTnot  from  the  mere  words  used,  whether  the 
agent  represented  the  insurer  or  insured,  or  whether  he  acted  for  both, 
as  a  broker  ordinarily  does.**  But  it  is,  of  course,  fraudulent  for  the 
same  agent  to  act  for  both  parties  without  the  knowledge  and  consent 
of  both." 


«*  As  examples  of  such  cases,  see  RYAN  v.  INSURANCE  CO.,  41  Conn. 
168,  19  Am.  Rep.  490;  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U. 
S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934. 

25  See  Continental  Fire  Ins.  Co.  v.  Whitaker  (Tenn.  1904)  79  S.  W.  119; 
Mutual  Fire  Ins.  Co.  v.  Ward,  95  Va.  231,  28  S.  E.  209;  Stemaman  v.  Insur- 
ance Co.,  170  N.  Y.  13,  62  N.  a  763,  57  L.  R.  A.  318,  88  Am.  St.  Rep.  625. 

2«  See  Smith  &  Wallace  Co.  v.  Prussian  Nat.  Ins.  Co.  (N.  J.)  54  Atl.  458. 
But  the  insured  may  make  the  agent  of  the  insurer  his  own  agent  in  behalf 
of  some  particular  transaction.  Thus  it  has  been  held  that  an  agent  repre- 
senting a  number  of  insurance  companies  may  be  authorized  by  an  owner 
desiring  to  keep  his  property  insured  to  accept  for  him  notice  of  a  cancella- 
tion of  an  existing  policy,  and  thereupon  to  write  the  risk  in  another  com- 
pany.   Johnson  v.  Insurance  Co.,  66  Ohio  St.  6,  63  N.  E.  610. 

27  See  New  York  Cent.  Ins.  Co.  v.  National  Protection  Ins.  Co.,  14  N.  Y. 
85;  Greenwood  Ice  &  Coal  Co.  v.  Georgia  Home  Insurance  Co.,  72  Miss.  46, 
17  South.  83;  Fitzsimmons  v.  Express  Co.,  40  Ga.  330,  2  Am.  Rep.  577; 
Smith  &  Wallace  Co.  v.  Prussian  Nat  Ins.  Co.,  supra. 

Vance  Ins. — ^20 


306 


INSUBAMCB  AGENTS  AND   THEIR  POWERS. 


(Ch.9 


CLASSES  OF  AGENTS  AND  THEIR  POWERS. 

109.  Tbe  powers  of  an  asent  in  any  particular  transaction  are  alwayi 

to  be  deteruiined  by  tbe  facts  of  that  case,  irrespective  of  bis 
title  or  class,  yet,  for  oonTcnience  of  reference,  insurance 
agents  are  classified  as 

(a)  General  agents,  wbo  possess  general  powers  of  m^^'M-ng  insurance 

contracts  on  bebalf  of  tbe  principal. 

(b)  Special  or  local  agents,  sometimes  known  as  "solicitors,"  wbose 

powers  are  ordinarily  confined  to  soliciting  applications  for  in- 
surance and  delivering  policies  issued  tbereon,  and  receiving 
initial  premiums.  Tbeir  powers  are  ratber  ministerial  tban 
contractual. 
(o)  Brokers,  wbo  usually  act  for  tbe  insured,  but  may  act  for  tbe 
insurer,  or  for  botb  insured  and  insurer,  aooording  to  tbe  facts 
in  eacb  case. 

110.  In  addition  to  tbese  more  familiar  classes  of  agents  are  to  be 

noted  tbe  board  of  directors  of  tbe  corporation,  x^bo  possess 
practically  all  tbe  powers  of  tbe  corporation,  and  tbe  execu- 
tive officers,  wbo,  tbrougb  tbe  directors,  are  autborixed  to 
exercise  all  tbe  active  powers  of  tbe  corporation. 


The  habit  of  basing  rules  of  law  upon  titles  given  to  or  borne  by 
agents,  which,  like  many  other  American  titles,  are  of  uncertain  sig- 
nificance, has  produced  so  much  confusion  as  to  the  ultimate  principles 
underlying  those  rules  that  it  is  perhaps  to  be  regretted  that  such  "fluid" 
terms  as  "general  agent"  and  "special  agent"  were  ever  introduced  into 
the  law  of  principal  and  agent.  In  the  nature  of  things,  it  is  impossi- 
ble that  the  powers  of  any  agent  can  be  fixed  by  his  title.  The  pos- 
session of  authority,  whether  act  :al  or  apparent,  is  a  question  of  fact, 
not  of  words.  As  shown  above,  the  question  whether  any  given  act  of 
an  agent  binds  his  principal  is  to  be  decided  by  determining  whether 
the  third  party  had  reasonable  grounds  for  believing,  under  all  the 
facts  of  the  case,  that  the  principal  had  authorized  that  act.  If  such 
reasonable  ground  does  exist,  the  principal  is  bound,  whether  the  agent 
has  been  entitled  "general  agent,"  "solicitor,"  or  "president."  It  is 
easily  possible  that  in  reference  to  some  particular  transaction  a  spe- 
cial agent  may  be  vested  with  all  the  powers  of  the  insurer,  and  it  is 
not  impossible  that  a  figurehead  president  should  be  stripped  of  all 
powers.  The  giving  to  an  agent  of  a  title  having  a  customary  sig- 
nificance may,  however,  constitute  one  of  the  facts  from  which  the 
third  party  may  infer  the  possession  of  some  particular  power.  Thus 
an  agent  given  by  the  insurer  the  title  of  general  agent  will  ordinarily 
be  supposed  to  possess  all  those  powers  customarily  exercised  by  in- 
surance agents  so  entitled,  while  denominating  an  agent  a  special  or 
soliciting  agent  is  a  fact  indicating  the  possession  of  only  limited  pow- 
ers. 


§§  109-110)      CLASSES   OF  AGENTS  AND  THEIR  POWERS. 


307 


But  however  unsatisfactory  this  classification  of  agents  may  be  as 
founding  rules  of  law,  it  is  yet  of  so  much  convenience  in  general  ref- 
erence to  agents  possessing  broad  or  narrow  powers  that  it  is  deemed 
advisable  to  set  it  forth.  In  making  this  classification,  however,  the 
agents  of  corporate  insurers  only  will  be  considered.  It  is  first  to  be 
noted  that  a  corporation  must  jiecessarily  exercise  all  of  its  active  pow- 
ers through_agents.  The  stockholders  who  form  the  corporation  can 
perform  certain  corporate  acts,  such  as  ordering  the  issue  of  stock, 
making  by-laws,  and  electing  officers,  but  the  business  of  the  corpora- 
tion must  necessarily  be  transacted  by  representatives.  These  repre- 
sentatives are  of  many  different  ranks  of  authority,  and  necessarily 
differ  largely  in  the  powers  possessed.  To  the  board  of  directors  are 
delegated  primarily  nearly  all  the  powers  of  the  corporation,  and  the 
directors  in  turn  delegate  all  of  the  active  powers  of  the  corporation  to 
certain  executive  officers  selected  by  them.  The  executive  officers  then 
appoint  other  agents  to  represent  the  company  in  certain  districts  of 
the  territory  to  be  occupied,  while  these  secure  yet  other  and  more  nu- 
merous representatives  for  the  company  within  the  smaller  localities 
of  their  respective  districts.  In  addition  to  these  more  usual  and  nu- 
merous representatives,  the  insurer  appoints  other  agents  for  the  per- 
formance of  special  functions,  such  as  adjusters,  appraisers,  and  attor- 
neys. The  powers  usually  possessed  by  these  several  classes  of  agents 
will  now  be  considered. 

General  Agents  and  Their  Pqzvers. 

The  term  "general  agent"  vaguely  indicates  an  agent  who  is  author- 
ized to  transact  all  of  his  principal's  business  of  a  particular  kind  or  in 
a  particular  place. ^®  The  place  may  be  narrowly  circumscribed,  yet, 
if  the  agent  wiTHin  that  locality  is  authorized  to  do  all  the  acts  in  the 
conduct  of  the  business  intrusted  to  his  charge  that  his  principal  could 
do  if  present  in  his  proper  person,  he  is  denominated  a  general  agent. 
In  the  insurance  business  the  term  is  largely  geographic  in  its  signif- 
icance, as  is  indicated  by  the  synonymous  expressions,  "district"  and 
"division"  agents ;  that  is,  an  agent  who  stands  as  the  representative  of 
his  principal  within  a  certain  district  or  division  of  territory  is  a  general 
agent,  and  may  reasonably  be  supposed  to  possess  broad  powers.  But 
even  though  an  agent  has  no  especial  district  under  his  supervision,  he 
will  yet  be  called  a  general  agent  if  he  has  full  powers  of  contracting 
for  insurance  on  behalf  of  his  principal.  So  if  an  agent  is  authorized 
to  pass  upon  and  accept  risks,  to  agree  upon  the  terms  of  insurance, 
and  to  execute  and  deliver  policies  in  accordance  therewith,  he  will  be 
considered  a  general  agent.*'     It  follows  from  a  recital  of  these  powers 

28  Tiff.  Ag.  p.  190. 

2»  Travelers'  Ins.  Co.  v.  Harvey,  82  Va.  949,  6  S.  B.  653;   Pitney  t.  Insur- 
ance Co.,  65  N.  Y.  6. 


h 


308 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


that  such  a  general  agent  has  always  apparent  authority  to  take  from 
or  add  to  the  printed  form  of  policy  such  terms  as  may  be  agreed  up- 
on,'® or,  discarding  the  printed  form  altogether,  he  may  bind  his  prin- 
cipal by  a  parol  agreement.'*  And,  as  he  can  strike  from  the  printed 
policy  any  term,  so  he  may  expressly  or  impliedly  waive  the  operation 
of  any  term,  even  though  that  term  may  be  one  denying  the  power  of 
any  agent  to  waive  any  term  of  the  contract,  save  in  a  specified  man- 
ner.*' So  he  may  waive  a  condition  requiring  prepayment  of  the  pre- 
mium upon  delivery  of  the  policy,''  or  he  may  waive  proofs  of  loss 
after  the  destruction  of  property  insured.**  He  can  usually  appoint 
subagents,  appraisers,  and  adjusters,  and  may  himself  settle  losses  in 
such  a  way  as  to  bind  the  insurer.  He  may  receive  notice  "^  on  behalf 
of  his  company,  and  do  all  other  acts  connected  with  the  business  in- 


80  Dayton  Ins.  Co.  v.  Kelly,  24  Ohio  St.  345,  15  Am.  Rep.  612;  Taylor  v. 
Insurance  Co.,  98  Iowa,  521,  67  N.  W.  577,  60  Am.  St.  Rep.  210.  An  agent's 
authority  to  change  a  policy  may  be  inferred  from  custom.  Day  v.  Insur- 
ance Co.,  88  Mo.  325,  57  Am.  Rep.  416. 

81  Stehlick  v.  Insurance  Co.,  87  Wis.  322,  58  N.  W.  379;  Stlckley  v.  Insur- 
ance Co.,  37  S.  C.  56,  16  S.  E.  280;  Baker  v.  Insurance  Co.,  162  Mass.  358,  38 
N.  E.  1124;  Baubie  v.  Insurance  Co.,  Fed.  Cas.  No.  1,111;  Harron  v.  Insur- 
ance Co.,  88  Cal.  16,  25  Pac.  982;  Wooddy  v.  Insurance  Co.,  31  Grat  (Va.) 
362,  31  Am.  Rep.  732;  Eames  v.  Insurance  Co.,  94  U.  S.  621,  24  L.  Ed.  298; 
Farnum  v.  Insurance  Co.,  83  Cal.  246,  23  Pac.  869,  17  Am.  St  Rep.  233. 

3  2  Phenix  Ins.  Co.  v.  Hart,  149  111.  513,  36  N.  E.  990;  Mix  v.  Insurance  Co., 
169  Pa.  639,  32  Atl.  460;  Young  v.  Insurance  Co.,  45  Iowa,  377,  24  Am.  Rep. 
784;  Renier  v.  Insurance  Co.,  74  Wis.  89,  42  N.  W.  208;  Berry  v.  Insurance 
Co.,  132  N.  Y.  49,  30  N.  E.  254,  28  Am.  St.  Rep.  548;  Wyman  v.  Insurance 
Co.,  119  N.  Y.  274,  23  N.  E.  907;  Redstrake  v.  Insurance  Co.,  44  N.  J.  Law, 
294. 

33  Stewart  v.  Insurance  Co.,  155  N.  Y.  257,  49  N.  E.  876,  42  L.  R.  A.  147; 
Cole  v.  Insurance  Co.,  22  Wash.  26,  60  Pac.  68,  47  L.  R.  A.  201;  Southern 
Life  Ins.  Co.  v.  Booker,  9  Heisk.  (Tenn.)  606,  24  Am.  Rep.  344;  Universal 
Fire  Ins.  Co.  v.  Block,  109  Pa.  535,  1  Atl.  523. 

34  Little  V.  Insurance  Co.,  123  Mass.  380,  25  Am.  Rep.  96.  Proofs  of  loss 
are  waived  by  the  agent's  promise  to  pay.  Ames  v.  Insurance  Co.,  14  N.  Y. 
253;  Perry  v.  Insurance  Co.  (C.  C.)  11  Fed.  478;  Prentice  v.  Insurance  Co., 
77  N.  Y.  483,  33  Am.  Rep.  651 ;  Phoenix  Ins.  Co.  v.  Bowdre,  67  Miss.  620,  7 
South.  596,  19  Am.  St.  Rep.  326;  Indian  River  State  Bank  v.  Hartford  Fire 
Ins.  Co.  (Fla.)  35  South.  228. 

3  5  Burlington  Ins.  Co.  v.  Lowery,  61  Ark.  108,  32  S.  W.  383,  54  Am.  St. 
Rep.  196;  Pennypacker  v.  Insurance  Co.,  80  Iowa,  56,  45  N.  W.  408,  8  L.  R. 
A.  236,  20  Am.  St.  Rep.  395;  West  Branch  Ins.  Co.  v.  Helpenstein,  40  Pa. 
289,  80  Am.  Dec.  573.  The  company  is  chargeable  with  the  knowledge  of  its 
agent  as  to  Incumbrances  on  property  insured.  Beebe  v.  Insurance  Co.,  93 
Mich.  514,  53  N.  W.  818,  18  L.  R.  A.  481,  32  Am.  St.  Rep.  519;  Tarbell  v.  In- 
surance Co.,  63  Vt  53,  22  Atl.  533;  Frane  v.  Insurance  Co.,  87  Iowa,  288,  54 
N.  W.  237. 

Notice  to  the  general  agent  that  the  insured  is  using  an  engine  on  the 
premises  is  notice  to  the  company.  Schaeflfer  7.  Insurance  Co.,  80  Md.  563, 
31  AtL  317,  45  Am.  St  Rep.  361. 


§§  109-110)       CLASSES  OF  agents'  AND  THEIR  POWERS.  309 

trusted  to  him  as  fully  as  the  company  itself  could  do  them.'*  He  may 
also  institute  legal  proceedings  on  behalf  of  his  principal  to  recover 
sums  due  it."  But  it  must  be  borne  in  mind  that  these  powers  thus 
enumerated  are  but  customary,  and  that  any  of  them  may  be  cut  off  by 
a  known  limitation.®* 

Special  Agents. 

The  powers  of  the  special  agent  are  partially  defined  by  the  other 
terms  used  in  designating  him,  such  as  "soliciting"  agent  and  "local" 
agent;  the  latter  term  being  in  contradistinction  to  the  title  "district 
agent,"  sometimes  given  to  the  general  agent,  as  stated  above.  In  its 
most  general  sense,  the  term  "special  agent"  includes  any  representative 
of  the  insurer  vested  with  authority  to  do  some  special  act  or  acts,  or 
charged  with  the  performance  of  some  special  duty.  In  this  sense  of 
the  words,  solicitors,  attorneys,  medical  examiners,  adjusters,  and  ap- 
praisers are  all  special  agents.  But  the  term  is  ordinarily,  in  insurance 
law  and  literature,  given  a  much  narrower  meaning,  and  includes  only 
those  agents  possessed  of  limited  contractual  powers,  that  are  to  be  ex- 
ercised only  within  a  limited  territory,  and  who,  as  a  class,  are  recog- 
nized by  the  public  as  having  small  authority.  The  customary  func- 
tions of  such  agents  are  to  induce  third  parties  to  make  application  for 
insurance,  to  forward  such  applications  as  are  made  to  the  insurer,  and 
to  deliver  the  policies  issued  upon  the  receipt  of  the  first  premium  in 
cash.«»  He  may  have,  and  frequently  has,  other  powers  given  him, 
such  as  making  a  binding  preliminary  contract  pending  the  acceptance 

»«  Union  Mut  Life  Ins.  Co.  v.  Wilkinson,  13  Wall.  (U.  S.)  222,  20  L.  Ed.  617; 
Tubbs  V.  Insurance  Co.,  84  Mich.  652,  48  N.  W.  298.  The  insurer  is  bound  by 
an  assignment  approved  by  its  general  agent.    Breckinridge  v.  Insurance  Co.. 

87  Mo.  71. 

The  authority  of  a  general  agent  to  act  for  his  company  In  any  given  case 
depends  on  the  powers  apparently  given  him  by  his  principal,  which  the  in- 
sured may  infer  from  the  circumstances.  Sheppard  v.  Insurance  Co.,  21  W. 
Va.  381.  An  Insurance  company  cannot  plead  any  limitations  on  its  agent's 
apparent  authority  unless  the  insured  had  knowledge  of  the  restriction. 
Michigan  Fire  &  Marine  Ins.  Co.  v.  Wich,  8  Colo.  App.  416,  46  Pac.  689; 
Georgia  Home  Ins.  Co.  v.  Kinnier's  Adm'x,  28  Grat  (Va.)  88,  109;  Fireman's 
Fund  Ins.  Co.  v.  Norwood,  69  Fed.  71,  16  C.  C.  A.  136. 

8T  But  it  is  doubtful  whether  a  general  agent  who  is  not  expressly  author- 
ized can  institute  criminal  proceedings  on  behalf  of  his  principal.  Larson  v. 
Association,  71  Minn.  101,  73  N.  W.  711.  But  it  was  held  in  Turner  v.  Insur- 
ance Co.,  55  Mich.  236,  21  N.  W.  326,  that  a  general  agent  of  an  insurance 
company  has  such  authority  as  will  make  his  principal  liable  for  a  malicious 
prosecution  instituted  in  his  principal's  behalf. 

«8  See  Patrick  v.  Insurance  Co.,  43  N.  H.  621,  80  Am.  Dec.  197. 

»»  Lebanon  Mut.  Ins.  Co.  v.  Erb,  112  Pa.  149,  4  Atl.  8;  Bstes  v.  Insurance 
Co.,  67  N.  H.  462,  33  Atl.  515;  De  Camp  v.  Insurance  Co.,  Fed.  Cas.  No. 
3,719. 


310 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


or  rejection  of  the  risk."  He  is  usually  held  to  bind  the  company  by 
any  interpretation  he  may  give  to  the  questions  asked  in  the  applica- 
tion,*^ or  by  any  knowledge  he  may  acquire  in  the  performance  of  his 
duties,  so  far  as  it  is  material  to  the  transactions  in  which  he  is  acting 
for  the  insurer.  But  he  cannot  ordinarily  collect  the  first  premium 
otherwise  than  in  cash,"  or  extend  the  time  for  the  payment  of  pre- 
miums, or  otherwise  modify  any  of  the  terms  of  the  printed  contract.** 
"Local"  agents  are  usually  special  agents,  in  the  sense  of  having  only 
limited  authority,  but  local  agents  may  have  general  powers.**  In  this 
case,  as  in  all  others  of  agency,  the  facts  govern.  If  the  facts  of  any 
case  show  that  the  agent  was  actually  possesseSTof  the  power  exercised, 
or  that  the  third  party  had  reasonable  ground  for  believing  that  he  was 
possessed  of  such  power,  the  principal  will  be  bound ;  otherwise  he  will 
not.**  It  makes  not  one  particle  of  difference  what  may  be  the  desig- 
nation of  the  agent. 

Same — Subordinate  Lodges,  etc. 

Some  interesting  cases  have  arisen,  involving  the  relation  existing  be- 
tween the  controlling  board  of  the  various  benevolent  orders,  known 
variously  as  the  "Supreme  Lodge,"  or  the  "Grand  Chapter,"  or  by 
some  similar  appellation,  and  the  several  subordinate  chapters  or  lodges 
and  their  officers.  It  is  clearly  one  of  limited  or  special  agency.  The 
functions  and  powers  of  the  subordinate  lodges  cannot  be  other  than 

*o  Oliver  v.  Insurance  C5o.,  97  Va.  134,  33  S.  E.  536.  In  this  case  no  such 
preliminary  contract  was  made,  although  the  agent  was  empowered  so  to 
contract. 

*i  Continental  Life  Ins.  Co.  v.  Chamberlain,  132  U.  S.  304,  10  Sup.  Ct.  87, 
33  L.  Ed.  341 ;  New  Jersey  Mut.  Life  Ins.  Co.  v.  Baker,  94  U.  S.  610,  24  L.  Ed 
268;  New  York  Life  Ins.  Co.  v.  Russell,  77  Fed.  94,  23  C.  C.  A.  43;  Mutual 
Ben.  Life  Ins.  Co.  v.  Robison,  58  Fed.  723,  7  C.  C.  A.  444,  22  L.  R.  A.  325. 
*2  Hoffman  v.  Insurance  Co.,  92  U.  S.  161,  23  L.  Ed.  539 
4a  CRITCHETT  v.  INSURANCE  CO.,  53  Iowa,  404,  5  N.  W.  543,  36  Am. 
Rep.  230. 

**  See  Continental  Fire  Ass'n  v.  Norris  (Tex.  Civ.  App.)  70  S.  W.  769. 

Statutes  have  been  passed  in  some  of  the  states  defining  who  are  insur- 
nnce  agents,  and  determining  their  powers.  Many  of  these  statutes  give  the 
f)owers  of  "general  agents"  to  all  insurance  agents,  of  whatever  kind.  See 
Laws  Iowa  18S0,  p.  209,  c.  211;  Code  Ala.  1886,  §  1205;  Acts  18th  Gen. 
Assem.  Iowa,  c.  211,  §  1;  Rev.  St.  Wis.  §  1977;  Sayles'  Ann.  Civ.  St.  Tex. 
art.  2^i3a;  1  Starr  &  C.  Ann.  St.  111.  p.  1322.  For  the  construction  of  these 
statutes,  see  Mutual  Ben.  Life  Ins.  Co.  v.  Robison  (C.  0.)  54  Fed.  580;  Noble 
V.  Mitchell,  100  Ala.  519,  14  South.  581,  25  L.  R.  A.  238 ;  (same  case)  164  U.  S. 
307,  17  Sup.  Ct.  110,  41  L.  Ed.  472 ;  Continental  Ins.  Co.  v.  Ruckman,  127  111.  364 
20  X.  E.  77,  11  Am.  St.  Rep.  121;  St.  Paul  Fh-e  &  Marine  Ins.  CJo.  v.  Sharer) 
76  Iowa,  282,  41  N.  W.  19;  Fred  Miller  Brewing  Co.  v.  Council  Bluffs  Ins. 
Co..  95  Iowa.  31,  63  N.  W.  565;  Schemer  v.  Insurance  Co.,  50  Wis.  575.  7  N. 
W.  544. 

4  5  Hardin  v.  Insurance  Co.,  90  Va.  413,  18  S.  E.  911;    McGonigle  v.  Insur- 
ance Co.,  108  Pa.  1,  31  AU.  868;   Sheppard  Y.  Insurance  Co^  21  W.  Va.  368. 


^§  109-110)        CLASSES  OP  AGENTS  AND  THEIR  POWERS.  311 

are  given  by  the  constitution  and  by-laws  of  the  order,  and  with  these 
each  member  is  presumed  to  be  acquainted.     Hence  the  grand  lodge 
can  be  bound  only  by  such  of  the  acts  of  the  subordinate  lodge  or  of  its 
agents  as  are  actually  authorized.**     But  the  supreme  lodge  cannot 
escape  liability  incurred  through  the  authorized  act  of  the  subordinate 
lodge  or  its  officers  by  asserting  that  such  acts  were  done  on  behalf  of 
the  members.     Thus,  in  Supreme  Lodge  K.  P.   v.  Withers  *^  the  order 
sought  to  avoid  payment  of  a  death  claim  because  of  the  default  of  the 
secretary  of  the  local  lodge,  to  whom  the  insured  had  paid  his  dues  in 
accordance  with  the  requirements  of  the  laws  of  the  order,  in  remit- 
ting to  the  grand  lodge  the  sum  received  within  the  time  required.    A 
by-law  of  the  order  stipulated  that  the  officers  of  the  subordinate  lodge 
should  be  the  agents  of  the  members ;  but  the  Supreme  Court  held  that 
such  a  stipulation  could  not  change  the  facts,  and  that  the  facts  clearly 
showed  that  the  subordinate  lodge  and  its  secretary  were  agents  of  the 
supreme  lodge,  arid  that  a  payment  duly  made  to  the  secretary  was 
made  to  the  supreme  lodge,  which  was  therefore  liable.**     So  when  a 
subordinate  lodge  accepts  dues  from  a  member  with  full  knowledge  of 
a  ground  upon  which  his  certificate  might  be  forfeited,  and  pays  the 
money  received  over  to  the  grand  lodge,  the  latter  will  be  estopped  to 
claim  the  forfeiture.*®     Nor  will  the  refusal  of  the  subordinate  lodge  to 
deliver  a  certificate  to  a  member  who  has  done  everything  to  entitle 
him  to  the  certificate  enable  the  order  to  escape  a  just  liability  to  the 
member.  ^° 

Insurance  Brokers. 

An  insurance  broker  is  ordinarily  one  who  is  engaged  in  the  business 
of  procuring  insurance  for  such  persons  as  apply  to  him  for  that  serv- 


46  Clark  V.  Association,  14  App.  (D.  C.)  154,  43  L.  H.  A.  390;  Supreme  Com- 
mandery  Knights  of  Golden  Rule  v.  Ainsworth,  71  Ala.  436,  46  Am.  Rep.  332: 
Mutual  Life  Ins.  Co.  v.  Young,  23  Wall.  (U.  S.)  85,  23  L.  Ed.  152;  Campbell 
V.  Supreme  Lodge,  168  Mass.  397,  47  N.  E.  109. 

*7  177  U.  S.  260,  20  Sup.  Ct.  611,  44  L.  Ed.  762. 

*8  In  a  Massachusetts  case  (Campbell  v.  Supreme  Lodge,  168  Mass.  397, 
47  N.  E.  109),  in  which  the  defendant  was  the  same  as  in  the  Withers  Case, 
a  contrary  conclusion  was  reached  under  a  similar  state  of  facts.  But  in 
this  case  the  question  of  agency  was  not  considered.  The  court  based  its 
decision  upon  the  fact  that  the  money  should  have  been  received  at  the  office 
of  the  board  of  control  before  the  death  of  the  member,  and,  as  there  was  no 
custom  by  which  the  company  took  the  risk  of  payments  by  mail,  the  money 
was  not  actually  received  before  the  death  of  the  member.  The  member  was 
not  reinstated  by  the  receipt  given  by  the  board  of  control,  conditioned  up- 
on the  member's  being  alive  at  its  date. 

*»  High  Court  Independent  Order  of  Foresters  v.  Schweitzer,  171  IlL  325. 

49  N.  E.  506. 

60  Lorscher  v.  Supreme  Lodge,  72  Mich.  316^  40  N.  W.  645.  2  L.  B.  A.  20a 


312 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


ice."  He  IS  therefore  usually  the  agent  of  the  insured,"  and  will  be 
so  considered  even  though  a  statute  may  declare  that  whoever  "in  any 
manner  aids  or  assists"  in  making  a  contract  of  insurance  "on  behalf 
of  any  insurance  corporation  or  property  owner"  shall  be  held  to  be  an 
"agent  of  such  corporation  to  all  intents  and  purposes."  "  The  broker 
is  still  the  agent  of  the  insured,  though  he  may  solicit  the  privilege  of 
placing  the  insurance,  and  receive  a  commission  from  the  insurer  with 
whom  it  is  placed.^"*  But  in  any  given  case  the  facts  may  show  that 
the  broker  was  acting  for  the  insurer  as  well  as  for  the  insured.  For 
one  purpose  he  may  represent  the  insured ;  for  another,  the  insurer." 

81  Laws  Mass.  1887,  p.  825,  c.  214,  §  93,  defines  a  broker  as  any  person 
who,  "for  compensation,  acts  or  aids  in  any  manner  in  the  negotiation  of 
contracts  of  insurance  or  reinsurance,  or  placing  risks  or  effecting  insurance 
or  reinsurance,  for  a  person  other  than  himself,  and  not  being  appointed 
agent  or  officer  of  the  company  in  which  such  insurance  or  reinsurance  is 
effected."  "An  Insurance  broker  is  one  who  acts  as  a  middleman  between 
the  insured  and  the  company,  and  who  solicits  insurance  from  the  public  un- 
der no  employment  from  any  special  company,  but,  having  secured  an  order, 
he  either  places  the  insurance  with  the  company  selected  by  the  insurer,  or,' 
in  the  absence  of  any  selection  by  him,  then  with  the  company  selected  by 
such  broker."  Per  Peckham,  J.  ARFF  v.  INSURANCE  CO.,  125  N.  Y.  57, 
25  N.  E.  1073,  10  L.  R.  A.  609,  21  Am.  St.  Rep.  721.  See  Sellers  v.  Insurance 
Co.,  105  Ala.  282,  16  South.  798,  defining  an  insurance  broker.  Also,  see 
Pratt  V.  Burdon,  168  Mass.  596,  47  N.  E.  419,  defining  a  broker,  and  constru- 
ing the  Massachusetts  statute  quoted  above.  See,  also,  Milliken  v.  Wood- 
ward, 64  N.  J.  Law,  444,  45  Atl.  796. 

B2  Fire  Ass'n  of  Philadelphia  v.  Hogwood,  82  Va.  342,  4  S.  B.  617;  Allen 
V.  Insurance  Co.,  123  N.  Y.  6,  25  N.  E.  309;  Continental  Ins.  Co.  v.  Allen,  26 
lU.  App.  576. 

63  JOHN  R.  DAVIS  LUMBER  00.  v.  HARTFORD  FIRE  INS.  CO.,  95  Wis. 
226,  70  N.  W.  84,  37  L.  R.  A.  131,  construing  section  1977,  Rev.  St.  Wis.  To 
same  effect,  see  United  Firemen's  Ins.  Co.  v.  Thomas,  82  Fed.  406,  27  C.  O. 
A.  42,  53  U.  S.  Am).  517,  47  L.  R.  A.  450.  Same  case  on  rehearing,  92  Fed. 
127,  34  C.  C.  A.  240,  47  L.  R.  A.  450,  construing  Rev.  St.  111.  c.  73,  §  40. 

e*  Seamans,  etc.,  v.  Knapp,  Stout  &  Co.,  89  Wis.  171,  61  N.  W.  757,  27  L. 
R.  A.  362,  46  Am.  St  Rep.  825;  American  Fire  Ins.  Co.  v.  Brooks,  83  Md.  22, 
34  Atl.  373;  Devens  v.  Insurance  Co.,  83  N.  Y.  168;  Sellers  v.  Insurance  Co., 
105  Ala.  282,  16  South.  798;  Commonwealth  Mut.  Fire  Ins.  Co.  ▼.  William 
Knabe  &  Co.  Mfg.  Co.,  171  Mass.  265.  50  N.  E.  516.  In  an  Indiana  case  an  inter- 
mediate broker  to  whom  a  broker  applied  for  insurance  was  held  to  be  the  agent 
of  the  insurance  company,  so  as  to  charge  It  with  his  knowledge  regarding  the 
premises  insured.  Indiana  Ins.  Co.  v.  Hartwell,  123  Ind,  177,  24  N.  E.  100. 
The  court  seemed  to  reach  this  conclusion  because  of  the  intermediary  relation 
of  the  broker,  but  it  is  contrary  to  the  great  weight  of  authority. 

«6  Under  the  provisions  of  the  Massachusetts  statute  (Acts  1887,  p.  823,  c. 
214,  §  90),  an  insurance  broker  Is  the  agent  of  the  insurer  for  the  purpose  of 
receiving  the  premium,  notwithstanding  any  condition  or  stipulation  in  the 
policy  to  the  contrary.  But  this  does  not  make  the  broker  the  agent  of  the  in- 
surer so  as  to  bind  him  by  the  broker's  knowledge  of  the  condition  of  the 
premises  insured.  Davis  v.  Insurance  Co.,  67  N.  H.  335,  39  Atl.  902.  In  Tex- 
as it  has  been  held  that  he  is  agent  of  the  insurer  to  receive  premiums,  but 


§§  109-110)        CLASSES  OP  AGENTS  AND  THEIR  POWERS.  313 

The  facts  of  the  case  will  always  govern.  Thus  the  broker  may 
act  for  the  insured  in  procuring  the  insurance,  and  thus  bind  him  by 
any  concealments  or  representations  made,  and  also  act  for  the  insurer 
in  delivering  the  policy  and  settling  for  the  premium,  with  reference  to 
which  the  broker's  acts  will  bind  the  insurer."  If,  as  a  matter  of  fact, 
a  broker  has  been  authorized  by  several  companies  to  make  contracts 
on  their  behalf,  his  selection  of  one  of  the  companies  to  carry  a  risk 
applied  for  has  been  held  to  complete  a  contract  binding  upon  that  com- 
pany, even  though  the  policy  which  the  broker  was  authorized  to  issue 
was  withheld  because  of  an  intervening  fire.*^ 

Notice  given  to  a  broker  authorized  to  procure  insurance  is  to  be  con- 
sidered notice  to  the  insured  as  to  any  matters  preceding  the  completion 
of  the  contract.  **•  But  ordinarily  the  authority  of  the  broker  to  repre- 
sent the  insured  ends  with  the  completion  of  the  contract,  and  any  no- 
tice thereafter  given  to  the  broker  will  not  affect  the  rights  of  the  in- 
sured. This  question  most  frequently  arises  when  the  insurer  gives  to 
the  broker  who  procured  the  insurance  notice  of  the  cancellation  of  the 
contract,  which,  by  the  terms  of  the  policy,  is  required  to  be  given  to 
the  insured.  But,  in  accordance  with  the  principle  stated  above,  such 
notice  is  not  sufficient,'^'  unless  there  is  evidence  of  continued  authority 
conferred  upon  the  broker.*® 

Executive  OMcers  of  Insurance  Company, 

It  is  sometimes  said  that  it  is  a  settled  rule  of  agency  "that  officers 
of  a  corporation  or  association  are  special  agents,  whose  powers  are 
limited  and  prescribed  by  the  charter  or  articles  of  association  and  by- 
laws, and  that  persons  dealing  with  them  are  chargeable  with  notice  of 

for  nothing  else.  East  Texas  Fire  Ins.  Co.  v.  Blum,  76  Tex.  653,  13  S.  W.  572. 
In  Pennsylvania  he  is  not  the  agent  of  Insurer  to  receive  premiums.  Potts- 
ville  Mut.  Fire  Ins.  Co.  v.  Minnequa  Springs  Imp.  Co.,  100  Pa.  137.  In  Illi- 
nois, whether  the  broker  acted  for  the  insurer  in  receiving  the  premium  is 
held  to  be  a  question  of  fact.  Sun  Mut.  Ins.  Co.  v.  Saginaw  Barrel  Co.,  114 
111.  99,  29  N.  B.  477. 

68  Sellers  v.  Insurance  Co.,  105  Ala.  282,  16  South.  798;  Hamblet  v.  Insur- 
ance Co.  (D.  C.)  36  Fed.  118;  Milliken  v.  Woodward,  64  N.  J.  Law,  444,  45 
Atl.  796;  Gaysvllle  Mfg.  Co.  v.  Phoenix  Mut.  Fire  Ins.  Co.,  67  N.  H.  457,  36 
Atl.  367;    East  Texas  Fire  Ins.  Co.  v.  Brown,  82  Tex.  631,  18  S.  W.  713. 

B7  Croft  V.  Insurance  Co.,  40  W.  Va.  508,  21  S.  E.  854,  52  Am.  St.  Kep.  902. 

B8  LIPMAN  V.  INSURANCE  CO.,  121  N.  Y.  454,  24  N.  E.  699,  8  L.  R.  A.  719. 

60  Hermann  v.  Insurance  Co.,  100  N.  Y.  411,  3  N.  E.  341,  53  Am.  Rep.  197; 
Kehler  v.  Insurance  Co.  (C.  C.)  23  Fed.  709;  Grace  v.  Insurance  Co.,  109  U. 
S.  278,  3  Sup.  Ct  207,  27  L.  Ed.  932;  American  Fire  Ins.  Co.  v.  Brooks,  83 
Md.  22,  44  Atl.  373 ;  Zenos  v.  Wickham,  2  H.  L.  Cas.  296 ;  Mutual  Assur.  Soc.  v. 
Scottish  Union  &  Nat  Ins.  Co.,  84  Va.  116,  4  S.  E.  178, 10  Am.  St  Rep.  819. 

«o  Royal  Ins.  Co.  v.  Wight,  55  Fed.  455,  5  C.  C.  A.  200;  Standard  OU  Co. 
V.  Triumph  Ins.  Co.,  64  N.  Y.  85;  Hartford  Fire  Ins.  Co.  v.  Reynolds,  36  Mich. 
502;  JOHN  R.  t)AVIS  LUMBER  CO.  v.  HARTFORD  FIRE  INS.  CO.,  9» 
Wis.  226,  70  N.  W.  84,  37  L.  R.  A.  131. 


H^l 


314 


INSURANCE    AGENTS    AND    THEIR    POWERS. 


(Ch.9 


these  limitations."  •*  But  it  is  clear  that  the  officers  of  a  corporation  are 
by  no  means  special  agents  in  the  sense  in  which  that  term  is  ordinarily 
used,  as  explained  above.  It  is  true  that  the  powers  of  such  officers 
may  be  prescribed  in  terms  by  the  charter,  and  are  necessarily  Hmited 
to  those  possessed  by  the  corporation  under  its  charter,  and  that  they 
may  be  still  further  limited  by  by-laws  and  regulations  adopted  by  the 
stockholders  or  directors,  though  it  is  to  be  here  observed  that  such 
by-laws  and  regulations  are  conclusively  presumed  to  be  known  only 
to  members  of  the  corporation.**  But  in  the  active  conduct  of  the  busi- 
ness for  the  transaction  of  which  the  company  was  chartered,  the  ex- 
ecutive officers  usually  possess  all  the  powers  of  the  corporation." 
They  would  therefore  more  appropriately  be  called  general  agents,  as 
exercising  more  general  authority  than  any  others  of  the  representa- 
tives of  the  corporation. 

Such  executive  officers  bear  divers  titles,  being  denominated  variously 
''president,"  "vice  president,"  "secretary,"  "assistant-secretary,"  "treas- 
urer," "superintendent,"  or  "general  manager" ;  or,  if  the  association  be 
one  established  for  fraternal  or  benevolent  purposes,  the  titles  of  the 
executive  officers  are  often  fairly  imperial  in  their  suggestion  of  author- 
ity. These  titles  do  not  of  themselves  fix  the  powers  of  their  posses- 
sors, but  the  giving  of  a  title  having  a  customary  significance  as  to  ac- 
companying authority  is  often  an  important  fact  justifying  an  inference 
of  authority  by  third  persons.  For  the  general  public,  in  the  case  of 
these  executive  officers  as  well  as  of  other  agents,  has  a  right  to  infer 
that  ostensible  authority  is  actual  authority.  Thus,  as  the  president  of 
any  organization  generally  possesses  authority  to  supervise  and  regulate 
the  conduct  of  all  its  affairs,  the  public  naturally  assumes  that  the  per- 
son appointed  to  be  president  of  an  insurance  company  ha's  authority  to 
bind  the  company  by  any  act  that  he  may  do  in  furtherance  of  the  busi- 
ness in  which  it  is  engaged.**     The  company,  of  course,  can  limit  these 

«i  See  1  Joyce,  Ins.  §  397. 

«2  Tlie  by-laws  aod  rej?ulations  of  a  corporation  are  not  presumed  to  be 
known  to  persons  with  whom  its  agents  deal  unless  they  are  specially 
brought  to  their  knowledge.  Rathbun  v.  Snow,  123  N.  Y.  343,  25  N.  E.  379, 
10  L.  R.  A.  355,  Clark,  Corp.  461. 

«3  Hackney  v.  Insurance  Co.,  4  Pa.  187.  What  the  officers  of  an  insurance 
company  say  and  do  when  in  the  discharge  of  their  duties  as  officers,  and  in 
relation  to  duties  assigned  them,  is  evidence  against  the  company.  Muhle- 
man  v.  Insurance  Co.,  6  W.  Va.  508.  See,  also,  German  Ins.  Co.  v.  Gray,  43 
Kan.  497,  23  Pac.  637,  8  L.  R.  A.  70,  19  Am.  St.  Rep.  150.  A  provision  in  a 
policy  that  its  terms  cannot  be  waived  or  changed  by  any  agent  or  officer  of 
the  company,  except  in  writing,  is  invalid  in  so  far  as  it  attempts  to  restrict 
the  power  of  the  company  to  act  through  its  executive  officers.  LAMBER- 
TON  V.  INSURANCE  CO.,  39  Minn.  129,  39  N.  W.  76,  1  L.  R.  A.  222.  See 
Renier  v.  Insurance  Co.,  74  Wis.  89,  42  N.  W.  208;  Weed  v.  Insurance  Co.. 
116  N.  Y.  117,  22  N.  E.  229. 

«4Dilleber  v.  Insurance  Co.,  76  N.  Y.  667;    Merchants'  &  Manufacturers' 


g§  109-110)        CLASSES  OF  AGENTS  AND   THEIR  POWERS. 


315 


apparent  powers,  but  the  limitation,  to  be  effective,  must  be  communi- 
cated. So  the  secretary  has  customarily  somewhat  less  extensive  pow- 
ers, but  has,  impliedly,  authority  to  do  all  acts  properly  incident  to  the 
duties  of  his  office.®*  And  the  same  is  true  of  the  treasurer.'*  The 
general  manager  or  superintendent  usually  has  within  the  territory  un- 
der his  control  very  much  the  same  authority  as  the  president,  and  ex- 
<?rcises  all  the  administrative  powers  of  the  corporation.*^ 

The  board  of  directors  are  not  executive  officers,  and  a  discussion 
of  their  powers  belongs  more  properly  to  a  work  on  the  general  law  of 
corporations  '^  than  to  a  treatise  on  insurance.     It  has  already  been 


Ins.  Co.  v.  Curran,  45  Mo.  142,  100  Am.  Dec.  361.  He  may  waive  a  deviation 
from  the  risk  when  such  is  in  accordance  with  a  uniform  practice  of  the 
company.  Warren  v.  Insurance  Co.,  16  Me.  439,  33  Am.  Dec.  674.  Knowl- 
edge of  the  president  is  knowledge  of  the  company.  Pomeroy  v.  Insurance 
Co.,  9  Colo.  295,  12  Pac.  153,  59  Am.  Rep.  144.  But  in  Massachusetts  it  is 
held  that  the  president  of  a  mutual  company  has  no  authority  to  waive  con- 
ditions of  a  policy  dependent  upon  the  by-laws,  and  make  a  different  con- 
tract from  that  authorized  by  such  by-laws.  Priest  v.  Insurance  Co.,  3  Al- 
len, 602.  He  has  no  power  to  waive  a  by-law  requiring  prepayment  of  the 
premium  as  a  condition  precedent  to  the  validity  of  the  policy.  Baxter  v. 
Insurance  Co.,  1  Allen  (Mass.)  294,  79  Am.  Dec.  730.  Where  the  president  is 
Iield  out  as  having  authority  to  make  oral  contracts  for  insurance,  third  per- 
sons are  not  affected  by  secret  limitations  on  his  authority.  Commercial  Mut. 
Ins.  Co.  V.  Union  Ins.  Co.,  19  How.  (U.  S.)  318,  15  L.  Ed.  636. 

65  It  is  the  secretary's  duty  to  carry  into  effect  the  votes  and  directions  of 
the  managing  body,  unless  the  contrary  appears.  Leai*y  v.  Blanchard,  48 
Me.  269.  The  assignee  of  a  life  policy  is  justified  in  concluding  that  it  has 
been  canceled  by  the  company  where  he  receives  a  letter  from  its  secretary 
stating  that  all  policies  were  canceled  by  the  company  for  failure  to  pay  as- 
sessments within  thirty  days.  Columbia  Ins.  Co.  v.  Masonheimer,  76  Pa.  138. 
Where  the  secretary  of  an  insurance  company  fills  out  an  application  for  in- 
surance, the  company  will  be  presumed  to  have  waived  any  statements  of 
facts  not  inserted  in  the  application.  Tiefenthal  v.  Insurance  Co.,  53  Mich. 
306,  19  N.  W.  9. 

The  secretary  of  a  corporation  is  one  of  the  general  managing  agents,  and, 
when  in  the  discharge  of  the  duties  of  his  office,  represents  the  company. 
Hastings  v.  Insurance  Co..  138  N.  Y.  473,  34  N.  E.  289.  But  the  secretary 
cannot  bind  the  company  by  his  agreement  to  pay  a  loss  for  which  the  in- 
surer is  not  otherwise  liable.  Arguimbau  v.  Insurance  Co.,  106  La.  139,  'M 
South.  148.  Nor,  it  is  held,  can  the  secretary  give  by  letter  consent  to  othei 
insurance,  required  by  the  policy  to  be  indorsed  thereon.  O'Leary  v.  Insur- 
ance Co.,  100  Iowa,  173,  69  N.  W.  420,  62  Am.  St.  Rep.  555.     But  quaere? 

«6  Stark  Bank  v.  United  States  Pottery  Co.,  34  Vt.  144.  But  he  has  no  au- 
thority to  borrow  money  to  pay  benefits  in  an  association.  Screwmen's  Ben. 
Ass'n  V.  Smith,  70  Tex.  168,  7  S.  W.  793.  It  has  been  held  that  the  fact  that 
the  treasurer  of  a  mutual  company  received  assessments  from  the  insured  aft- 
er he  knew  of  the  misrepresentations  as  to  his  age  does  not  validate  the  policy. 
Swett  V.  Society,  78  Me.  541,  7  Ati.  394. 

67  See  Eclectic  Life  Ins.  Co.  v.  Fahrenkrug,  68  111.  463;  McGurk  v.  Insur- 
ance Co.,  5^  Conn.  528,  16  Atl.  263,  1  L.  R.  A.  563. 

•a  See  Clark.  Corn.  d.  485  et  sea. 


316 


INSURANCE   AGENTS   AND   THEIU   POWERS. 


(Ch.9 


I 


shown  that  the  directors  have  no  power  to  adopt  by-laws  or  to  order 
assessments,  except  in  strict  compHance  with  the  charter  or  articles  of 
association,  and  unless  they  are  reasonable.'*  It  may  be  here  added 
that  notice  to  a  director  is  not  notice  to  the  company,  unless  the  circum- 
stances are  such  as  to  make  it  the  duty  of  that  director  to  communicate 
his  knowledge,^ • 

Other  Agents, 

Adjusters,  appraisers,  medical  examiners,  and  attorneys  are  strictly 
special  agents,  whose  authority  to  bind  the  company  is  narrowly  con- 
fined to  acts  incident  to  the  discharge  of  the  special  fimctions  for  which 
they  are  employed.^^  Thus  an  agent  authorized  to  adjust  a  loss  may 
waive  proofs  of  loss,^*  but  cannot  revive  an  already  forfeited  policy.''' 
Yet  it  has  been  held  that  he  may  bind  the  insurer  by  stating  grounds  for 
his  refusal  to  settle  the  loss,  thus  waiving  a  forfeiture  on  other 
grounds.^*  In  Michigan  "  it  has  been  decided  that  the  offer  made  by 
an  adjuster  to  compromise  a  disputed  claim  did  not  amount  to  a  waiv- 
er, binding  on  the  company,  of  a  forfeiture  incurred  under  a  term  of 
the  policy. 

A  medical  examiner  has  narrow  authority,  but  within  the  limits  of 
that  authority  he  may  bind  the  insurer  by  his  acts,  or  by  knowledge  ac- 
quired. Thus  it  is  held  ^'  that  the  knowledge  of  a  medical  examiner 
of  the  truth  of  a  fact  or  circumstance  erroneously  set  forth  in  an  appli- 
cation will  estop  the  insurer  to  claim  a  forfeiture  on  the  ground  of  mis- 
representation. 


•9  See  supra,  194. 

TO  See  Clark,  Corp.  p.  502.  See,  also,  General  Ins.  Co.  v.  United  States  Ins. 
Co.,  10  Md.  517,  69  Am.  Dee.  174. 

71  Dwelling  House  Ing.  Oo.  v.  Snyder,  59  N.  J.  Law,  IS,  34  Atl.  931. 

72  Germanla  Fire  Ins.  Co.  v.  Pitcher,  160  Ind.  392,  64  N.  E.  921;  iBtna 
Ins.  Co.  V.  Shryer,  85  Ind.  362.  See  numerous  cases  cited  in  28  Cent  Dig. 
"Insurance,"  §  1406. 

7  3  Phopnix  Ins.  Co.  v.  Lawrence,  4  Mete.  (Ky.)  9,  81  Am.  Dec.  521. 

74  Rockford  Ins.  Co.  v.  Williams,  56  111.  App.  338. 

7  8  Richards  v.  Insurance  Co.,  83  Mich.  508,  47  N.  W.  350,  21  Am.  St.  Rep. 
611.  But  a  compromise  completed  by  the  adjuster  is  binding  on  the  compa- 
ny in  the  absence  of  knowledge  by  the  insured  of  limitations  upon  the  ad- 
juster's authority.  Millers'  Nat  Ins.  Co.  v.  Kinneard,  136  111.  199,  26  N.  E. 
368. 

7«  Grattan  v.  Insurance  Co.,  80  N.  Y.  281,  36  Am.  Rep.  617.  See,  also, 
Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88 
Am.  St  Rep.  625;  Providence  Life  Assur.  Soc.  v.  Rentlinger,  58  Ark.  528, 
25  S.  W.  835;  Equitable  Life  Ins.  Co.  v.  Hazlewood,  75  Tex.  338,  12  S.  W. 
623,  7  L.  R.  A.  217,  16  Am.  St  Rep.  893.  A  contrary  doctrine  to  the  text  is 
held  in  Leonard  v.  Assurance  Co.,  24  R.  I.  7,  51  Atl.  1049,  96  Am.  St  Rep. 
G98.  But  this  decision  was  based  on  the  ground  that  the  advice  given  by  the 
examiner  did  not  relate  to  the  medical  certificate,  and  therefore  was  not 
binding  on  the  insurer. 


%l  111-113)      SUBAGENTS— THEIR  APPOINTMENT  AND  POWERS.  31? 


SUBAGENTS-THEIR  APPOINTMENT  AND  POWERS. 

111.  Under  tlie  law  of  principal  and  agent,  an  agent  is  not  allowed 

to  delegate  to  another  the  authority  conferred  upon  him,  un- 

loss 

(a)  The  power  delegated  involires  the  doing  of  a  ministerial  act  only. 

or  unless  ,  j       i*   ji 

(b)  The  delegation  of  such  authority  has  been  expressly  or  impliedly 

authorized  by  the  principal. 

112.  The  insurer  will   be   deemed  to  have   impUedly  authorized   the 

delegation  of  authority  conferred  upon  his  agent,  if,  under  the 
circumstances  of   the   agency,   the   appointment   of   subagents 

w^as 
<a)   Necessary  to  the  accompUshment  of  the  purposes  of  the  agency; 

or 

(b)  In  accordance  with  a  custom  or  usage;   or 

(c)  In  accordance  with  the  known  practice  or  custom  of  the  agent 

appointed. 

113.  A  subagent  may  bind  the  insurer  by  exercising  all  *^«  aPP"[tf  * 

powers  of  the  agent,  provided  the  agent  has  clothed  him  with 
such  powers  before  the  public. 

It  is  a  fundamental  principle  of  the  law  of  principal  and  agent  that, 
when  one  person  appoints  another  to  perform  any  act  involving  the  ex- 
ercise of  judgment  or  discretion,  the  person  so  making  the  appomtment 
has  the  right  to  rely  upon  his  employe  to  personally  discharge  the  duty 
intrusted  to  him,  and  the  latter  has  no  right  to  delegate  to  another  the 
performance  of  that  which  should  be  done  by  himself.  This  pnnciple  y 
finds  expression  in  the  familiar  maxim,  "Delegatus  non  potest  dele-  / 

gare.""  ,     .  , 

This  principle  of  agency,  however,  is  only  appUcable  m  case  the 
character  of  the  act  to  be  performed  is  such  as  to  require  the  exerase  J 
of  skill  or  discretion,  or  when  the  agent  is  appointed  because  he  pos- 
sesses peculiar  qualities  of  fitness  for  the  discharge  of  the  particular 
duty  intrusted  to  him.  Thus  an  agent  may  delegate  to  another  the  per- 
formance of  ministerial  acts,  and  his  subagent  or  clerk  employed  to 
perform  such  acts  may,  when  acting  within  the  scope  of  his  employ- 
ment, bind  the  principal,  though  no  immediate  contractual  relation  ex- 
ists between  them.^®     Manifestly  it  would  be  impossible  for  the  agent 

TT  Davis  V.  King,  66  Omn.  465,  34  Atl.  107,  50  Am.  St.  Rep.  104;  Kohl  v. 
Beach  107  Wis.  400,  83  N.  W.  657,  50  L.  R.  A.  600,  81  Am.  St.  Rep.  849; 
Lyon  V.  Jerome,  26  Wend.  (N.  Y.)  485,  37  Am.  Dec.  271;  Inhabitants  of  Town 
of  Stoughton  V.  Balier,  4  Mass.  522,  3  Am.  Dec.  236;  White  v.  Davidson,  8 
Md.  169,  63  Am.  Dec.  699.     See  Tiflf.  Ag.  p.  116. 

7  8  Grady  v.  Insurance  Co.,  60  Mo.  116;  McKinnon  v.  Vollmar,  75  Wis.  82, 
43  N.  W.  800,  6  L.  R.  A.  121,  17  Am.  St.  Rep.  178;  Sayre  v.  Nichols,  7  Cal. 
535   68  Am.  Dec.  280;    Continental  Ins.  Co.  v.  Ruckman,  127  111.  364,  20  N. 


1 


318 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.» 


^ 

, 


I 


J 


to  give  his  personal  attention  to  every  trivial  clerical  matter,  and  the 
pnncipal  cannot  fail  to  know  that  such  matters  are  usually  intrusted  to 
subordinates.  An  agent  may  also  be  authorized  to  appoint  subagents 
to  discharge  certain  duties,  or  the  nature  of  the  business  in  which  he  is 
engaged  may  be  such  that  it  is  to  be  presumed  that  the  principal  in- 
tended that  he  should  employ  others  to  aid  him  in  the  discharge  of  hi« 
duties.  In  case  the  agent  is  expressly  authorized  to  make  such  ap- 
pointments, clearly  the  principal  is  liable  for  the  acts  of  the  subagent, 
vvithin  the  scope  of  the  authority  conferred  upon  him.  When,  however 
the  agent  has,  at  most,  only  an  implied  authority  to  appoint  a  subagent' 
it  IS  often  difficult  to  determine  whether  such  authority  actually  exists' 
so  as  to  fasten  liability  on  the  principal  for  the  acts  of  the  subagent. 

In  cases  of  express  authorization,  no  peculiar  difficulty  presents  itself 
in  the  law  of  insurance.  As  in  all  other  cases,  the  subagent  acting  with- 
in the  scope  of  his  employment  becomes  the  agent  of  the  principal  '* 
Passing,  however,  to  a  consideration  of  the  question  as  to  when  an  in- 
surance company  may  be  considered  as  having  impliedly  authorized  its 
agent  to  appoint  a  subagent,  certain  considerations  peculiar  to  the  law 
of  insurance  should  be  noticed.*'^  The  company  will  be  presumed  to 
have  known  that  the  agent  would  employ  a  subordinate,  (1)  if  the  ne- 
cessities of  the  business  intrusted  to  the  agent  are  such  as  to  require  the 
services  of  others;  or  (2)  there  is  a  general  custom  among  insurance 
companies  to  allow  such  appointments  for  certain  purposes;  or  (3) 
where  the  known  previous  custom  of  the  agent  has  been  such  as  to 
warrant  the  belief  that  he  will  employ  another  to  discharge  certain  of 
his  duties. 

Authority  Implied  from  Necessity, 

Where  a  general  agent  is  appointed  to  conduct  the  business  of  an 
insurance  company  throughout  a  considerable  territory,  the  companv 
must  know  that  the  duties  of  the  agent  can  only  be  properly  discharged 
If  he  appoints  subagents  to  solicit  insurance,  and  attend  to  the  business 
incident  thereto,  within  certain  districts  or  subdivisions  of  the  territory 

E.  77.  11  Am.  St.  Rep.  121;   Runkle  v.  Insurance  Co.  (C.  C.)  6  Fed.  143;   Mc- 

Croskey  v.  Hamilton.  108  Ga.  640.  34  S.  E.  Ill,  75  Am.  St  Rep   79 

7»  See  ^tna  Life  Ins.  Co.  v.  Fallow  (Tenn.)  77  S.  W.  937 

80  The  usual  services  required  of  an  insurance  agent  are  not  of  so  person- 

al  a  nature  as  to  come  under  tHe  maxim,  "Delegatus  non  potest  delegare " 

An  agent,  however,  can  only  delegate  to  another  such  powers  as  he  do's- 

TTlr  "^J.^^^'  ^""^"^^  ^""^  ^^^  ^-  Knoxville  Fire  Ins.  Co.,  85  Tenn.  76, 
1  S  W  689,  4  Am.  St.  Rep.  744.  As  to  who  is  a  general  agent,  and  has.  as 
such    the  power  to  delegate  to  others  all  duties  incident  to  the  conduct  of 

V  ^  ooo'^'olf^c^^'l^^"'"*''''®'  ^^^  ^*y'  ^°^-  §  126;  Goode  v.  Insurance  Co..  92 
Va.  392^  23  S.  E.  .44.  30  L.  R.  A.  842,  53  Am.  St.  Rep.  817;  Continental  Ins. 
Co.  V.  Ruckman,  127  111.  364,  20  N.  E.  77,  11  Am.  St  Rep.  121;  Flynn  v.  In- 
Burance  Co.,  78  N.  Y.  568,  34  Am.  Rep.  561.  ^         ,       jim    . 

See,  also,  supra,  p.  307. 


-^ 


§§  111-113)      SUBAGENTS — THEIR  APPOINTMENT  AND   POWERS.  319 

assigpned  to  the  agent.  In  such  a  case  the  act  of  the  subagent  is  bind- 
ing upon  the  company,  to  the  same  extent  as  if  he  owed  his  appoint- 
ment to  the  company  itself,  and  not  to  the  agent.®^ 

So  other  cases  may  arise  in  which  the  business  of  the  insurance  agent 
is  of  such  a  character  as  to  clearly  necessitate  the  appointment  of  a  sub- 
agent.  As  has  been  said  by  the  West  Virginia  court  in  a  leading  case : 
"Insurance  agents  are  not  bound  to  attend  to  all  the  details  of  their 
business  in  person,  and,  if  they  could  not  authorize  their  clerks  or  other 
assistants  to  carry  on  the  business  and  renew  policies,  or  contract  in 
reference  to  them,  they  would  frequently,  in  case  of  sickness  or  ab- 
sence, have  to  close  their  offices  altogether."  •* 

Authority  Implied  from  Custom  or  Usage. 

A  general  custom  or  usage  on  the  part  of  insurance  companies  to 
allow  the  appointment  of  subagents  by  the  general  agents  of  the  com- 
pany will  estop  the  company  from  denying  liability  for  the  act  of  the 
subagent,  if  within  the  scope  of  the  agent's  authority.  The  custom  or 
usage  thus  relied  on  to  impose  a  liability  on  the  insurer  owes  its  origin 
in  most  instances  to  the  fact  that  the  appointment  of  subagents  is  nec- 
essary to  the  proper  conduct  of  the  business  of  the  company,  and  hence 
we  find  that  the  courts,  in  many  cases,  base  their  decisions  holding  that 
implied  authority  to  make  appointment  of  subagents  exists  upon  the 
grounds  of  necessity  or  custom,  indifferently.®' 

81  Insurance  Co.  of  North  America  v.  Thornton,  130  Ala.  222,  30  South. 
614,  55  L.  R.  A.  547,  89  Am.  St  Rep.  30;  Krumm  v.  Insurance  Ck).,  40  Ohio 
St.  225;  Swan  v.  Insurance  Co.,  96  Pa.  37;  Franklin  Fire  Ins.  Co.  v.  Bradfora, 
201  Pa.  32,  50  Atl.  286,  55  L.  R.  A.  408,  88  Am.  St.  Rep.  770;  ^tna  Life  Ins. 
Co.  V.  Fallow  (Tenn.)  77  S.  W.  937. 

82  Deitz  V.  Insurance  Co.,  33  W.  Va.  526,  11  S.  Ei  50,  25  Am.  St.  Rep.  908. 
See,  also,  Goode  v.  Insurance  Co.,  92  Va.  392,  23  S.  E.  744,  30  L.  R.  A.  842, 
53  Am.  St.  Rep.  817.  In  a  leading  New  York  case,  Peckham,  J.,  in  deliver- 
ing the  opinion  of  the  court,  uses  the  following  language:  "Elnough  has  been 
said  to  show  that  an  agent  of  an  insurance  company  has  the  right  to,  and, 
indeed,  it  is  the  expectation  of  the  company  that  he  will,  employ  such  clerks 
and  other  assistants  as  may  be  necessary  and  proper  in  order  that  he  may 
do  the  business  for  which  he  has  been  appointed  agent.  Soliciting  insurance 
is  part  of  the  business  of  such  agents,  and  it  is  not  to  be  assumed  that  such 
solicitation  can  be  made  only  by  the  agents  personally;  nor  can  it  be  held, 
as  a  matter  of  law,  that,  when  it  is  made  by  some  person  employed  exclusively 
by  them,  such  solicitation  on  the  part  of  the  person  thus  employed  makes  him 
an  insurance  broker,  and  takes  away  from  him  his  character  as  clerk  or  em- 
ploy6  of  the  agent."  ARFF  v.  INSURANCE  CO.,  125  N.  Y.  57,  25  N.  E. 
1073,  10  L.  R.  A.  609,  21  Am.  St.  Rep.  721. 

88  "Insurance  companies  know  or  ought  to  know  when  they  appoint  gen- 
eral agents  that,  according  to  the  ordinary  course  of  business,  they  have 
clerks  and  other  persons  to  assist  them,  and  that  their  agents  in  many  instan- 
ces could  not  transact  the  business  intrusted  to  them  if  they  were  required 
to  give  their  personal  attention  to  all  of  its  details.  It  being  necessary,  there- 
fore, and  according  to  the  usual  course  of  business,  for  their  agents  to  employ 


4 


h 


!    ^! 


320 


INSURANCE    AGENTS   AND   THEIR   POWERS. 


(Ch.9 


i 


In  a  leading  New  York  case,  in  which  the  company  was  held  liable 
for  the  act  of  a  subagent,  the  court  states  the  reasons  for  its  opinion 
as  follows :  "We  know,  according  to  the  ordinary  course  of  business, 
that  instirance  agents  frequently  have  clerks  to  assist  them,  and  that 
they  could  not  transact  their  business  if  obliged  to  attend  to  all  the 
details  in  person,  and  these  clerks  can  bind  their  principals  in  any  of 
the  business  which  they  are  authorized  to  transact.  An  insurance 
agent  can  authorize  his  clerk  to  contract  for  risks,  to  deliver  policies, 
to  collect  premiums,  and  to  take  payment  of  premiums  in  cash  or  se- 
curities, and  to  give  credit  for  premiums  in  cash  or  securities,  and  to 
give  credit  for  premiums,  or  to  demand  cash ;  and  the  act  of  the  clerk 
in  all  such  cases  is  the  act  of  the  agent,  and  binds  the  company  just  as 
if  it  were  done  by  the  agent  in  person."  " 

Same — Custom  of  Particular  Agent. 

In  the  case  cited  it  was  also  shown  that  the  subagent  had  been  acting 
as  such  for  some  years.  Manifestly,  where  a  previous  custom  or  habit 
of  the  agent,  known  to  the  company,  thus  to  delegate  to  another  the 
performance  of  his  duties,  can  be  shown,  the  insurance  company  is 
estopped  to  deny  that  no  authority  exists  for  the  appointment  of  the 
subagent."  Evidence  of  such  a  previous  custom  on  the  part  of  the  in- 
surance agent  should  always  be  admitted  in  order  to  determine  whether 
the  subagent  has  power  to  bind  the  company.** 

Extent  to  Which  Subagent  may  Bind  Insurer, 

It  would  seem  clear  from  the  authorities  already  cited  that  the  agent, 
having  authority,  either  express  or  implied,  to  appoint  a  subagent,  may 
delegate  to  the  latter  the  performance  of  any  of  his  duties,  of  how- 
ever personal  a  character  they  may  be,  unless  it  is  manifest  that  the 
insurer  intended  that  certain  of  the  powers  of  the  agent  should  not 
be  delegated.®^    In  every  case  it  becomes  necessary  to  determine  wheth- 

others  to  aid  them  In  doing  the  work,  it  is  Just  and  reasonable  that  insurance 
companies  should  be  held  responsible  not  only  for  the  acts  of  their  agents, 
but  also  for  the  acts  of  their  agents'  employes,  within  the  scope  of  the  agents' 
authority."  Goode  v.  Insurance  Co.,  92  Va.  392,  23  S.  E.  744,  30  L.  R.  A. 
842,  53  Am.  St.  Rep.  817.  See,  also,  Bodine  v.  Insurance  Co.,  51  N.  Y.  117, 
10  Am.  Rep.  566;    Steele  v.  Insurance  Co.,  93  Mich.  81,  53  N.  W.  514,  18  L. 

R.  A.  85. 

84  Bodine  v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566. 

86  Bodine  v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566;  Continental  Ins. 
Co.  V.  Ruckman,  127  111.  364,  20  N.  E.  77,  11  Am.  St  Rep.  121;  MAYER  v. 
INSURANCE  CO.,  38  Iowa,  304,  18  Am.  Rep.  34. 

8«  ARFF  V.  INSURANCE  CO.,  125  N.  Y.  57,  25  N.  B.  1073,  10  L.  R.  A.  609, 

21  Am.  St.  Rep.  721. 

87  To  quote  from  the  opinion  in  a  recent  Alabama  case,  in  which  the  au- 
thorities are  reviewed:  "The  power  delegated  to  the  agent  in  express  terms 
being  such  as  to  require  the  services  of  subagents,  carries  with  it  the  power 
to  appoint  subagents,  whatever  the  nature  of  the  service  in  respect  of  being 


§§  111-113)      SUBAGENTS — THEIE  APPOINTMENT  AND  POWERS.         321 


er  the  appointment  of  the  subagent  was  authorized,  and,  if  so,  whether 
he  has  been  clothed,  before  the  pubHc,  with  such  powers  as  he  seeks 
to  exercise.  If  a  person  enters  into  a  contract  with  the  subagent,  hav- 
ing no  reason  to  believe  that  he  has  been  authorized  to  make  con-  ^ 
tracts  which  shall  be  binding  on  the  insurer,  the  latter  will  clearly  not 
be  estopped  to  deny  the  authority  of  the  subagent.®® 

While,  as  before  stated,  the  personal  character  of  the  duty  to  be 
discharged  by  the  agent  will  not,  as  a  rule,  prevent  the  agent  from  dele- 
gating its  performance  to  another,  yet  in  certain  cases  a  different  view  y 
has  been  taken  by  the  courts.®®  Probably  the  greatest  difficulty  in  de- 
termining whether  a  subagent,  without  express  authorization  by  the 
insurer,  may  exercise  a  power,  has  been  found  in  cases  involving  the 
waiver  of  a  condition  of  forfeiture  by  the  subagent.  It  was  held  by 
the  Alabama  court  that  the  power  to  waive  such  a  condition  was  a  per- 
sonal trust,  which  the  agent  could  not  delegate  to  another  without  the 
knowledge  or  consent  of  the  insurer.'®  A  later  case  '^  from  the  same 
state  attempts  to  explain  this  decision  as  based,  not  upon  the  personal 
character  of  the  power  sought  to  be  delegated,  but  rather  upon  the  fact 
that  there  were  no  circumstances  such  as  would  indicate  that  the  com- 
pany by  implication  authorized  the  agent  to  appoint  any  subordinates. 

Whether  this  is  the  real  ground  for  the  opinion  rendered  in  the  earlier 
case  seems  at  least  doubtful.  It  is  certain,  however,  that  in  no  other 
way  can  the  decision  in  question  be  reconciled  with  the  great  weight  ^ 
of  authority  holding  that  the  insurer  is  bound  by  the  subagent's  waiver 
of  a  condition  in  all  cases  in  which  the  agent  is  authorized  to  make 
such  a  waiver  and  delegates  this  power  to  his  subordinate.®* 

in  itself  a  personal  confidence  may  be,  for  a  principal  may,  of  course,  dele- 
gate to  an  immediate  agent  clothed  with  duties  involving  the  exercise  of  per- 
sonal skill  and  judgment,  the  power  of  devolving  such  duties  upon  sub- 
agents."  Insurance  Co.  of  North  America  v.  Thornton,  130  Ala.  222,  30 
South.  614,  55  L.  R.  A.  547,  89  Am.  St.  Rep.  30. 

See,  also,  Bodine  v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566,  for  an 
enumeration  of  many  of  the  duties  which  it  is  held  that  a  subagent  may  per- 
form. 

88  More  V.  Insurance  Co.,  130  N.  Y.  537,  29  N.  E.  757. 

80Waldman  v.  Insurance  Co.,  91  Ala.  170,  8  South.  666,  24  Am.  St  Rep. 
883;  Lynn  v.  Burgoyne,  13  B.  Mon.  (Ky.)  400.  See,  also,  Phoenix  Ins.  Co.  v. 
Spiers  &  Thomas,  87  Ky.  285,  8  S.  W.  453,  where  it  is  held  that,  although  an 
agent  may  delegate  certain  of  his  powers  to  a  subagent,  yet  in  this  particu- 
lar case  the  subagent  could  not  be  regarded  as  the  agent  of  the  company, 
because  he  acted  under  a  mere  private  arrangement  with  the  agent. 

•0  Waldman  v.  Insurance  Co.,  91  Ala.  170,  8  South.  666,  24  Am.  St  Rep. 
883. 

•1  Insurance  Co.  of  North  America  v.  Thornton,  130  Ala.  222,  30  South.  614. 
55  L.  R.  A.  547,  89  Am.  St  Rep.  30. 

•2  Bodine  v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566;  ARFP  v.  IN- 
SURANCE CO.,  125  N.  Y.  57,  25  N.  B.  1073,  10  L.  R.  A.  609,  21  Am.  St  Rep. 
721;  Goode  y.  Insurance  Co.,  92  Va.  392,  23  S.  B.  744,  30  L.  B.  A.  842,  63  Am. 
Vance  Ins. — ^21 


\\ 


.,  i 


822 


INSUBANCB  AGENTS   AND  THBIB   POWERS. 


(Ch.9 


§§  114:-11T)      LIMITATIONS  UPON  THE  POWERS  OP  AGENTS. 


323 


It  naturally  follows  from  the  fact  that  a  subagent  may  waive  a  con - 
i        dition  that  he  may  also  insert  one  in  the  policy  which  will  be  bindmg 
upon  the  insurer,  provided  the  principal  agent  could  do  so. 


114. 

(a) 
(b) 

115. 
(a) 

(b) 

(c) 

116. 
(a) 


LIMITATIONS  UPON  THE  POWERS  OP  AGENTS. 

Any  limitations  whatsoever  imposed  by  tbe  insnrer  upon  tbe 
authority  of  his  agent  will  be  binding  upon  the  third  parties 
dealing  with  the  agent,  provided  they  are 

Properly  conimunioated; 

Legally  proper,  or  not  opposed  to  public  policy. 

Limitations  upon  the  insurance  agent's  authority  may  be  com- 
municated in  any  of  the  following  ways: 

In  the  poUcy,  when  such  limitations  will  be  valid  as  to  those 
acts  of  the  agent  that  are  subsequent  to  the  deUvery  of  the 
policy,  but  invalid  as  to  acts  prior  to  that  time. 

In  the  appUcation,  when  they  will  be  binding  upon  the  insured, 
who   has    signed    the    appUcation,    even    though    not    actually 

hnoum  to  him. 
By   oral    communication,    or    by   writing   not    immediately    con- 
nected   with    the    contract    made.       Such    limitations,    when 
proved,  are  clearly  binding  as  to  all  subsequent  transactions. 

Improper  limitations  are  such  as  are  unreasonable,  as  involving 
an  untruth,  or  contrary  to  public  policy,  as  contravening  a 
settled  rule  of  law.  The  most  important  of  such  limitations, 
as  most  frequently  occurring,  are 

That  no  agent  of  the  company  is  authorised  to  alter  or  waive 
any  condition  of  the  policy  save  in  a  specified  manner.  Such 
a  statement  is  untrue  of  any  agent  having  general  contracting 
powers.  No  agent  can  limit  his  own  powers,  and  the  power  to 
impose  a  condition  implies  the  power  to  remove  it. 

That  the  agent  of  the  insurer,  so  far  as  taking  the  appUcation 
is  concerned,  shall  be  deemed  the  agent  of  the  insured.  Such 
a  limitation  is  unreasonable,  as  contrary  to  fact. 

That  the  insurer  shall  not  be  charged  with  knowledge  acquired 
by  his  agent  in  the  course  of  his  employment.  This  limitation 
essays  to  set  aside  a  settled  rule  of  law,  and  is  therefore  con- 
trary to  public  policy.  .  ,    ^^      -        ^     *  i.* 

That  the  insurer  shaU  not  be  chargeable  with  the  fraud  of  his 
agents.     Such  a  limitation  is  clearly  contrary  to  pubUc  policy. 

By  the  weight  of  authority,  these  improper  Umitations  are  not 
enforceable,  and  do  not  in  any  wise  affect  the  rights  of  the  in- 
sured. 

As  has  already  been  stated,  it  is  competent  for  any  principal  to  limit 
the  apparent  authority  of  his  agent  to  any  extent  that  seems  best  to 
him.  It  is  also  true  that  every  agent's  authority  is  presumed  to  be  co- 
st. Rep.  817;  Gnibbs  v.  Insurance  Co..  106  N.  C.  472,  13  S.  a  236  f  Am  St 
Rep  62 ;  Hartford  Fire  Ins.  Ck).  v.  Josey,  6  Tex.  Civ.  App.  290,  25  S.  W.  685 ; 
Steele  v.  Insurance  Co.,  93  Mich.  81,  53  N.  W.  514.  18  L.  K.  A.  85. 


Cb) 
Cc) 

(d) 
117. 


extensive  with  his  employment.  Therefore  it  follows  that  any  limita- 
tions that  the  principal  may  desire  to  place  upon  the  authority  which 
a  third  party  reasonably  supposes  the  agent  to  be  vested  with  must  be 
made  known;  otherwise  they  are  altogether  inoperative.  There  is, 
however,  another  limitation  upon  the  right  of  the  principal  to  restrict 
the  apparent  power  of  his  agent.  He  will  not  be  allowed  by  any  seem- 
ing restriction  imposed  upon  his  agent's  authority  to  set  aside  any  set- 
tled rule  of  law  which  has  its  basis  in  public  policy,  whether  that  public 
policy  be  declared  by  statute,  or  by  a  series  of  consistent  adjudications. 
The  maxim,  "Qui  facit  per  alium  facit  per  se,"  gives  expression  to  a 
profound  truth  relative  to  the  law  of  agency;  that  is,  whatever  is  done 
by  an  agent  in  the  course  of  his  performance  of  the  duty  with  which 
he  is  charged  by  the  principal  must  necessarily  and  in  all  cases  be 
deemed  to  have  been  done  by  the  principal.**  And  this  fundamental 
truth  cannot  be  annulled  or  evaded  by  the  use  of  any  language,  or  by 
the  terms  of  any  agreement  which  the  parties  may  make.  The  rule  is 
fundamental,  and  inexorable  in  its  application.** 

Persons  employed  as  agents,  in  common  with  other  persons,  some- 
times make  serious  mistakes,  and  not  infrequently  they  are  guilty  of 
dishonest  practices.  Such  mistakes  and  fraudulent  acts  on  the  part  of 
the  agents  usually  result  in  injury  and  loss.  The  insurance  company, 
compelled  to  transact  all  its  business  through  agents,  naturally  desires 
to  safeguard  itself  against  losses  incident  to  the  neglect  or  lack  of 
fidelity  of  its  agents,  and,  in  order  to  do  so,  fills  its  policies  and  other 
instruments  used  in  negotiating  insurance  contracts  with  conditions, 
the  purpose  of  which  is  to  cast  this  burden,  as  far  as  may  be,  upon 
the  third  party  dealing  with  its  agents.  If  all  these  conditions  were 
given  eflFect,  the  benefits  for  which  the  insured  supposes  he  is  con- 
tracting would  seldom  be  received.  The  courts  are,  however,  careful 
to  so  construe  these  limitations  as  to  preserve  the  rights  of  the  insured 
as  far  as  is  in  any  wise  consistent  with  the  rules  of  the  law  of  con- 
tracts. Much  confusion  has  naturally  arisen  in  the  decisions  of  the 
numerous  courts  before  which  cases  involving  the  validity  of  such  lim- 
itations have  come,  and  it  is  impossible  to  reconcile  all  of  them  either 
with  one  another,  or  with  any  harmonizing  principle  of  law.  Conse- 
quently no  effort  will  be  made  to  set  out  the  conflicting  doctrines  of  all 
the  cases,  but  an  attempt  will  rather  be  made  to  state  the  law  with  ref- 
erence to  the  validity  of  limitations  upon  the  agent's  authority,  in  ac- 
cordance with  reason  and  sound  principle,  and  as  supported  by  the  bet- 
ter authority.  We  will  therefore  first  state  what  constitutes  a  sufficient 
communication  of  these  limitations  to  the  third  party  dealing  with  the 

•«  Tiff.  Ag.  p.  10. 

»*  UNION  MUT.  LIFE  INS.  CO.  t.  WILKINSON,  13  Wall.  222,  20  L.  Ed.  G17. 


324 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


insurance  agent,  and  what  are  the  effects  of  the  several  modes  of  com- 
munication. 

Limitations  upon  Agenfs  Authority  Contained  in  the  Policy. 

Almost  without  dissent  it  is  held  that  the  person  who  accepts  a  policy 
of  insurance  is,  in  the  absence  of  fraud,  conclusively  presumed  to  know 
and  assent  to  all  the  terms  of  the  policy;  •*  therefore  a  Hmitation  upon 
the  power  of  the  insurance  agent,  set  forth  in  the  policy,  must  be  con- 
sidered as  communicated  to  the  insured,  whether  actually  known  to  him 
or  not,  and  therefore  binding  upon  him  as  to  the  acts  done  by  the  agent 
subsequently  to  the  delivery  of  the  policy.  Therefore,  if  in  the  policy  it 
is  provided  that  no  agent  can  waive  any  condition  in  the  policy,  except 
in  writing,  indorsed  thereon,  such  a  limitation  will  be  enforced  unless 
other  facts  show  that  the  insurer,  by  his  conduct,  has  subsequently  ex- 
tended the  powers  of  the  agent  so  as  to  authorize  a  waiver  otherwise 
than  as  provided  by  the  policy.®®  Or,  to  state  the  rule  generally,  while 
a  provision  of  the  policy  limiting  the  authority  of  the  agent  is  valid 
and  enforceable  as  to  subsequent  acts,  if  kept  true,  yet  this  provision, 
like  any  of  the  terms  of  a  written  contract,  may  be  subsequently  altered 
or  annulled  by  parol  agreement  expressed  or  implied.     And  if,  as  a 

•5  NEW  YORK  LIFE  INS.  CO.  V.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct 
837,  29  L.  Ed.  934;  Walsh  v.  Insurance  Co.,  73  N.  Y.  5;  Cleaver  v.  Insurance 
Co.,  65  Mich.  527,  32  N.  W.  660,  8  Am.  St.  Rep.  908;  Gould  v.  Insurance  Co., 
90  Mich.  302,  at  page  308,  51  N.  W.  455;  Burlington  Ins.  Co.  v.  Gibbons,  43 
Kan.  15,  22  Pac.  1010,  19  Am.  St.  Rep.  118;  Marvin  v.  Insurance  Co.,  85  N.  Y. 
278,  39  Am.  Rep.  657;  Carey  v.  Insurance  Co.,  84  Wis.  80,  54  N.  W.  18,  20  L. 
R.  A.  267,  36  Am.  St.  Rep.  907.  But  some  courts,  repudiating  the  above  doc- 
trine, to  some  extent,  hold  that  the  law  does  not  impose  upon  the  applicant 
the  absolute  duty  to  read  his  policy.  This  seems  to  be  the  case  when  the 
contract,  as  it  appears  in  the  policy,  has  been  materially  altered  from  the 
agreement  made  between  the  insured  and  the  insurance  agent  without  the 
knowledge  of  the  former.  Thus,  where  an  applicant,  mistakenly  thinking 
that  the  policy  conformed  to  the  original  agreement  which  he  made  with  the 
insurance  company  in  regard  to  the  amount  of  additional  insurance,  failed 
to  examine  the  policy,  it  was  held  that  he  had  a  right  to  rely  upon  the  knowl- 
edge of  the  agent  in  regard  to  the  amount  of  additional  insurance  to  be  tak- 
en. Fhreman's  Fund  Ins.  Co.  v.  Norwood,  69  Fed.  71,  16  C.  C.  A.  136.  In  an 
Indiana  case  it  is  said:  "The  assured  is  justified  in  assuming  that  the  agent 
has  in  good  faith  correctly  recorded  his  answers  to  the  questions  asked  him, 
and,  where  he  has  in  good  faith  made  truthful  answers,  he  is  not  chargeable 
with  negligence  if  he  signs  the  application  thus  prepared  without  reading  it. 
When  the  company  sends  out  its  accredited  agents  to  solicit  insurance,  those 
to  whom  such  agents  may  apply  have  a  right  to  rely  upon  the  credit  thus  giv- 
en them  by  their  principal;  and,  if  the  agents  act  dishonestly,  the  dishonesty 
should  be  charged  to  their  principal."  Michigan  Mut.  Life  Ins.  Co.  v.  Leon, 
138  Ind.  636,  37  N.  El  584,  per  Coflfey,  J.  Also,  see  Kister  v.  Insiu^nce  Co., 
128  Pa.  553,  18  Atl.  447,  5  L.  R.  A.  646,  15  Am.  St  Rep.  696;  Germania  Life 
Ing.  Co.  V.  Lunkenheimer,  127  Ind.  536,  26  N.  E.  1082,  and  cases  there  cited. 

••  KNICKERBOCKER  LIFE  INS.  CO.  V.  NORTON,  96  U.  S.  234,  24  L.  Ed. 
680. 


§§  114-117)     LIMITATIONS  UPON  THB  POWERS  OF  AGENTS.  325 

matter  of  fact,  the  insurer  has  subsequently  given  to  the  agent  the 
powers  that  were  denied  in  the  policy,  he  cannot  afterwards  be  heard 
to  say  that  the  provision  of  the  policy  shall  govern."*^ 

But  as  to  transactions  that  have  taken  place  prior  to  the  delivery  of 
the  policy,  an  entirely  different  rule  applies.  While  engaged  in  these 
transactions  with  the  agent  the  third  party  has  as  yet  received  no  no- 
tice of  limitations  in  the  policy,  and  has  a  right  to  suppose  that  he  is 
authorized  to  do  all  acts  connected  with  the  business  intrusted  to  him.®* 
Therefore  these  restricting  provisions  in  the  policy  will  not  affect  the 
rights  of  the  insured  as  to  any  act  done  before  the  delivery  of  the 
policy.  Thus  it  is  held,  with  little  dissent,  that  a  stipulation  in  the 
policy  that  the  agent  taking  the  application  shall  be  deemed  the  agent 
of  the  insured  will  not  prevent  the  insurer  from  being  bound  by  any 
acts  done  by  the  agent  in  taking  the  application,  or  by  any  informa- 
tion communicated  to  the  agent  at  that  time.** 

Limitations  Contained  in  the  Application. 

On  account  of  the  decisions  of  the  courts  that  limitations  contained  in 
the  policy  could  have  no  effect  as  to  transactions  prior  to  the  delivery 
of  the  policy,  insurers  began  to  resort  to  the  application  as  the  means 
of  communicating  such  restrictions  as  they  saw  fit  to  impose  upon  the 
authority  of  their  agents.  The  application,  which  is  necessarily  the 
first  step  in  the  negotiations  for  the  procurement  of  insurance,  when 
signed  by  the  applicant,  should,  in  all  cases,  in  the  absence  of  fraud  on 
the  part  of  the  agent,  bind  the  insured  absolutely,  as  consenting  to, 
and  making  his  own,  every  statement  set  forth  therein.*®®  The  appli- 
cation, in  effect,  contains  the  terms  of  an  offer,  which,  upon  acceptance 
by  the  insurer,  become  the  terms  of  a  contract  to  which  the  insured 
must  necessarily  be  presumed  to  have  consented.  But  the  consent  so 
given  by  the  insured  may,  as  in  the  case  of  other  contracts,  be  vitiated 
by  any  fraudulent  practice  through  which  it  was  procured.*®*  Accord- 
ingly it  has  been  held  *®*  that  a  stipulation  which  had  been  inserted  in 


91  See  this  point  clearly  discussed  in  Knickerbocker  Life  Ins.  Co.  v.  Nor- 
ton, supra. 

•8  UNION  MUT.  LIFE  INS.  CO.  v.  WILKINSON,  13  Wall.  222,  20  L.  Ed.  617. 

»»  KAUSAL  V.  INSURANCE  CO.,  31  Minn.  17,  16  N.  W.  430,  47  Am.  Rep. 
776. 

i«o  Cuthbertson  v.  Insurance  Co.,  96  N.  C.  480,  2  S.  E.  258;  School  Dist. 
No.  4  V.  Insurance  Co.,  61  Mo.  App.  597;  NEW  YORK  LIFE  INS.  CO.  v. 
FLETCHER,  117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934;  Virginia  Fire  & 
Marine  Ins.  Co.  v.  Morgan,  90  Va.  290,  18  S.  E.  191. 

101  Smith  V.  Insurance  Co.,  173  Pa.  15,  33  Atl.  567;  Continental  Ins.  Co.  v 
Pearce,  39  Kan.  396,  18  Pac.  291,  7  Am.  St.  Rep.  557;  Fireman's  Fund  Ins 
Co.  V.  Norwood,  69  Fed.  71,  16  O.  C.  A.  136;  McMaster  v.  Insurance  Co.,  185 
U.  S.  25,  22  Sup.  Ct.  10,  46  L.  Ed.  64. 

102  McMaster  v.  Insurance  Co.,  183  U.  S.  25,  22  Sup.  Ct  10,  46  L.  Ed.  64. 


326 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS. 


I 


an  application  by  the  agent,  after  it  was  signed  by  the  insured,  and 
without  his  consent,  was  not  binding  upon  the  insured,  even  though 
he  afterwards  accepted  a  policy  to  which  was  attached  a  copy  of  the 
application  containing  the  unauthorized  insertion.  In  this  case  it  af- 
firmatively appeared  that  the  insured  did  not  read  the  policy  when  de- 
livered to  him,  having  been  induced  by  the  statement  of  the  agent  to 
believe  that  it  was  written  in  accordance  with  his  instructions.  It  seems 
clear  that  if  the  insured  had  actual  knowledge  of  the  fraud  of  the 
agent,  by  which  a  stipulation  not  then  agreed  to  was  inserted  in  the 
application,  the  insured  would  be  estopped  to  deny  that  he  had  con- 
sented to  it.^®*  But  in  order  to  work  such  an  estoppel  against  the 
insured  to  show  the  fraud  of  the  agent,  he  must  have  had  actual  knowl- 
edge, and  not  merely  constructive  knowledge,  of  that  fraud;  and  it 
has  been  held  by  the  federal  Supreme  Court  *°*  that  mere  failure  to 
read  the  policy,  and  thus  to  discover  the  fraud,  did  not  amount  to 
such  negligence  as  would  estop  the  insured  to  deny  that  he  had  given 
his  consent  to  the  fraudulent  term. 

But  with  these  exceptions,  the  insured  is  charged  with  knowledge 
of  everything  written  in  the  application  above  his  signature,  whether 
actually  brought  to  his  notice  or  not.  It  is  his  duty  to  read  the  ap- 
plication before  signing  it,  and,  if  he  fails  to  perform  this  duty,  which 
he  owes  to  his  own  interest,  as  well  as  to  the  insurer,  he  will  not  be 
heard,  in  a  court  of  law,  to  say  that  he  did  not  know  or  consent  to  any 
overlooked  stipulation.^®'  Therefore  the  insured  is  held  to  be  charged 
with  notice  of  any  valid  limitation  upon  the  authority  of  the  insurer's 
agent  that  may  be  set  forth  in  the  application.  And  such  limitations 
are  effective  as  to  all  acts  done  by  the  agent  in  the  making  of  the  in- 
surance contract.*  •• 

108  NEW  YORK  LIFE  INS.  CO.  V.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct 
837,  29  L.  Ed.  934;  Blooming  Grove  Mut.  Fire  Ins.  Co.  v.  McAnerney,  102  Pa. 
335,  48  Am.  Rep.  209;  Centennial  Mut  Life  Ins.  Ass'n  v.  Parliam,  80  Tex. 
518,  16  S.  W.  316.  But  it  was  held  in  a  Texas  case  that  it  was  immaterial 
that  the  insured  knew  that  the  statements  inserted  in  the  application  were 
false,  and  made  them  to  deceive  the  company  and  obtain  the  policy,  if  the 
agent  knew  the  facts  of  the  case,  as  knowledge  of  the  agent  was  notice  to 
the  company,  and  it  was  liable  on  the  policy.  Sun  Life  Ins.  Co.  v.  Phillips 
(Tex.  Civ.  App.)  70  S.  W.  603. 

104  McMaster  v.  Insurance  Co.,  183  U.  S.  25,  22  Sup.  Ct  10,  46  L.  Ed.  64. 

106  See  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  V.  S.  519,  at  page 
530,  6  Sup.  Ct  837,  29  L.  Ed.  934,  at  page  938.  Also,  see  Cleaver  v.  Insur- 
ance Co.,  65  Mich.  527,  32  N.  W.  660,  8  Am.  St  Rep.  908. 

106  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct 
837,  29  L.  Ed.  934;  Bartholomew  v.  Insurance  Co.,  25  Iowa,  507,  96  Am.  Dec. 
05;  Globe  Mut  Life  Ins.  Co.  v.  Wolflf,  95  U.  S.  329,  24  L.  Ed.  387;  Galbraith's 
Adm'r  v.  Insurance  Co.,  12  Bush  (Ky.)  29;  RYAN  v.  INSURANCE  CO.,  41 
Conn.  168,  19  Am.  Rep.  490.  But  to  the  contrary,  see  Tubbs  v.  Insurance  Co., 
84  Mich.  646,  48  N.  W.  296;  Continental  Ins.  Co.  ▼.  Pearce,  39  Kan.  396,  18 
Fac.  291,  7  Am.  St  Rep.  557. 


327 


In  many  states  statutes  have  been  passed  providing  that  the  condi- 
tions of  the  application  shall  not  affect  the  rights  of  the  insured, 
unless  a  copy  of  such  application  shall  be  attached  to  the  policy,"^  or,  as 
required  by  the  Virginia  statute,*°»  unless  such  conditions  or  restric- 
tions are  printed  in  type  of  a  certain  size.  These  statutes  are  consti- 
tutional, and  are  strictly  enforced  by  the  courts  in  order  to  prevent  for- 
feitures. 

Improper  Limitations. 

Granting  that  restrictions  upon  the  authority  of  an  agent  are  prop- 
erly communicated,  or  even  assuming  that  such  restrictions  ace  made 
the  subject  of  formal  and  unquestioned  agreement,  still  there  sre  some 
of  these  restrictions  that  will  not  be  enforced  by  the  courts.  It  now 
becomes  necessary  to  determine  what  limitations  belong  to  this  class, 
which  have  been  denominated  improper  limitations.  It  is  to  be  ob- 
served at  the  outstart  of  this  discussion,  which  involves  some  questions 
of  great  difficulty,  that  in  most  instances  the  invalidity  of  an  attempted 
limitation  rests  upon  the  equitable  doctrine  of  estoppel;  and  that  the 
insured,  claiming  the  benefit  of  such  a  doctrine,  must  come  into  court 
with  clean  hands. 

Same — Restrictions  Extending  to  All  Agents, 

Stipulations  are  frequently  found  in  policies,  and  sometimes  in  ap- 
plications, to  the  effect  that  no  agent  or  representative  of  the  insurer 
can  exercise  specified  powers,  save  in  a  manner  designated.  The 
most  frequently  occurring  of  these  stipulations  is  that  prohibiting  any 
waiver  of  any  condition  in  a  policy,  save  in  writing,  indorsed  on  the 
policy ;  such  indorsements  to  be  made  by  some  specified  officer.  Such 
a  restriction  is  valid  enough,  as  far  as  it  restricts  the  power  of  in- 
ferior agents  not  having  full  contracting  powers ;  ^®'  but  it  cannot  have 
any  effect  whatsoever  in  restricting  the  authority  of  a  so-called  general 
agent,  having  full  power  of  contracting  for  insurance  on  behalf  of 
his  company.* ^°    An  agent  who  has  authority  to  make  a  contract  upon 

lOT  See  supra,  p.  184. 

108  See  Code  1887,  §  3252;  and  see  Dupuy  ▼.  Insurance  Co.  (O.  C.)  63  Fed. 
680,  holding  the  above  statute  constitutional.  This  statute  was  held  to  ap- 
ply only  to  the  restrictive  conditions  of  the  policy,  and  not  to  the  general  in- 
demnity clause  of  the  policy.    Cline  v.  Assurance  Co.  (Va.)  44  S.  E.  700. 

100  KYTE  V.  ASSURANCE  CO.,  144  Mass.  43, 10  N.  B.  518;  Cleaver  v.  Insur- 
ance Co.,  65  Mich.  527,  32  N.  W.  660,  8  Am.  St  Rep.  908;  Bernard  v.  Asso- 
ciation, 11  Misc.  Rep.  441,  32  N.  Y.  Supp.  223;  Porter  v.  Insurance  Co.,  100 
Mass.  183,  35  N.  E.  678;  O'Brien  v.  Prescott  Ins.  Co.,  134  N.  Y.  28,  31  N.  ti. 
265;  Marvi9  v.  Insurance  Co.,  85  N.  Y.  278,  39  Am.  Rep.  657;  Gould  Y.  In- 
surance Co.,  90  Mich.  302,  51  N.  W.  455. 

110  Bankers'  &  Merchants'  Mut.  Ben.  Ass'n  v.  Stapp,  77  Tex.  517,  14  S.  W. 
168,  19  Am.  St.  Rep.  772;  Marcus  v.  Insurance  Co.,  68  N.  Y.  625;  Hartford 
Life  &  Annuity  Co.  v.  Hayden's  Adm'r.  90  Ky.  39,  13  S.  W.  585.    It  is  said 


328 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.  9 


114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS. 


321> 


I 


such  terms  as  seem  advisable  to  him  can  include  or  omit  such  of  the 
terms  of  a  printed  form  of  contract  as  may  be  agreed  upon.  If  it  be 
necessary  to  add  to  the  printed  form,  he  may  attach  a  "rider,"  or,  if  it 
is  found  desirable  to  strike  out  any  term  of  the  printed  form,  he  may 
also  do  that,  even  though  the  term  struck  out  be  the  one  purporting  to 
limit  his  authority  in  regard  to  waivers.  This  rule  is  a  necessary  con- 
sequence of  the  nature  of  a  restriction  upon  authority,  which  must 
have  its  source  in  some  authority  of  a  higher  order  than  that  upon 
which  it  is  imposed.  It  is  impossible  for  any  person  to  put  a  valid 
limitation  upon  his  own  power  of  contract."^  A  man  would  as  well  at- 
tempt to  raise  himself  by  his  own  boot  straps  as  to  limit,  by  any  self- 
imposed  restrictions,  powers  conferred  upon  him  by  a  principal.  There- 
fore the  general  rule  may  be  stated  that  any  limitation  contained  in 
the  policy  or  application  upon  the  powers  of  an  agent  having  full  au- 
thority to  make  and  issue  policies  of  insurance,  and  having,  in  that 
behalf,  the  powers  of  his  principal,  will  be  altogether  inoperative, 
as  repugnant  and  contrary  to  truth.^** 

In  applying  the  general  rule  as  thus  stated  to  particular  cases,  con- 
sideration must  be  given  to  the  circumstances  under  which  the  restric- 
tion is  sought  to  be  imposed.     The  cases  most  frequently  arising  in 

in  an  Indiana  case :  "Whatever  may  be  the  rule  as  to  applications  prepared  by 
special  agents,  where  the  assured  has  knowledge  of  the  limitations  upon  his 
authority,  we  are  of  opinion  that  the  rule  contended  for  by  the  appellant 
should  not  be  applied  to  a  case  like  this,  where  the  application  is  prepared  by 
a  general  agent  having  no  superior  In  the  state."  Michigan  Mut.  Life  Ins.  Co. 
V.  Leon,  138  Ind.  636,  37  N.  E.  584.  A  general  agent  of  an  Insurance  com- 
pany may  waive  any  stipulation  in  the  policy,  though  a  clause  in  the  policy 
forbids  it.  Gwaltney  v.  Society,  132  N.  C.  925,  44  S.  E.  659.  See,  also,  Ger- 
man Fire  Ins.  Co.  v.  Gray,  43  Kan.  497,  23  Pac.  637,  8  L.  R.  A.  70,  19  Am.  St 
Rep.  150.  See,  also,  German-American  Ins.  Co.  v.  Humphrey,  62  Ark.  349. 
35  S.  W.  428,  54  Am.  St.  Rep.  297. 

111  Phenix  Ins.  Co.  v.  Hart,  149  III.  513,  36  N.  E.  990;  Manufacturers*  &  Mer- 
chants'  Ins.  Co.  v.  Armstrong,  145  111.  469,  34  N.  E.  553.  In  Westchester  Fire 
Ins.  Co.  V.  Earle,  33  Mich.  153,  the  court  said  of  such  a  limitation:  "The 
condition  literally  applied  would  prevent  any  unindorsed  consent  by  the  com- 
pany itself,  by  instruction  of  its  board,  or  by  act  of  its  officers,  as  effectually 
as  by  any  one  else.  And  the  case  seems  to  settle  down  to  the  simple  ques- 
tion whether  a  person  who  has  agree^  that  he  will  only  contract  by  writing 
in  a  certain  way  precludes  himself  from  making  a  parol  bargain  to  change 
it  The  answer  is  manifest.  A  written  bargain  is  of  no  higher  legal  degree 
than  a  parol  one.  Either  may  vary  or  discharge  the  other,  and  there  can  be 
no  more  force  in  an  agreement  in  writing  not  to  agree  by  parol  than  in  a 
parol  agreement  not  to  agree  in  writing.  Every  such  agreement  la  ended  b^ 
the  new  one  which  contradicts  it." 

112  Manufacturers'  &  Merchants'  Ins.  Co.  v.  Armstrong  et  al.,  145  111.  469, 
34  N.  E.  553,  distinguishing  Baumgartel  v.  Insurance  Co.,  136  N.  Y.  547,  32 
N.  R  991;  Allen  v.  Insurance  Co.,  123  N.  Y.  6,  25  N.  E.  309;  Quinlan  v.' In- 
surance Co.,  133  N.  Y.  356,  31  N.  E.  31,  28  Am.  St  Rep.  645;  Messelback  v. 
Norman,  122  N.  Y.  583.  26  N.  E.  34. 


which  application  of  this  rule  is  involved  are  those  in  which  the  policy 
contains  a  provision  to  the  effect  that  no  representative  of  the  company 
shall  have  authority  to  waive  any  condition  of  the  policy,  except  in 
writing  indorsed  thereon.  It  is  clear  that  the  effect  of  this  limiting 
provision  will  be  different  in  accordance  as  the  alleged  waiver,  by  the 
words  or  conduct  of  the  agent,  took  place  at  the  inception  of  the 
policy  or  afterwards.  If  the  agent  has  full  power  to  make  the  con- 
tract, certainly  this  limitation,  set  forth  in  a  contract  which  he  him- 
self makes,  cannot  operate  to  restrict  his  power  during  the  making  of 
the  contract.^^'  But  the  agent  may  have  power  to  make  a  contract, 
and  lack  authority  to  rescind  the  contract  when  once  made.  So  this 
condition,  appearing  in  the  regular  form  of  a  policy  issued  by  the  com- 
pany, may  well  be  considered  as  a  proper  restriction  brought  to  the 
notice  of  the  policy  holder.  This  notice  of  a  limitation  upon  the  power 
of  the  agent,  even  though  that  agent  may  have  general  powers  of 
making  contracts,  will  preclude  the  insured  from  alleging  that  the 
agent  possessea  the  powers  of  the  principal  for  the  purpose  of  chan- 
ging the  contract  formerly  made.  Therefore  it  easily  follows  that 
the  same  agent  may  be  considered  as  possessing  the  full  powers  of  the 
principal  with  regard  to  the  making  of  the  contract,  so  that  the  limi- 
tation upon  his  powers  to  waive  a  condition  will  be  inoperative,  under 
the  rule  stated  above,  and  yet  have  restricted  powers  as  to  any  subse- 
quent modification  of  the  contract  made.^^*  It  is  accordingly  held, 
by  the  great  weight  of  authority,  ^^'^  that  a  subsequent  waiver,  even  by 
an  agent  with  contractual  powers,  will  not  be  valid  unless  it  com- 
plies with  the  requirements  of  the  policy,  except  in  those  cases  where 

118  There  is  no  reason  why  the  general  agent,  having  power  to  agree  upon 
the  terms  of  a  contract  made  on  behalf  of  his  company,  should  not  ••'gree  to 
leave  out  or  waive  the  operation  of  this  limiting  condition.  In  Gibson  Elec- 
tric Co.  V.  Liverpool  &  London  &  Globe  Ins.  Co.,  159  N.  Y.  418,  54  N.  E.  23, 
the  court  said:  "This  court  has  several  times  held  that  the  provisions  in  a 
standard  policy,  restricting  the  power  of  an  agent  to  waive  any  of  its  condi- 
tions except  in  a  particular  manner,  cannot  be  deemed  to  apply  to  the  condi- 
tions which  relate  to  the  inception  of  the  contract,  where  the  agent  delivered 
it  and  received  the  premium  with  a  knowledge  of  the  true  situation.  WOOD 
V.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St  Rep.  733." 

11*  State  Ins.  Co.  v.  Hale  (Neb.)  95  N.  W.  473;  Continental  Ins.  Co.  v. 
Ruckman,  127  111.  364,  20  N.  E.  77,  11  Am.  St  Rep.  121. 

11 B  Baumgartel  v.  Insurance  Co.,  136  N.  Y.  547,  32  N.  B.  990;  Allen  v.  In- 
surance Co.,  123  N.  Y.  6,  25  N.  E.  309;  Quinlan  v.  Insurance  Co.,  133  N.  Y. 
356,  31  N.  E.  31,  28  Am.  St.  Rep.  645 ;  MESSELBACK  v.  NORMAN,  122  N.  Y. 
578,  26  N.  E.  34,  Richards,  Ins.  Cas.  397 ;  WALSH  v.  INSURANCE  CO.,  73  N. 
Y.  5,  Richards,  Ins.  Cas.  480;  KNICKERBOCKER  LIFE  INS.  CO.  v.  NOR- 
TON, 96  U.  S.  234,  24  L.  Ed.  689,  Richards,  Ins.  Cas.  399;  Carpenter  v.  In- 
surance Co.,  16  Pet.  495,  10  L.  Ed.  1044 ;  Hutchinson  v.  Insurance  Co.,  21  Mo. 
103,  64  Am.  Dec.  220 ;  Meyers  v.  Insurance  Co.,  27  La.  Ann.  66 ;  Girard  Fire 
&  Marine  Ins.  Co.  v.  Hebard,  95  Pa.  51.  But  see  Morrison  y.  Insurance  Co.,  69 
Tex.  353,  6  S.  W.  605,  5  Am.  St.  Rep.  63. 


r 


330 


INSURANCB   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


the  insurer  has  himself  expressly  or  impliedly  dispensed  with  such  com- 
pliance, or  in  fact  conferred  upon  the  agent  contractual  powers  equal 
to  his  own. 

Again  it  is  held,  almost  without  dissent,  that  a  condition  prohibit- 
ing a  waiver  of  any  term  of  the  policy  by  any  representative  of  the 
company,  unless  such  a  waiver  is  in  writing,  applies  only  to  attempted 
waivers  which  precede  a  loss,  but  has  no  application  to  those  which 
are  subsequent  to  the  loss.***  The  condition  of  the  policy  most  fre- 
quently waived  after  loss  is  that  requiring  proofs  of  loss  within  a  cer- 
tain time.  It  is  held  by  practically  all  the  authorities  that  this  condi- 
tion may  be  orally  waived  by  an  agent  of  the  company,  despite  the 
presence  of  a  condition  requiring  waivers  to  be  in  writing.  The  rea- 
son for  this  holding  is  found  in  the  terms  of  a  general  rule  stated 
above.  With  regard  to  such  conditions  as  are  to  be  fulfilled  after 
a  loss  has  taken  place,  the  agent  is  usually  a  representative  having  the 
full  powers  of  the  principal — in  effect,  a  vice  principal — and  the  policy 
can  no  more  do  away  with  the  legal  significance  of  his  acts  as  raising 
an  estoppel  against  the  principal  than  if  they  were  done  by  the  principal 
himself. 

Same — Stipulation  that  Agent  Taking  Application  is  Agent  of  Insured. 
It  is  quite  natural  that,  when  an  applicant  for  insurance  is  informed 
that  it  is  necessary  that  an  application  shall  be  filled  out  in  accordance 
with  the  rules  of  the  insurer,  he  should  permit  the  representative  of 
the  company,  with  whom  he  is  negotiating  the  insurance,  to  prepare 
the  application  for  his  signature.  The  questions  are  numerous,  and 
the  answers  to  be  written,  from  consideration  of  space  alone,  must 
necessarily  be  general;  and  it  is  not  unreasonable  for  the  insured  to 
look  to  the  agent,  supposed  to  be  skilled  in  such  matters,  to  fill  out 
these  blanks  in  such  a  manner  as  will  be  satisfactory  to  the  company, 
from  the  information  that  is  given  him  by  the  insured.  It  sometimes 
happens — whether  through  inadvertence,  mistaken  judgment,  or  fraud 
— ^that  the  agent,  although  receiving  correct  information  from  the  in- 
sured, writes  incorrect  statements  in  the  application.  This  gives  rise 
to  a  dispute  as  to  whether  the  agent,  in  filling  out  the  application  to 
be  signed  by  the  insured,  is  acting  for  the  insured  or  for  the  insurer. 
By  the  overwhelming  weight  of  authority  in  this  country,  the  agent, 


ii«  Citizens'  Ins.  Co.  v.  Stoddard,  197  111.  330,  64  N.  E.  355;  Firemen's  Fund 
Ins.  Co.  V.  Western  Refrigerating  Co.,  162  111.  322,  44  N.  E.  746;  Wheaton  v. 
Insurance  Co.,  76  Cal.  415,  18  Pac.  758,  9  Am.  St.  Rep.  216;  BLAKE  v.  IN- 
SURANCE CO.,  12  Gray  (Mass.)  265;  Franklin  Fire  Ins.  Co.  v.  Chicago  Ice  Co., 
36  Md.  102,  11  Am.  Rep.  469;  New  Orleans  Ins.  Ass'n  v.  Matthews,  65  Misa 
301,  4  South.  62 ;  Travelers'  Ins.  Co.  7.  Harvey,  82  Va.  949,  5  S.  E.  553.  But 
see  Smith  t.  Insurance  Co.,  60  Vt  682,  15  Atl.  353,  1  L.  fi.  A.  216,  6  Am.  St 
Rep  144. 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OP  AGENTS.  331 

under  such  circumstances,  is  considered  the  agent  of  the  insurer.**^ 
The  reason  for  this  view  is  ably  set  forth  in  the  oft-quoted  opinion  of 
Mr.  Justice  Miller  in  the  leading  case  of  Union  Mut.  Ins.  Co.  v.  Wilk- 
inson,^^* as  follows: 

"This  question  has  been  decided  differently  by  courts  of  the  highest 
respectability  in  cases  precisely  analogous  to  the  present.  It  is  not  to 
be  denied  that  the  application,  logically  considered,  is  the  work  of 
the  assured ;  and,  if  left  to  himself,  or  to  such  assistance  as  he  might 
select,  the  person  so  selected  would  be  his  agent,  and  he  alone  would  be 
responsible.  On  the  other  hand,  it  is  well  known — so  well  that  no 
court  would  be  justified  in  shutting  its  eyes  to  it— that  insurance  com- 
panies organized  under  the  laws  of  one  state,  and  having  in  that  state 
their  principal  business  office,  send  these  agents  all  over  the  land  with 
directions  to  solicit  and  procure  applications  for  policies;  furnishing 
them  with  printed  arguments  in  favor  of  the  value  and  necessity  of  life 
insurance,  and  of  the  special  advantages  of  the  corporation  which  the 
agent  represents.  They  pay  these  agents  large  commissions  on  the 
premiums  thus  obtained,  and  the  policies  are  delivered  at  their  hands 
to  the  assured.  The  agents  are  stimulated  by  letters  and  instructions 
to  activity  in  procuring  contracts,  and  the  party  who  is  in  this  man- 
ner induced  to  take  out  a  policy  rarely  sees  or  knows  anything  about 
the  company  or  its  officers  by  whom  it  is  issued,  but  looks  to  and  re- 
lies upon  the  agent  who  has  persuaded  him  to  effect  insurance  as  the 
full  and  complete  representative  of  the  company  in  all  that  is  said 
or  done  in  making  the  contract.  Has  he  not  a  right  to  so  regard  him  ? 
It  is  quite  true  that  the  reports  of  judicial  decisions  are  filled  with  the 
efforts  of  these  companies,  by  their  counsel,  to  establish  the  doctrine 
that  they  can  do  all  this,  and  yet  limit  their  responsibility  for  the  acts 
of  these  agents  to  the  simple  receipt  of  the  premium  and  delivery  of 
the  policy;  the  argument  being  that,  as  to  all  other  acts  of  the  agent, 
he  is  the  agent  of  the  assured.    This  proposition  is  not  without  sup- 

11 T  Continental  Life  Ins.  Co.  v.  Pearce.  39  Kan.  396,  18  Pac.  291,  7  Am. 
St.  Rep.  557;  American  Life  Ins.  Co.  v.  Malione,  21  Wall.  (U.  S.)  152,  22  L. 
Ed.  593 ;  UNION  MUT.  LIFE  INS.  CO.  v.  WILKINSON,  13  Wall.  (U.  S.)  222, 
20  L.  Ed.  617 ;  Deitz  v.  Insurance  Co.,  31  W.  Va.  851,  8  S.  E.  616,  13  Am.  St.  Rep. 
909;  Grattan  v.  Insurance  Co.,  80  N.  Y.  281,  36  Am.  Rep.  617;  Pickel  v.  In- 
surance Co.,  119  Ind.  291,  21  N.  E.  898;  Bebee  v.  Insurance  Co.,  25  Conn.  51, 
65  Am.  Dec.  553.  An  agent  for  the  purpose  of  soliciting  insurance,  and  send- 
ing applications  to  the  insurer,  is  the  agent  of  the  insurer,  and  if  any  error 
is  made  by  him  the  insured  should  not  suffer.  STATE  INS.  CO.  v.  TAYLOR, 
14  Colo.  499,  24  Pac.  333,  20  Am.  St.  Rep.  281;  Baker  v.  Insurance  Co.,  70 
Mich.  399,  38  N.  W.  216,  14  Am.  St.  Rep.  485;  German  Ins.  Co.  v.  Gray,  43 
Kan.  497,  23  Pac.  637,  8  L.  R.  A.  70,  19  Am.  St  Rep.  150;  German  Fire  Ins. 
Co.  V.  Hick,  125  111.  361,  17  N.  K  792,  8  Am.  St.  Rep.  384;  FoUette  v.  Asso- 
ciation, 110  N.  C.  377,  14  S.  E.  923,  15  L.  R.  A.  668,  28  Am.  St.  Rep.  697;  Ha- 
gan  V.  Insurance  Co.,  81  Iowa,  321,  46  N.  W.  1114,  25  Am.  St  Rep.  493. 

118  13  Wall.  (U.  S.)  222,  20  L.  Ed.  617. 


1 


\\>. 


I 

I 


332 


INSURANCB   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


r 
I 


port  in  some  of  the  earlier  decisions  on  the  subject ;  and  at  a  time  when 
insurance  companies  waited  for  parties  to  come  to  them  to  seek  assur- 
ance, or  to  forward  applications  on  their  own  motion,  the  doctrine  had 
a  reasonable  foundation  to  rest  upon.  But  to  apply  such  a  doctrine 
in  its  full  force  to  the  system  of  selling  policies  through  agents,  which 
we  have  described,  would  be  a  snare  and  a  delusion,  leading,  as  it  has 
done  in  numerous  instances,  to  the  grossest  frauds,  of  which  the  in- 
surance corporations  receive  the  benefits,  and  the  parties  supposing 
themselves  insured  are  the  victims.  The  tendency  of  the  modem  de- 
cisions in  this  country  is  steadily  in  the  opposite  direction.  The 
powers  of  the  agent  are  prima  facie  coextensive  with  the  business  in- 
trusted to  his  care,  and  will  not  be  narrowed  by  limitations  not  com- 
municated to  the  person  with  whom  he  deals.^^*  An  insurance  com- 
pany establishing  a  local  agency  must  be  held  responsible  to  the  par- 
ties with  whom  they  transact  business  for  the  acts  and  declarations  of 
the  agent,  within  the  scope  of  his  employment,  as  if  they  proceeded 
from  the  principal."  ^*® 

But  the  Supreme  Court  of  Massachusetts,**^  followed  by  that  of 
Rhode  Island,*^*  has  persistently  held  that,  in  filling  out  the  application, 
on  its  face  purporting  to  be  that  of  the  insured,  and  which  is  signed  by 
the  insured,  the  agent  is  acting  for  the  insured  only.**' 

"•  Citing  Bebee  v.  Insurance  Co.,  25  Conn.  51,  65  Am.  Dee.  553;  Lycomiugr 
County  Mut.  Ins.  Co.  v.  Schollenberger,  44  Pa.  259;  Beal  v.  Insurance  Co., 
16  Wis.  257,  82  Am.  Dec.  719;    Davenport  v.  Insurance  Co.,  17  Iowa,  276. 

120  Citing  Woodbury  Sav.  Bank  &  Bldg.  Ass'n  v.  Charter  OalJ  Fire  &  Marine 
Insurance  Co.,  31  Conn.  517;  Horwitz  v.  Insurance  Co.,  40  Mo.  557,  93  Am. 
Dec.  321;  Ayres  v.  Insurance  Co.,  17  Iowa,  176,  85  Am.  Dec.  553;  Howard 
Ins.  Co.  V.  Bruner,  23  Pa.  50. 

121  See  Reed  v.  Insurance  Co.,  17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A.  496,  cit- 
ing Batchelder  v.  Insurance  Co.,  135  Mass.  449,  where  it  was  held  that  parol 
evidence  was  inadmissible  to  show  tbat  the  insurer  knew  of  other  insurance 
when  he  delivered  the  policy;  also  Lohnes  v.  Insurance  Co.,  121  Mass.  439, 
where  it  was  held  that  evidence  that  an  agent  "received  applications  for  in- 
surance, took  risks,  settled  rates  of  premium,  and  issued  policies"  will  not, 
imless  he  was  proved  to  be  the  general  agent  of  the  company,  sustain  a  find- 
ing that  he  had  authority  to  waive  the  preliminary  proof  of  loss  required  by 
the  policy. 

122  Wilson  V.  Insurance  Co.,  4  R.  I.  141;  Reed  v.  Insurance  Co.,  17  R.  1. 
785,  24  Atl.  833,  18  L.  R.  A.  496.  The  decision  in  the  latter  case  was  based 
upon  the  fact  that  the  agent  who  effected  the  insurance  was  not  a  general 
agent,  but  merely  a  soliciting  agent,  and  notice  to  him  of  prior  insurance  was 
not  sufficient  to  constitute  a  waiver  by  the  company  of  a  condition  prohibiting 
additional  Insurance.  O'Rourke  v.  Insurance  Co.,  23  R.  I.  457,  50  Atl.  834, 
57  L.  R.  A.  496,  91  Am.  St.  Rep.  643.  See,  also,  Leonard  v.  Assurance  Co. 
(R.  I.)  51  Atl.  1049,  where  it  was  held  that  the  knowledge  of  a  medical  ex- 
aminer that  the  applicant  was  contemplating  other  insurance  was  not  bind- 
ing on  the  company. 

128  In  both  Massachusetts  and  Rhode  Island  the  above  statement  is  held  not 
to  apply  to  representativea  of  the  Insurance  company  known  as  "general 


f 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS.  333 

Insurance  companies  then  sought  to  escape  the  operation  of  the 
prevailing  doctrine,  by  which  they  were  made  responsible  for  the 
fraud  and  mistakes  of  their  agents  while  filling  out  applications,  by 
inserting  in  the  policy  a  provision  that  the  person  taking  the  applica- 
tion should  be  regarded  as  the  agent  of  the  insured,  and  not  of  the 
insurer.     Much  conflict  arose  among  the  decisions  as  to  the  validity  of 
such  a  provision ;  some  courts  taking  the  view  expressed  by  the  Court 
of  Appeals  of  New  York  in  Rohrbach  v.  Germania  Fire  Ins.  Co. :  "* 
"But  we  must  take  the  contracts  of  the  parties  as  we  find  them,  and 
enforce  them  as  they  read.     By  the  one  before  us  the  plaintiff  has 
so  fettered  himself  as  to  be  unable  to  retain,  as  the  case  now  stands, 
the  real  essence  of  his  agreement.     Though  he  has  frankly  and  fully 
laid  before  the  actor  between  him  and  the  defendant  all  the  facts  and 
circumstances  of  the  case,  he  is  made  responsible  for  error  in  legal 
conclusions  which  he  never  formed,  and  which  were  arrived  at  by 
one  in  whom  he  trusted,  and  whom  he  supposed  to  stand  in  the  place 
of  the  defendant.     *     *     *     Held  to  the  letter  and  substance  of  his 
contract,  the  plaintiff  made  a  breach  of  a  warranty  and  condition  pre- 
cedent, upon  the  truth  of  which  his  contract  rested,  and  for  that  rea- 
son may  not  recover  in  this  action,  as  the  facts  now  stand."    But  many 
other  courts  took  the  view  that  ''there  is  no  magic  of  mere  words  to 
change  the  real  into  the  unreal.    A  device  of  words  cannot  be  imposed 
upon  a  court  in  place  of  an  actuality  of  facts."  "'^     The  reasons  for 
this  view  are  clearly  expressed  in  the  language  of  Mitchell,  J.,  in  the 
leading  case  of  Kausal  v.  Minnesota  Farmers'  Mut.  Ins.  Ass'n:"* 
"It  would  be  a  stretch  of  legal  principles  to  hold  that  a  person  dealing 
with  an  agent  apparently  clothed  with  authority  to  act  for  his  prin- 
cipal in  the  matter  in  hand  could  be  affected  by  notice,  given  after  the 
negotiations  were  completed,  that  the  party  with  whom  he  had  dealt 
should  be  deemed  transformed  from  the  agent  of  one  party  into  the 
agent  of  the  other.    To  be  efficacious,  such  notice  should  be  g^ven  be- 
fore the  negotiations  are  completed.    The  application  precedes  the  pol- 
icy, and  the  insured  cannot  be  presumed  to  know  that  any  such  pro- 
vision will  be  inserted  in  the  latter.    To  hold  that,  by  a  stipulation  un- 
known to  the  insured  at  the  time  he  made  the  application,  and  when  he 
relied  upon  the  fact  that  the  agent  was  acting  for  the  company,  he 
could  be  held  responsible  for  the  mistakes  of  such  agent,  would  be  to 
impose  burdens  upon  the  insured  which  he  never  anticipated.    Hence 

agents."    Reed  v.  Insurance  Co.,  17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A.  496; 
Leonard  v.  Assurance  Co.  (R.  I.)  51  Atl.  1049;   Lohnes  v.  Insurance  Co.,  121 

Mass.  439. 

124  62  N.  Y.  47,  20  Am.  Rep.  451,  at  page  462,  per  Folger,  J. 

125  See  KAUSAL  v.  INSURANCE  CO.,  31  Minn.  17,  16  N.  W.  430,  47  Am. 

Rep.  776. 

is<  31  Minn.  17, 16  N.  W.  430,  47  Am.  Rep.  776. 


334 


INSURANCE    AGENTS   AND   THEIR   POWERS. 


(Ch.  D 


\. 


i      i 


i 


we  think  that,  if  the  agent  was  the  agent  of  the  company  in  the  mat- 
ter of  making  out  and  receiving  the  application,  he  cannot  be  con- 
verted into  the  agent  of  the  insured  by  merely  calling  him  such  m  the 
policy  subsequently  issued." 

The  Mississippi  court,  however,  in  Planters'  Ins.  Co.  v.  Myers,**^ 
goes  further,  and  states  the  ultimate  reason  why  such  an  attempted 
limitation  cannot  be  forced.  "It  is  an  effort,"  said  the  court,  "by  cove- 
nant to  get  the  benefits  and  profits  which  these  agents  bring  them, 
and  at  the  same  time  repudiate  the  relation  they  sustain  to  them,  and 
to  set  up  that  relationship  with  the  assured,  and  that,  too,  without 
their  knowledge  and  consent.  It  is  not  a  limitation  or  restriction  of 
power,  but  the  dissolution  of  the  relationship  with  themselves,  and  the 
establishment  of  it  between  other  parties.  *  ♦  *  It  converts  the 
agent  of  one  into  the  agent  of  both.  He  deals  with  the  subject-matter 
for  both  contracting  parties.  He  is  instructed  by  the  company  to 
study  his  documents  and  papers,  so  that  he  can  readily  fill  up  the 
blanks.  He  can  negotiate  for  the  company  for  high  rates  of  insur- 
ance, and  at  the  same  time  his  duty  to  his  other  principals  is  to  cheapen 
the  rates.  It  places  the  agent  in  an  inconsistent  and  antagonistic  po- 
sition. On  the  other  hand,  he  must  ply  the  people  to  insure,  extend, 
and  increase  the  business  and  the  profits  of  the  company,  and  thereby 
put  money  in  his  own  purse.  But  in  doing  all  this,  if  he  blunders 
and  makes  mistakes,  for  these  he  is  the  agent  of  his  customers,  and 
with  them  is  the  responsibility." 

The  tendency  of  the  later  decisions  is  strongly  in  favor  of  the  latter 
view,  and  it  may  be  said  that,  by  the  very  great  weight  of  autliority, 
a  stipulation  in  the  policy  making  the  insurer's  agent  the  agent  of  the 
insured,  as  far  as  the  application  is  concerned,  is  of  no  effect  whatever, 
being  contrary  to  the  truth.*** 

The  next  step  taken  by  the  insurers  in  their  efforts  to  escape  re- 
sponsibility for  the  acts  of  their  agents  in  connection  with  filling  out 
the  application  was  to  avoid  the  objection  made  to  the  stipulation  in 
the  policy  in  the  Kausal  Case,***  by  placing  a  similar  provision  in  the 

i«T  55  MlM.  479,  30  Am.  Rep.  521,  page  527. 

"8  Coles  V.  Insurance  Co.,  41  W.  Va.  261,  23  S.  B.  732;  Deitz  v.  Insurance 
Co.,  31  W.  Va.  851,  8  S.  E.  616,  13  Am.  St.  Rep.  909;  Pierce  v.  People,  106  111. 
11,  46  Am.  Rep.  683;  Planters'  Ins.  Co.  v.  Myers,  55  Miss.  479,  30  Am.  Rep. 
521;  KAUSAL  v.  INSURANCE  CO.,  31  Minn.  17,  16  N.  W.  430,  47  Am.  Rep. 
776;  Eilenberger  v.  Insurance  Co.,  89  Pa.  465;  Gans  v.  Insurance  Co.,  43 
Wis.  108,  28  Am.  Rep.  535;  Boetcher  v.  Insurance  Co.,  47  Iowa,  253.  Though 
the  general  laws  of  a  benefit  society  provide  that  the  secretary  of  a  local 
lodge  shall  be  the  agent  of  its  members,  still  he  is  held  to  be  the  agent  of  the 
supreme  order.  Supreme  Lodge  K.  P.  v.  Withers,  177  U.  S.  260,  20  Sup.  Ct 
611,  44  L.  Ed.  762.    See,  also.  Commercial  Ins.  Co.  v.  Ives,  56  111.  402. 

129  KAUSAL  T.  INSURANCE  GO^  31  Minn.  17»  16  N.  W.  430,  47  Am.  Rep. 
770. 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS.  335 

application.  Since  there  can  be  no  question  but  that  the  insured  has 
notice  of  a  limitation  contained  in  the  application  which  he  has  signed, 
the  act  of  the  insurers  in  placing  the  stipulation  that  the  person  filling 
out  the  application  shall  be  deemed  the  agent  of  the  insured  in  the 
application  has  forced  the  courts  to  face  squarely  the  question  as  to 
the  validity  of  such  a  stipulation.  In  some  states  it  has  been  upheld,^*' 
but  the  majority  of  the  American  courts  have  flatly  decided  that  the 
stipulation,  however  fairly  agreed  upon,  is  in  itself  invalid,  and  there- 
fore not  enforceable.**^  Thus  the  Kansas  court  has  said,  in  a  recent 
case  *•*  involving  the  validity  of  a  stipulation  under  such  circum- 
stances :  "This  is  but  a  form  of  words  to  attempt  to  create  on  paper 
an  agency  which  in  fact  never  existed.  It  is  an  attempt  of  the  com- 
pany, not  to  restrict  the  powers  of  its  own  agent,  but  an  effort  to  do 
away  with  that  relation  altogether  by  mere  words,  and  to  make  him  in 
the  same  manner  the  agent  of  the  assured,  when  in  fact  such  relation 
never  existed.  *  *  *  We  do  not  believe  the  entire  nature  and  order 
of  this  well-established  relation  can  be  so  completely  subverted  by  this 
ingenious  device  of  words.  The  real  fact,  as  it  existed,  cannot  be  hid- 
den in  this  manner ;  much  less  can  it  be  destroyed,  and  something  that 
did  not  in  reality  exist  be  placed  in  its  stead.  The  substance  is  superior 
to  the  mere  drapery  of  words  with  which  one  party  wishes  to  bring 
into  existence  and  clothe  an  unreal  authority." 

In  some  of  the  earlier  New  York  cases,*®*  it  was  held  that  this  stip- 
ulation was  enforceable.  These  decisions  had  been  somewhat  discred- 
ited, but  later  cases  show  that  the  doctrine  in  that  state  was  greatly  con- 
fused, until  the  recent  important  decision  of  Sternaman  v.  Metropoli- 
tan Life  Ins.  Co.,***  in  which  it  was  held  that  the  medical  examiner 
was  the  agent  of  the  insurer,  despite  a  stipulation  in  the  application  that 
he  should  be  deemed  the  agent  of  the  insured.  In  so  holding,  the  court 
said :  "The  power  to  contract  is  not  unlimited.  While,  as  a  general 
rule,  there  is  the  utmost  freedom  of  action  in  this  regard,  some  restric- 

i»o  Hubbard  v.  Association  (O.  C.)  80  Fed.  681. 

181  Continental  Ins.  Co.  v.  Pearce,  39  Kan.  396,  18  Pac.  291,  7  Am.  St 
Rep.  557;  Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A. 
318,  88  Am.  St  Rep.  625;  Endowment  Rank  K.  P.  v.  Cogbill,  99  Tenn.  28,  41 
S.  W.  340;  Massachusetts  Ben.  Life  Ass'n  v.  Robinson,  104  Ga.  256,  30  S.  E. 
918,  42  L.  R.  A.  261.  The  medical  examiner  of  a  mutual  benefit  society  Is  the 
agent  of  the  society  notwithstanding  conditions  to  the  contrary  in  the  appli- 
cation. Royal  Neighbors  of  America  v.  Roman,  177  111.  27,  52  N.  E.  264,  69 
Am.  St  Rep.  201. 

i8«  Continental  Ins.  Co.  v.  Pearce,  39  Kan.  396,  18  Pac.  291,  7  Am.  St  Rep. 

557 

i»«  ROHRBACH  T.  INSURANCE  CO.,  62  N.  T.  47,  20  Am.  Rep.  451;  Alex- 
ander V.  Insurance  Co.,  66  N.  Y.  464,  23  Am.  Rep.  76. 

'-s«  170  N.  Y.  13,  62  N.  B.  763,  at  page  764,  57  L.  R.  A.  318,  88  Am.  St  Rep. 

625. 


336 


INSURANCE    AGENTS    AND    THEIR    POWERS. 


(Ch.  y 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS. 


337 


tions  are  placed  upon  the  right  by  legislation,  by  public  policy,  and  by 
the  nature  of  things.  Parties  cannot  make  a  binding  contract  in  vio- 
lation of  law  or  public  policy.  They  cannot  in  the  same  instrument 
agree  that  a  thing  exists,  and  that  it  does  not  exist,  or  provide  that  one 
is  the  agent  of  the  other,  and  at  the  same  time,  and  with  reference  to 
the  same  subject,  that  there  is  no  relation  of  agency  between  them. 
They  cannot  bind  themselves  by  agreeing  that  a  loan  in  fact  void 
for  usury  is  not  usurious,  or  that  a  copartnership  which  actually  exists 
between  them  does  not  exist.  They  cannot  by  agreement  change  the 
laws  of  nature  or  of  logic,  or  create  relations,  physical,  legal,  or  moral, 
which  cannot  be  created.  In  other  words,  they  cannot  accomplish  the 
impossible  by  contract." 

Stipulation  that  the  Insurer  shall  not  be  Chwrged  with  the  Knowledge 
of  His  Agent. 
As  already  indicated,  the  principal  is  chargeable  with  all  knowledge 
acquired  by  the  agent  in  the  course  of  his  employment,  not  because  the 
agent  has  been  authorized  to  acquire  such  information  on  behalf  of 
his  principal,  but  because  of  a  positive  rule  of  law,  founded  upon  pub- 
lic policy.  It  is  to  be  noted  here  that  the  rule  that  the  knowledge  of 
the  agent  is  the  knowledge  of  the  principal  is  not  subject  to  the  same 
limitations  with  regard  to  these  transactions  in  which  the  agent  pos- 
sessing information  acts  for  the  principal  as  are  found  to  obtain  in  those 
instances  where  the  information  with  which  the  principal  is  sought  to 
be  charged  was  acquired  by  some  agent  whose  duty  it  was  to  com- 
municate it.  In  this  latter  class  of  cases  the  principal  will  not  be 
deemed  to  know  what  is  known  to  his  agent,  (1)  when  the  agent  could 
not,  by  the  exercise  of  due  diligence,  have  communicated  his  informa- 
tion ;  or  (2)  where  it  was  known  to  be  contrary  to  the  agent's  personal 
interest  to  make  such  communications.*"  Thus,  as  we  have  also  seen, 
the  owner  of  a  distant  vessel,  when  insuring  it,  is  required  to  com- 
municate only  such  facts  as  the  master  of  the  vessel  might  have  made 
known  to  him  if  he  had  faithfully  performed  his  duties."*  But  where 
the  knowledge  of  any  material  fact  is  possessed  by  the  agent  who  is 
actually  engaged  in  the  transaction,  such  knowledge  is  absolutely  im- 
putable to  the  principal,  whether  it  was  possible  for  the  agent  to  have 
made  actual  communication  or  not;"^  nor  will  this  rule  be  changed 

i«B  See  Tlflf.  Ag.  p.  263.  Also  see  BLACKBURN  t.  VIGORS,  L.  R.,  12 
App.  Cas.  531,  Richards,  Ins.  Cas.  330,  Woodruff,  Ins.  Cas.  107,  n.  1,  Elliott, 
Ins.  Cas.  141;  PROUDFOOT  v.  MONTEFIORE,  L.  R.  2  Q.  B.  511,  Richards, 
Ins.  Cas.  324,  Woodruff,  Ins.  Cas.  106,  Elliott  Ins.  Cas.  152 ;  American  Surety 
Co.  V.  Pauly,  170  U.  S.  144,  18  Sup.  Ct.  552,  42  L.  Ed.  977. 

i««  See  Gladstone  v.  King,  1  Maule  &  S.  35. 

i«T  Mesterman  v.  Insurance  Co.,  5  Wash.  524,  32  Pac.  458,  34  Am.  St  Rep. 
877:  Burson  v.  Association,  136  Pa.  267,  20  Atl.  401,  20  Am.  St  Rep.  919; 
Phoenix  Ins.  Co.  v.  Copeland,  90  Ala.  386,  8  South.  48;  Goodwin  v.  Association, 


by  the  fact  that  such  an  agent  failed  to  communicate  information  ob- 
tained because  of  his  own  fraudulent  purpose  to  defraud  the  principal, 
provided,  of  course,  the  third  party  wIl!.  whom  the  agent  is  dealing 
is  guilty  of  no  bad  faith."'  The  case  most  frequently  found  to  in- 
volve the  application  of  these  principles  in  insurance  law  arises  when 
the  applicant  for  insurance  gives  to  the  agent  of  the  insurer,  who 
writes  the  answers  to  the  questions  in  the  application,  correct  infor- 
mation, which  the  agent,  through  mistake  or  fraud,  incorrectly  sets 
forth  in  the  written  answers.  Under  such  circumstances,  it  is  gen- 
erally held  that  the  insurer  must  be  considered  as  knowing  the  facts 
thus  correctly  communicated  to  his  agent,  and  therefore  estopped  to 
claim  a  forfeiture  on  account  of  the  incorrectly  written  statement^*' 

The  principles  above  discussed  being  elementary  and  well  estab- 
lished, it  follows  that  any  general  limitation  or  agreement  to  the  effect 
that  the  knowledge  acquired  by  the  agent  shall  not  be  imputed  to  the 
principal  is  but  an  attempt  to  contract  away  a  rule  of  law,  which 
is  necessarily  nugatory.^***     So  far,  the  principle  seems  clear  that  the 


97  Iowa,  226,  66  N.  W.  157,  32  L.  R.  A.  473,  59  Am.  St.  Rep.  411;  Forward  v. 
Insurance  Co.,  142  N.  Y.  382,  37  N.  E.  615,  25  L.  R.  A.  637;  Lynchburg  Fire 
Ins.  Co.  V.  West  76  Va.  575,  44  Am.  Rep.  177.     See  Tiff.  Ag.  p.  257-263. 

188  McArthur  v.  Association,  73  Iowa,  336,  35  N.  W.  430,  5  Am.  St.  Rep.  684. 
Where  untrue  answers  are  written  with  the  consent  of  the  applicant  knowl- 
edge of  the  fraud  attempted  by  the  applicant  cannot  be  imputed  to  the  insur- 
ance company.  Blooming  Grove  Mut.  Fire  Ins.  Co.  v.  McAnerney,  102  Pa.  335, 
48  Am.  Rep.  209;  Centennial  Mut  life  Ass*n  v.  Parham,  80  Tex.  518,  16  S.  W. 
316. 

But  it  was  also  held  in  a  recent  Texas  case  that  where  an  agent  continued 
to  collect  premiums  from  the  insured,  who  had  falsely  stated  the  condition 
of  his  health,  the  agent's  knowledge  of  the  true  condition  of  the  insured's 
health  was  imputed  to  his  principal,  and  prevented  a  forfeiture  of  the  policy. 
Sun  Life  Ins.  Co.  of  America  v.  Phillips  (Tex.  Civ.  App.)  70  S.  W.  603.  But 
this  decision  seems  contrary  to  authority  and  principle. 

139  Continental  Life  Ins.  Co  v.  Chamberlain,  132  U.  S.  304,  10  Sup.  Ct  87, 
33  L.  Ed.  341;  Union  Mut  Life  Ins.  Co.  v.  Wilkinson,  13  Wall.  222,  20  L.  Ed. 
617;  American  Life  Ins.  Co.  v.  Mahone,  21  Wall.  152,  22  L.  Ed.  593;  Phoenix 
Ins.  Co.  V.  Warttemberg,  79  Fed.  245,  24  C.  C.  A.  547;  Kister  v.  Insurance  Co., 
128  Pa.  553,  18  Atl.  447,  5  L.  R.  A.  646,  15  Am.  St  Rep.  696;  Smith  v.  Insur- 
ance Co.,  173  Pa.  15,  33  Atl.  567;  Continental  Life  Ins.  Co.  v.  Chew,  11  Ind. 
App.  330,  38  N.  E.  417,  54  Am.  St.  Rep.  506;  Bennett  v.  Insurance  Co.,  106 
N.  Y.  243,  12  N.  E.  609;  Farmers'  Ins.  Co.  v.  Williams,  39  Ohio  St.  584,  48  Am. 
Rep.  474;  McCall  v.  Insurance  Co.,  9  W.  Va.  237,  27  Am.  Rep.  558;  Menk  v. 
Insurance  Co.,  76  Cal.  50,  14  Pac.  837,  9  Am.  St.  Rep.  158;  Bartholomew  ▼. 
Insurance  Co.,  25  Iowa,  507,  96  Am.  Dec.  65;  German  Ins.  Co.  v.  Gray,  43 
Kan.  49i,  23  Pac.  637,  8  L.  R.  A.  70,  19  Am.  St  Rep.  150. 

1*0  Parsons  v.  Insurance  Co.,  132  Mo.  590,  31  S.  W.  117;  Sternaman  v.  In- 
surance Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St  Rep.  625; 
Welch  V.  Association  (Wis.  1904)  98  N.  W.  227;  Spalding  v.  Insurance  Co., 
71  N.  H.  441,  52  Atl.  858.  In  some  states  the  rule  has  been  confirmed  by 
statute.    See  section  1941,  Rev.  St  Wis.  1898;  Welch  v.  Ass'n,  supra. 

Vance  Ins. — ^22 


» ".I 


338 


IMSURANCB  AOBNTS  AND   THEIB  POWERS. 


(Ch.9 


principal  cannot,  by  general  limitation,  wholly  escape  the  operation  of 
the  rule  of  law  that  makes  the  agent's  knowledge  his  own.  The  ques- 
tion next  arises  whether  he  may  partially  avoid  the  operation  of  that 
rule  by  providing  that  he  shall  not  be  bound  by  any  information  ac- 
quired by  the  agent,  unless  that  information  be  communicated  in  a 
specified  manner.  The  stipulation  most  frequently  occurring  is  that 
no  statements  or  representations  made  or  information  given  to  the  per- 
sons soliciting  or  taking  the  application  for  the  policy  shall  be  binding 
on  the  company,  or  in  any  manner  affect  its  rights,  unless  they  are 
reduced  to  writing,  and  presented  at  the  home  office  in  the  applica- 
tion. It  is  exceedingly  difficult  to  determine  whether  such  a  limita- 
tion is  valid,  and  the  decisions  are  in  great  conflict,  while  the  reason- 
ing of  the  courts,  whether  on  the  one  side  or  the  other,  is  usually 
confused  and  obscure.  The  Supreme  Court  of  the  United  States,  in 
the  important  case  of  New  York  Life  Ins.  Co.  v.  Fletcher,^*^  which 
involved  the  same  state  of  facts  as  that  now  under  discussion,  said: 
"Where  such  agents,  not  limited  in  their  authority,  undertake  to  pre- 
pare applications  and  take  down  answers,  they  will  be  deemed  as  act- 
ing for  the  companies.  In  such  cases  it  may  well  be  held  that  the  de- 
scription of  the  risk,  though  nominally  proceeding  from  the  assured, 
should  be  regarded  as  the  act  of  the  company.  Nothing  in  these  vie\vs 
has  any  bearing  upon  the  present  case.  Here  the  power  of  the  agent 
was  limited,  and  notice  of  such  limitation  given  by  being  embodied 
in  the  application,  which  the  assured  was  required  to  make  and  sign, 
and  which,  as  we  have  stated,  he  must  be  presumed  to  have  read.  He 
is  therefore  bound  by  its  statements." 

Although  the  Supreme  Court  appears  to  hold  flatly  in  the  Fletcher 
Case  that  a  limitation  of  the  kind  now  under  discussion  is  valid  and 
enforceable,  yet  it  is  well  to  observe  that  in  the  Fletcher  Case  the  facts 
clearly  showed  that  the  applicant  either  had,  or  ought  to  have  had, 
knowledge  of  the  fraudulent  purpose  of  the  agents,  and  was  therefore 
in  no  position  to  claim  an  estoppel  as  against  the  insurer,  whom  he 
must  have  intended  to  defraud.**^  In  some  states  the  Fletcher  Case 
has  been  approved,  and  the  validity  of  such  limitations  sustained,^*® 
but  it  is  believed  that,  by  the  great  weight  of  authority  among  th* 
American  decisions,  the  contrary  doctrine  is  established,  to  the  effect 
that  such  an  attempted  limitation  is  obnoxious  to  the  same  principle 
that  renders  invalid  an  agreement  that  the  agent  of  the  insurer  shall 


141  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  5Sup.  Ct 
837,  29  L.  Ed.  934. 

1*2  See  Koerts  v.  Grand  Lodge  (Wis.)  97  N.  W.  163.    And  see  note  138,  supra. 

1*8  Metropolitan  Life  Ins.  Co.  v.  Dimick  (N.  J.  Err.  &  App.)  55  Atl.  291,  62 
L.  R.  A.  774;  Dwelling  House  Ins.  Co.  v.  Snyder,  59  N.  J.  Law,  18,  34  Atl. 
931;  Maier  v.  Association,  78  Fed.  566,  47  U.  S.  App.  322,  24  0.  C.  A.  239. 


j§  114-117)     LIMITATIONS  UPON  THE  POWERS  OF  AGENTS, 


339 


be  considered  the  agent  of  the  insured,  for  some  purposes.^**  The 
Court  of  Appeals  of  New  York,  in  the  recent  case  of  Stemaman 
V.  Metropolitan  Life  Ins.  Co.,^**  speaking  of  an  agreement  contained 
in  the  application  that  "no  information  or  statement  not  contained 
in  this  application,  and  in  the  statements  made  to  the  medical  ex- 


1*4  Tubbs  V.  Insurance  Co.,  84  Mich.  646,  48  N.  W.  296;  Royal  Neighbors  of 
America  v.  Boman,  177  111.  27,  52  N.  E.  264,  69  Am.  St.  Rep.  201;  Continental 
Ins.  Go.  V.  Pearce,  39  Kan.  396,  18  Pac.  291,  7  Am.  St.  Rep.  557;  Parno  v.  In- 
surance Co.,  114  Iowa,  132,  86  N.  W.  210;  Stemaman  v.  Insurance  Co.,  170  N. 
Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St.  Rep.  625. 

In  Marston  v.  Insurance  Co.,  89  Me.  266,  36  Atl.  389,  56  Am.  St  Rep.  412,  the 
application  signed  by  the  Insured  contained  this  certificate:  **I  have  verified 
the  foregoing  answers  and  statements,  and  find  them  to  be  full,  complete, 
and  true.  I  do  also  adopt  as  my  own,  whether  written  by  me  or  not,  each 
foregoing  statement,  representation,  and  answer,  and  I  agree  that  they  are 
all  material,  and  that  statements  made  to  an  agent  not  herein  written  shall 
form  no  part  of  the  contract  to  be  issued  hereon."  A  Maine  statute  (Rev. 
St  c.  49,  §  90)  provided  that  insurance  companies  should  be  bound  by  the 
knowledge  of  their  agents  in  connection  with  the  risk.  It  was  held  that  evi- 
dence was  admissible  to  show  that  an  answer  truly  given  by  the  insured  was 
falsely  written  in  the  application  by  the  agent,  and  the  insurer  thereby  estop- 
ped to  insist  upon  a  forfeiture.  The  Fletcher  Case  was  distinguished,  how- 
ever. 

Mr.  Freeman,  commenting  upon  the  decision  made  in  NEW  YORK  LIFE 
INS.  00.  V.  FLETCHER,  discussed  above,  in  a  note  in  9  Am.  St  Rep.  232, 
makes  the  following  clear  and  convincing  statement  of  the  principle  involved 
in  that  case:  "That  portion  of  the  argument  of  the  court  which  proceeds  upon 
the  assumption  that  as  the  insurer  had  no  knowledge  of  the  real  answers  or 
representations  made  by  the  assured,  and  had  every  reason  to  believe  that 
it  was  contracting  upon  representations  substantially  different,  the  assured 
had  no  right  to  treat  the  contract  as  based  on  the  unknown  rather  than  on 
the  known  representations,  at  first  seems  entitled  to  very  great  force;  but 
further  consideration  produces  the  conviction  that,  in  contemplation  of  the 
law,  the  assumed  facts  do  not  and  cannot  exist.  As  a  matter  of  fact,  a  prin- 
cipal may  be  ignorant  of  every  act  done,  every  representation  made,  and  every 
fact  known  by  his  agent.  But  the  law  does  not  tolerate  such  ignorance,  or, 
at  least,  does  not  permit  the  princit)al  to  interpose  it  to  screen  him  from  liabil- 
ity. What  his  agent  said,  did,  and  learned  while  engaged  in  the  transaction 
of  his  business,  he,  the  principal,  must  be  regarded  as  saying,  doing,  and 
learning;  and  it  would  be  a  very  unsound  public  policy  which  would  permit  a 
principal,  in  his  delegation  of  authority  to  his  agent,  to  stipulate  against  the 
usual  consequences  of  agency,  and  particularly  against  the  application  to  the 
agency  in  question  of  the  well-known  rule  of  law,  that  knowledge  acquired 
by  the  agent  while  engaged  in  the  discharge  of  a  duty  which  the  principal  has 
confided  to  him  must  also  be  imputed  to  the  principal.  If  an  insurance  cor- 
poration may  stipulate  that  it  shall  be  regarded  as  ignorant  of  every  fact 
learned  by  its  agent,  but  not  communicated  to  it,  so  may  any  other  principal; 
and  if  immunity  may  be  secured  from  the  operation  of  this  principle  of  the 
law  of  agency,  it  may,  in  the  same  mode  and  with  equal  propriety,  be  secured 
against  all  other  portions  of  the  law  of  agency  from  which,  in  the  contem- 
plation of  the  principal,  it  may  be  profitable  to  be  freed." 

1*6  170  X.  Y.  13,  02  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St  Rep.  625. 


I 


in 


340 


INSURANCE   AGENTS    AND   THEIE   POWERS. 


(Ch.9 


aminer,  received  or  acquired  at  any  time  by  any  person,  shall  be  bind- 
ing upon  the  company,  or  shall  modify  or  alter  the  declarations 
and  warranties  made  therein,"  said :  "The  facts  sought  to  be  proved 
were  contained  in  the  oral  statements  made  to  the  medical  ex- 
aminer, but,  assuming  that  recorded  statements  only  were  meant,  the 
result  would  be  an  agreement  that  the  company  might  perpetrate  a 
fraud  upon  the  insured,  by  issuing  a  policy  and  accepting  prerniums 
thereon,  knowing  all  the  time  that  the  contract  was  void  or  voidable 
at  its  election.  The  law  does  not  permit  this,  for  it  declares  that  the 
company  is  estopped  from  taking  advantage  of  such  a  contract,  be- 
cause it  would  be  against  equity  and  opposed  to  public  policy." 

While  this  decision  declaring  such  a  limitation  contrary  to  public 
policy  and  void  was  rendered  by  a  divided  court— Parker,  C.  J.,  and 
two  of  the  associate  justices  dissenting— yet  it  commends  itself  to  rea- 
son, and  seems  supported  by  analogous  cases.     Thus  the  federal  Su- 
preme Court  has  held  (1)  that  the  agent  taking  the  application  rep- 
resents the  insurer  in  so  doing;*"  (2)  that  a  stipulation  contained 
in  the  by-laws  of  a  mutual  benefit  association  to  the  effect  that  the 
person  collecting  premiums  on  behalf  of  the  insurer  should  be  deemed 
the  agent  of  the  insured  in  so  doing  was  invalid,  as  contrary  to  fact;  ^*^ 
and  in  the  argument  strongly  approving  those  cases  which  hold  in- 
valid any  agreement  purporting  to  transform  the  agent  of  the  in- 
surer into  the  representative  of  the  insured;  (3)  that,  where  a  stat- 
ute makes  the  person  taking  the  application  the  agent  of  the  insurer, 
the  latter  will  be  bound  by  an  interpretation  given  to  a  question  by 
the  agent,  in  spite  of  an  agreement  contained  in  the  application  that  no 
statement  or  representation  made  to  the  person  soliciting  the  appli- 
cation should  be  binding  on  the  insurer  unless  written  in  the  applica- 
tion"®—the  court  declaring  flatly  that  such  stipulation  was  void  as 
being  repugnant  to  the  statute ;  and  (4)  that  a  failure  of  the  insured  to 
read  his  policy  when  delivered  was  not  such  negligence  as  to  preclude 
his  showing  that,  without  his  consent,  an  additional  term  had  been 
inserted  in  the  application,  a  copy  of  which  application  was  attached 

to  the  policy."^ 

It  would  seem  that,  if  the  insurer  is  prohibited  by  a  rule  of  public 
policy  from  freeing  himself  by  contract  from  all  of  the  burdensome 
incidents  consequent  upon  doing  business  through  an  agent,  he  ought 

i4«  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct. 
837,  29  L.  Ed.  934;    UNION  MUT.  LIFE  INS.  CO.  v.  WILKINSON.  13  Wall. 

(U.  S.)  222,  20  L.  Ed.  617.  ^        ^.   ...    ^^  t 

147  Supreme  Lodge  K.  P.  v.  Withers,  177  U.  S.  260,  20  Sup.  Ct  611.  44  L. 

Ed   762 

148  Continental  Life  Ins.  Co.  T.  Cbamberlain,  132  U.  S.  304,  10  Sup.  Ct.  87, 

33  L  Ed.  341. 

i4i  McMaster  v.  Insurance  Co.,  183  U.  S.  25,  22  Sup.  Ct.  10,  46  L.  Ed.  64, 


§§  114-117)     LIMITATIONS  UPON  THE  POWERS  OP  AGENTS.  341 

to  be  equally  prohibited  from  avoiding,  wholly  or  in  part,  any  of 
those  incidents.  Therefore  we  conclude,  notwithstanding  the  great 
weight  to  which  the  decision  in  the  Fletcher  Case  is  entitled,  that  the 
usual  stipulation  that  the  insurer's  agent  shall  be  the  agent  of  the  in- 
sured, or  that  the  insurer  will  not  be  bound  by  any  knowledge  ac- 
quired by  his  agent,  or  that  he  shall  not  be  charged  with  information 
given  to  the  agent  unless  it  shall  be  communicated  in  writing,  are  all 
equally  repugnant  to  settled  principles  of  law,  and  therefore  unen- 
forceable. 

Stipulation  that  the  Insurer  will  not  he  Responsible  for  the  Fraud  of 
His  Agent. 
Closely  related  in  principle  to  the  attempted  limitations  just  dis- 
cussed, and  usually  contained  in  the  same  term  of  the  policy  or  appli- 
cation, are  those  agreements  whereby  the  insurer  seeks  to  escape  re- 
sponsibility for  the  fraud  perpetrated  by  the  agent  in  the  course  of 
the  transactions  looking  to  the  procurement  of  the  policy.     It  is  a 
fundamental  principle  that  one  shall  not  be  allowed  to  exempt  himself 
by  contract  from  liability  by  reason  of  the  fraud  of  his  servants  or 
agents.^ ''^     It  would  seem,  therefore,  necessarily  to  follow  that  any 
agreement  contained  in  the  policy,  by  which  the  insurer  is  relieved 
from  the  consequences  of  his  agent's  fraud  in  making  the  contract  of 
insurance,  is  necessarily  without  effect.    It  may  be  contended  that  the 
general  doctrine  of  the  principal's  liability  for  the  unauthorized  fraud 
of  his  agent,  when  perpetrated  in  the  course  of  his  employment,  should 
be  confined  to  torts,  and  should  not  be  relied  upon  to  establish  a  con- 
tract to  which  the  principal  had  never  consented.    In  accordance  with 
such  a  view,  the  insurer,  declining  to  ratify  the  unauthorized  fraudu- 
lent act  of  his  agent,  could,  upon  returning  all  premiums  received,  be 
discharged  of  all  liability  on  the  contract.     But  there  are  both  prac- 
tical and  theoretical  objections  of  too  serious  a  nature  to  permit  the 
courts  to  take  this  view  of  the  rights  of  the  parties.    In  the  first  place, 
the  insurer  never  discovers  the  fraud  of  his  agent  until  the  contingency 
happens,  upon  which  the  policy  becomes  a  claim  for  money  to  be  paid, 
in  which  case  he  desires  to  repudiate  the  contract  as  unauthorized  and 
return  the  premiums.    In  all  other  cases,  however,  even  though  fraud 
had  been  practiced  by  the  agent,  the  premiums  are  always  retained  by 
the  insurer,  who  has  now  no  motive  to  discover  his  agent's  fraud,  while 
the  insured  is  content  with  the  payment  as  made  in  the  serene,  if  mis- 
taken, belief  that  he  has  had  the  protection  of  his  insurance  during  the 
term  agreed  upon.     Secondly,  from  the  standpoint  of  theory,  the  in- 
surer must  be  deemed  to  know  all  the  means  by  which  the  insured 

180  Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  B.  763,  67  L.  R.  A.  318. 
88  Am.  St.  Rep.  625;  Rathbone  v.  Railway  Co.,  140  N.  Y.  48,  35  N.  E.  418. 


I! 


342 


INSURANCE   AGENTS   AND   THEIR   POWERS. 


(Ch.9 


was  induced  by  the  agent  to  make  the  contract,  and,  by  issuing  the 
policy,  and  accepting  the  premiums  paid,  is  estopped  to  deny  that  the 
acts  and  the  representations  of  his  agents  were  authorized.  This  being 
true  as  a  principle  of  law,  based  upon  a  sound  public  policy,  it  cannot 
be  changed  by  the  agreement  of  the  parties.^ *^ 

151  See  Pamo  v.  Insurance  Co.,  114  Iowa,  132,  86  N.  W.  210,  In  which  the 
court  said:  "If  It  [the  stipulation  In  the  application]  was  meant  to  cover  such 
a  case.  It  amounts  to  no  more  than  a  declaration  by  a  party  that  he  will  not 
be  liable  for  the  fraud  of  his  agent  committed  while  acting  within  the  scope 
of  his  authority,  and  such  a  declaration  would  be  futile." 


(n 


\ 


\: 


U  118-120) 


WAIVER  AND  ESTOPPEL, 


343 


CHAPTER  X. 

WAIVER  AND  ESTOPPEU 

118-120.    General  Principles. 

121.  Parol  Waivers. 

122.  Prior  Parol  Waivers. 

123.  Subsequent  Parol  Waivers. 

124.  Contemporaneous  Parol  WalvePfll 
125-126.  What  Constitutes  a  Waiver. 
127-128.  What  may  be  Waived. 


GENEBAX  PRINCIPLES. 

118.  WAIVER  is  the  voluntary  relinquishment  of   a  known   riglit. 

It  may  be  express,  or  implied  from  circumstances,  and  it  needs 
no  consideration  for  its  support. 

119.  AN  ESTOPPEI*  exists  when  the  insurer  has  brought  about  or 

allowed  such  conditions  as  make  it  inequitable  for  him  to 
claim  a  right  to  which  he  would  otherwise  be  entitled.  A 
waiver  is  recognized  to  give  effect  to  the  intention  of  the  party 
waiving,  while  an  estoppel  is  enforced  in  order  to  defeat  the 
fraudulent  intention  of  the  party  estopped. 

120.  While  thus  distinguishable  in   theory,  the  doctrines  of  waiver 

and  estoppel,  as  applied  to  insurance  contracts,  cannot  be 
profitably  treated  separately,  since  the  same  circumstances 
that  will  raise  an  estoppel  will  usually  also  afford  suflcient 
evidence  of  an  implied  waiver. 

The  terms  "waiver"  and  "estoppel"  are  ordinarily  used  both  by  the 
courts  and  text-writers  as  synonymous,  in  the  law  of  insurance.  There 
is,  however,  a  difference  between  the  strict  meanings  of  these  two  words, 
which  sometimes  becomes  important,^  especially  with  regard  to  rules 
of  evidence.    A  waiver  may  be  defined  as  the  voluntary  relmquishment 

1  Thus  the  language  of  the  provision  usually  found  in  Insurance  policies, 
that  no  agent  shall  have  authority  to  waive  that  condition  requiring  written 
consent  to  other  subsequent  insurance,  or  to  waive  any  other  subsequent  con- 
dition, plainly  refers  to  an  Intentional  act.    Such  a  "waiver"  is  not  even  sim- 
ilar to  an  estoppel.    A  limitation  upon  the  agent's  authority  to  waive  such 
conditions  is  valid,  and.  If  kept  true.  Is  enforceable.    Cleaver  y.  Insurance 
Co.,  65  Mich.  527,  32  N.  W.  660,  8  Am.  St.  Rep.  908.    But  if  notjxue  in  fact, 
it  is  nugatory.    Knickerbocker  Life  Ins.  Co.  v.  Norton,  96  U.  S.  234,  24  L.  Ed 
689     A  limitation  upon  the  agent's  authority  to  estop  the  insurer  would  be 
absurd     Kyte  v.  Assurance  Co.,  144  Mass.  43,  10  N.  E.  518,  WoodrufT.  Ins 
Gas  477     See  Bennett  v.  Insurance  Co.,  203  111.  439.  67  N.  B.  971,  and  Welch 
V.  Association  (Wis.)  98  N.  W.  227,  in  which  this  distinction  between  waiver 
and  estoppel  is  expressly  recognized. 


844 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


of  a  known  right.*  It  is  contractual  in  its  nature,  inasmuch  as  the 
insurer  consents  to  relinquish  the  right  or  claim  in  question,  and  the 
insured  assents  to  such  relinquishment.  A  strict  waiver,  therefore, 
cannot  exist  unless  so  intended  by  the  person  waiving,  while,  as  will 
presently  be  seen,  a  different  rule  applies  to  estoppel.  A  waiver  may 
be  expressly  made  by  words,  either  written  or  oral,  or  it  may  be  im- 
plied from  the  conduct  of  the  insurer,  when  it  is  such  as  to  indicate 
that  he  intends  a  waiver. 

A  Waiver  Need  not  he  Supported  by  a  New  Consideration, 

A  waiver  depends  for  its  validity,  not  necessarily  upon  a  separate 
valuable  consideration  given  to  support  it,  but  upon  the  doctrine  of 
estoppel,'  and  in  many  cases  waivers  have  been  enforced  even  when  no 
circumstances  of  estoppel  were  present.*  An  existing  right  may  be  re- 
linquished by  agreement,  and  such  an  agreement,  if  supported  by  val- 

2  See  Globe  Mut  Life  Ins.  Co.  v.  Wolflf,  95  U.  S.  326,  24  L.  Ed.  387;  Ward 
V.  Insurance  Co.,  66  Conn.  227,  33  Atl.  902,  50  Am.  St.  Rep.  80;  Hoxie  v.  In- 
surance Co.,  32  Conn.  21,  85  Am.  Dec.  240;  VIELE  v.  INSURANCE  CO.,  26 
Iowa,  9,  96  Am.  Dec.  83. 

3  Georgia  Home  Ins.  Co.  v.  Klnnier's  Adm'x,  28  Grat  (Va.)  88 ;  VIELE  v. 
GERMANIA  INS.  CO.,  26  Iowa,  9,  96  Am.  Dec.  83. 

These  cases  state  the  law  correctly.  In  some  other  Jurisdictions,  however, 
there  has  arisen  some  apparent  conflict  among  the  cases.  Thus  in  Ripley  v. 
Insurance  Co.,  30  N.  Y.  136,  86  Am.  Dec.  362,  Mullin,  J.,  said:  "It  seems  to 
me  that  a  waiver,  to  be  operative,  must  be  supported  by  an  agreement  found- 
ed on  a  valuable  consideration,  or  the  act  relied  on  as  a  waiver  must  be  such 
as  to  estop  a  party  from  insisting  on  performance  of  the  contract  or  forfei- 
ture of  the  condition."  See,  also,  to  the  same  effect,  Underwood  v.  Insurance 
Co.,  57  N.  Y.  506,  s.  c.  48  How.  Prac.  (N.  Y.)  372;  Marvin  ▼.  Insurance  Co., 
16  Hun  (N.  Y.)  496;  Lasher  v.  Insurance  Co.,  18  Hun  (N.  Y.)  104,  8.  c.  57  How. 
Prac.  (N.  Y.)  229;  McDermott  v.  Insurance  Co.,  44  N.  Y.  Super.  Ct.  230.  In 
the  subsequent  case  of  Titus  v.  Insurance  Co.,  81  N.  Y.  410,  the  court  said: 
"It  is  now  settled  in  this  court,  after  some  difference  of  opinion,  that  such 
a  waiver  need  not  be  based  upon  any  new  agreement  or  an  estoppel."  See, 
to  the  same  effect,  Roby  v.  Insurance  Co.,  120  N.  Y.  510,  24  N.  E.  808;  Pratt 
V.  Insurance  Co.,  130  N.  Y.  206,  29  N.  E.  117.  But  in  Armstrong  v.  Insurance 
Co.,  130  N.  Y.  560,  29  N.  E.  991,  the  court  says  of  these  decisions  that,  while 
"all  hold  that  such  waiver  need  not  be  based  upon  a  technical  estoppel,  in 
all  the  cases  where  this  question  is  presented,  where  there  has  been  no  ex- 
press waiver,  the  fact  is  recognized  that  there  exist  the  elements  of  an  estop- 
pel." 

The  statement  of  the  law  as  made  in  Ripley  v.  Insurance  Co.,  supra,  seems 
more  correct  than  that  of  the  subsequent  cases  criticising  it,  and  is  practically 
restored  by  Armstrong  v.  Insurance  Co.,  supra.  It  is  difficult  to  see  how  a 
purely  executory  agreement  to  relinquish  a  right  under  a  contract  can  be 
made  enforceable,  without  the  support  of  a  consideration,  by  merely  calling 
It  a  waiver.  It  would  seem  necessary  that  in  every  case  the  agreement  to 
relinquish  must  be  supported  by  a  consideration  or  by  an  estoppel.  See  Globe 
Mut.  Life  Ins.  Co.  v.  WolflC,  95  U.  S.  326,  24  L.  Ed.  387;  Eaton,  Bq.  172;  and 
note  83,  infra. 

«  See  preceding  note,  and  cases  cited  in  note  84,  infra. 


§g  118-120) 


GENERAL  PRINCIPLES. 


845 


uable  consideration,  wiirbe  enforced,  but  rather  as  a  contract  than  as 
a  waiver.  But  when  the  parties  to  a  contract  have  agreed  that  a  cer- 
tain right  thereunder  shall  not  be  insisted  upon,  and  one  party  is 
thereby  induced  so  to  change  his  condition  as  to  make  it  inequitable 
for  the  other  to  claim  the  relinquished  right,  such  an  agreement  will 
be  enforceable,  although  without  a  new  and  separate  consideration. 
From  another  point  of  view  it  may  be  said  that  where  the  insured  has, 
in  reliance  upon  a  waiver,  prejudicially  changed  his  condition,  that 
fact  will  of  itself  constitute  a  sufficient  consideration  to  support  the 
agreement  of  waiver.* 

Estoppel, 

Estoppel  is  an  equitable  doctrine,  enforced  for  the  purpose  of  pre- 
venting one  party  from  taking  an  unfair  advantage  of  another  who 
has  reasonably  relied  upon  his  words  or  conduct.®    When  the  insurer 
has  acted  in  such  a  way  as  to  give  the  insured  reason  to  believe  that 
some  known  right  under  the  policy  would  not  be  insisted  upon,  and 
the  insured  has  acted  upon  that  belief,  the  insurer  will  be  estopped  to 
give  the  lie  to  his  conduct,  and  claim  that  right  to  the  prejudice  of 
the  insured.^    An  estoppel  is  thus  seen  to  differ  from  a  waiver  very 
much  as  a  so-called  quasi  contract  differs  from  a  true  contract.     An 
estoppel  is  enforced  by  the  courts  for  the  purpose  of  preventing  the 
insurer  from  defrauding  the  insured,  and  in  opposition  to  his  inten- 
tion, while  a  waiver  is  enforced  for  the  purpose  of  carrying  out  the 
intention  of  the  insurer.    It  is  apparent,  however,  that  ordinarily  the 
same  circumstances  which  will  raise  an  implied  waiver  will  also  be 
sufficient  to  constitute  an  estoppel;  the  terms  used  differing  with  the 
point  of  view.     Thus,  when  the  insurer  accepts  a  premium  which  is 
overdue,  his  act  may  be  regarded  either  as  indicating  an  intention  to 
waive  his  right  to  declare  the  policy  forfeited  for  nonpayment  of 
premium,  or  as  estopping  him  to  set  up  the  forfeiture,  which  the  in- 
sured reasonably  supposed  that  he  would  not  insist  upon.    The  close 
relationship  of  the  doctrine  of  waiver  to  the  equitable  doctrine  of 
estoppel  is  thus  expressed  by  Mr.  Justice  Field  in  the  important  case 
of  Globe  Mut.  Life  Ins.  Co.  v.  Wolff : »    "The  doctrine  of  waiver,  as 
asserted  against  insurance  companies  to  avoid  the  strict  enforcement 

*  See  Dilleber  v.  Insurance  Co.,  76  N.  Y.  567. 
«  See  Eaton,  Eq.  p.  165. 

7  As  said  by  Miller,  J.,  in  UNION  MUT.  LIFE  INS.  00.  v.  WILKINSON, 
13  Wall.  222,  20  L.  Ed.  617:  "The  principle  is  that  where  one  party  has,  by 
his  representation  or  his  conduct,  induced  the  other  party  to  a  transaction  to 
give  him  an  advantage  which  it  would  be  against  equity  and  good  conscience 
to  assert,  he  would  not,  in  a  court  of  justice,  be  permitted  to  avail  himself  of 
that  advantage."  Approved  in  Manhattan  Fire  Ins.  Co.  ▼.  Weill,  28  Grat 
(Va.)  389,  26  Am.  Rep.  364. 

8  95  U.  S.  326,  24  L.  Ed.  387. 


346 


WAIVER  AND  ESTOPPBL. 


(Ch.  10 


of  conditions  contained  in  their  policies,  is  only  another  name  for  the 
doctrine  of  estoppel.  It  can  only  be  invoked  where  the  conduct  of  the 
companies  has  been  such  as  to  induce  action  in  reliance  upon  it,  and 
where  it  would  operate  as  a  fraud  upon  the  assured  if  they  were  after- 
wards allowed  to  disavow  their  conduct  and  enforce  the  conditions."  • 


PAROL  WAIVERS. 

121*  There  is  mnch  confliot  among  the  courts  as  to  when  the  rnles 
of  evidence  "will  permit  a  parol  waiver  of  a  term  of  a  ivritten 
contract  to  be  shown.  This  conflict  may,  to  some  extent,  be 
obviated,  and  the  resulting  conf  nsion  as  to  principles  applicable 
cleared  a'way,  by  dividing  all  cases  involving  parol  waivers  into 
three  classes,  as  follows: 

(a)  Those    involving   prior   parol   waivers    of    subsequently   written 

terms.  ^ 

(b)  Those  involving  subsequent  parol  waivers  of  previously  written 

terms,  j 
(e)   Those  in  which  the  acts  sought  to  be  shown  by  parol  occurred 
contemporaneously    with    the    final    execution    of   the    written 
eontraot. 

Perhaps  no  branch  of  the  law  presents  more  hopeless  confusion  and 
conflict  among  the  cases  than  is  to  be  found  among  those  involving 
questions  of  waiver  and  estoppel  in  insurance  law.  This  conflict  cen- 
ters about  three  inherently  difficult  questions  usually  involved  in  the 
consideration  of  the  validity  of  a  waiver  of  a  right  claimed  in  accord- 
ance with  the  terms  of  an  insurance  contract.  These  concern  (1)  the 
power  of  the  agent  concerned  to  make  the  alleged  waiver;  (2)  the 
admissibility  of  parol  evidence  to  show  a  waiver  of  a  term  of  writ- 

»  In  Kieman  v.  Insurance  Co.,  150  N.  Y.  190,  44  N.  E.  098,  these  terms  are 
thus  distinguished:  "The  distinction  between  waiver  and  estoppel,  as  applied 
to  the  law  of  insurance,  is  not  in  all  respects  clearly  defined.  An  express 
waiver  is  in  the  nature  of  a  new  contract,  modifying  to  some  extent  the  old 
one.  It  does  not  require  a  new  consideration,  unless  it  is  by  inducing  a 
change  of  position,  for  the  law  of  waiver  seems  to  be  a  'technical  doctrine 
introduced  and  applied  by  courts  for  the  purpose  of  defeating  forfeitures.' 
People  V.  Manhattan  Co.,  9  Wend.  351,  381 ;  Knickerbocker  Life  Ins.  Co.  v.  Nor- 
ton, 96  U.  S.  234,  24  L.  Ed.  689.  An  estoppel  forbids  the  assertion  of  the  truth 
by  one  who  has  knowingly  Induced  another  to  believe  what  is  untrue  and  to 
act  accordingly.  While  express  waiver  rests  upon  intention,  and  estoppel  up- 
on misleading  conduct,  implied  waiver  may  rest  upon  either;  for  it  exists 
when  there  is  an  intention  to  waive,  unexpressed,  but  clearly  to  be  inferred 
from  circumstances,  or  when  there  is  no  such  intention  in  fact,  but  the  con- 
duct of  the  insurer  has  misled  the  insured  into  acting  on  a  reasonable  belief 
that  the  company  has  waived  some  provision  of  the  policy.  Ronald  v.  Asso- 
ciation, 132  N.  Y.  378,  30  N.  E.  739;  Armstrong  y.  Insurance  Co.,  supra;  2 
Biddlc,  In&  §  1052." 


ti 


§121) 


PAROL  WAIVERS. 


347 


ten  contract;  and  (3)  the  elements  necessary  to  constitute  a  waiver, 
or  estoppel  in  pais. 

Much  of  this  conflict  is  due  to  irreconcilable  differences  in  the  points 
of  view  taken  by  the  courts  in  different  jurisdictions,  while  perhaps 
more  is  due  to  misconception  of  the  fundamental  principles  involved, 
and  to  a  blind  and  undiscriminating  following  of  precedents,  which 
themselves  are  often  ill-considered.  An  attempt  has  already  been  made 
in  the  preceding  chapter  to  establish  some  principles  of  universal  and 
necessary  application  with  regard  to  the  powers  of  agents  represent- 
ing insurance  companies,  and  these  principles,  in  the  following  discus- 
sion, will  be  strictly  applied  in  the  effort  to  clear  away,  as  far  as  pos- 
sible, the  confusion  in  which  the  doctrine  of  waiver  and  estoppel  in 
insurance  law  has  enveloped  itself.  It  is  now  proposed  to  state  some 
general  principles  applicable  to  the  second  -subject  above  mentioned — 
that  is,  the  admissibility  of  parol  evidence  to  show  a  waiver  of  a  writ- 
ten condition — which,  it  is  hoped,  may  render  less  difficult  an  under- 
standing of  the  law  of  this  subject,  and  make  possible  the  partial  har- 
monizing of  the  cases. 

The  objection  to  proving  a  waiver  of  such  a  written  condition  by 
parol  testimony  grows  out  of  the  well-known  parol  evidence  rule,  thus 
stated  by  Mr.  Greenleaf :  ^®  'Tarol  contemporaneous  evidence  is  in- 
admissible to  contradict  or  vary  the  terms  of  a  valid  written  instru- 
ment." It  is  plain  that  the  effect  of  proving  a  waiver  is,  in  one  sense, 
to  alter  and  sometimes  to  contradict  the  terms  of  a  written  instrument ; 
and,  therefore,  as  will  presently  be  seen,  some  courts  have  declined 
to  allow  parol  evidence  to  be  admitted  in  proof  of  such  a  waiver. 
There  are,  however,  many  cases  of  parol  waiver  that  do  not  in  any 
wise  involve  the  parol  evidence  rule,  and  therefore  do  not  afford 
proper  ground  for  conflict  in  opinion.  In  order  to  distinguish  clearly 
those  cases  which  apparently  involve  the  parol  evidence  rule  from  those 
which  clearly  do  not,  parol  waivers  may  be  properly  divided  into  three 
classes,  as  follows: 

(a)  Those  parol  agreements,  whether  expressed  or  implied,  which 
precede  the  execution  of  the  written  contract,  and  by  the  terms  of 
which  it  is  provided,  in  effect,  that  some  condition  of  the  subsequently 
issued  policy  shall  be  inoperative,  will  be  called  "prior  parol  waivers." 

(b)  Those  parol  agreements  that  are  made  subsequently  to  the  exe- 
cution of  the  policy,  by  which  the  parties  seek  to  modify  or  abro- 
gate some  condition  of  that  policy,  will  be  known  as  subsequent  parol 
waivers. 

(c)  When  the  acts  of  the  insurer  that  are  sought  to  be  proved  by 
parol  as  estopping  him  to  enforce  some  condition  or  right  given  by 
the  terms  of  the  contract,  took  place  simultaneously  with  the  final  ex- 


1 


1*  1  GreenL  Ev.  (16th  Ed.)  i  27& 


348 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


ecution  or  delivery  of  the  policy,  such  an  estoppel  will  be  termed  a 
"contemporaneous  parol  waiver."  These  three  classes  of  parol  waiv- 
ers will  now  be  discussed,  and  the  principles  properly  applicable  stated 
and  applied  to  the  cases. 


PRIOR  PAROL  "WAIVERS. 

122.  In  no  case  can  parol  evidence  be  admitted  to  gho-w  a  ^7aiTer» 
express  or  implied,  of  any  term  of  a  subsequently  issued  policy. 
To  admit  sucb  evidence  would  unquestionably  be  to  alter  by 
parol  tbe  temui  of  a  valid  written  instrum.ent. 

The  rule  that  all  prior  parol  agreements  are  merged  in  a  subse- 
quent written  contract  touching  the  same  subject-matter  is  now  too  well 
established  to  need  the  support  of  cited  authority.  Therefore,  when 
a  policy  of  insurance,  properly  executed,  is  offered  by  the  insurer  and 
accepted  by  the  insured  as  the  evidence  of  their  contract,  it  must  be 
conclusively  presumed  to  contain  all  the  terms  of  the  agreement  for 
insurance  by  which  the  parties  intend  to  be  bound.  If  any  previous 
agreement  of  the  parties  shall  be  omitted  from  the  policy,  or  any  term 
not  theretofore  considered  added  to  it,  the  parties  are  necessarily  pre- 
sumed to  have  adopted  the  contract  as  written  as  the  final  form  of 
their  binding  agreement.  "The  entire  engagement  of  the  parties,  with 
all  the  conditions  upon  which  its  fulfillment  could  be  claimed,  must  be 
conclusively  presumed  to  be  there  stated.  If,  by  inadvertence  or  mis- 
take, provisions  other  than  those  intended  were  inserted,  or  stipu- 
lated provisions  were  omitted,  the  parties  could  have  had  recourse  for 
a  correction  of  the  agreement  to  a  court  of  equity,  which  is  competent 
to  give  all  needful  relief  in  such  cases.  But  until  thus  corrected,  the 
policy  must  be  taken  as  expressing  the  final  understanding  of  the  as- 
sured and  of  the  insurance  company."  ^*  It  is  true,  as  has  been  here- 
tofore explained,^ ^  that  there  is  a  tendency  on  the  part  of  some  courts, 
in  effect,  to  enforce  the  equitable  remedy  of  reformation  in  actions  at  law 
upon  insurance  contracts,  when  the  equitable  position  of  the  insured  is 
unusually  strong,  as  when  the  Supreme  Court  of  the  United  States  held 
in  McMaster  v.  New  York  LJfe  Ins.  Co.,^'  that  the  insured,  by  ac- 
cepting a  policy,  was  not  conclusively  bound  by  a  stipulation  inserted 
therein  without  his  knowledge  or  consent.  But  with  the  exception  of 
such  cases,  in  which  the  insurer  is  clearly  estopped  to  insist  upon  this 
rule  of  law,  it  must  be  universally  held  that  a  writing,  accepted  as  a 

11  Field  J.,  In  UNION  MUT.  LIFE  INS.  CO.  v.  MOWIIY,  96  U.  S.  544,  24  L. 
Ed.  674 ;  Richards,  Ins.  Cas.  381. 
i«  See  supra,  p.  299. 
i«  183  U.  S.  25,  22  Sup.  Ct  10,  46  L.  Ed.  64. 


§122) 


PRIOR  PAROL  WAIVERS. 


349 


contract,  contains  all  the  terms  to  which  the  parties  have  given  their 

consent,  and  no  others.  •    r  n 

As  a  necessary  consequence  of  the  operation  of  this  rule,  it  follows 
that  any  agreement  which  may  have  been  made  between  the  insured 
and  the  insurer  prior  to  the  issue  of  the  policy  can  have  absolutely  no 
effect  upon  the  rights  of  the  parties,  unless  it  is  contained  in  the  writ- 
ten policy.     Therefore  any  evidence  offered  to  show  a  prior  parol 
agreement,  in  order  to  vary  in  any  wise  the  rights  of  the  parties  to  a 
subsequent  written  agreement,  is  necessarily  inadmissible.    This,  being 
true  of  general  agreements,  is  also  true  of  a  waiver,^*  which,  as  we 
have  seen,  is  contractual  in  its  nature.     This  rule  equally  forbids  the 
proof  by  parol  of  conduct  alleged  to  constitute  an  estoppel,  if  such 
conduct  in  fact  preceded  the  issue  of  the  policy.     This  rule  is  well 
illustrated  by  the  leading  case  of  Union  Mut.  Life  Ins.  Co.  v.  Mowry,^ 
in  which  the  insurance  agent,  in  his  efforts  to  induce  the  assured  to 
take  insurance,  promised  that  he  should  have  notice  when  each  pre- 
mium should  become  due,  and  that  he  need  give  himself  no  uneasi- 
ness on  that  subject.     Relying  on  this  promise  to  give  notice    which 
was  not  contained  in  the  subsequently  issued  policy,  the  assured  failed 
to  pay  the  premium  when  it  became  due ;  and  the  company,  under  a 
provision  of  the  policy,  declared  the  policy  forfeited,  although  no  no- 
tice had  been  given.    The  lower  court  admitted  evidence  of  this  parol 
agreement,  made  by  the  agent,  to  give  notice,  as  establishing  an  estop- 
pel against  the  company  to  claim  a  forfeiture  under  the  terms  of  the 
policy  for  nonpayment  of  the  premium  at  its  maturity.     But  the  Su- 
preme Court  held  the  evidence  inadmissible,  and  that  no  such  prior 
parol  agreement  could  be  shown  to  contradict  the  terms  of  the  policy. 
"The  only  case,"  said  the  court,  "in  which  a  representation  as  to  the 
future  can  be  held  to  operate  as  an  estoppel,  is  where  it  relates  to 
an  intended  abandonment  of  an  existing  right,  and  is  made  to  influ- 
ence others,  and  by  which  they  have  been  induced  to  act.    An  estoppel 
cannot  arise  from  a  promise  as  to  future  action  with  respect  to  a  right 
to  be  acquired  upon  an  agreement  not  yet  made.    The  doctrine  of 
estoppel  is  applied  with  respect  to  representations  of  a  party,  to  pre- 
vent their  operating  as  a  fraud  upon  one  who  has  been  led  to  rely 
upon  them.    They  would  have  that  effect,  if  a  party  who,  by  his 
statements,  as  to  matters  of  fact,  or  as  to  his  intended  abandonment 
of  existing  rights,  had  designedly  induced  another  to   change  his 
conduct  or  alter  his  condition  in  reliance  upon  them,  could  be  per- 
mitted to  deny  the  truth  of  his  statements,  or  enforce  his  rights  against 
his  declared  intention  of  abandonment.    But  the  doctrine  has  no  place 

14  WeUs  V.  Insurance  Co.,  28  Ind.  App.  620,  62  N.  E.  501,  88  Am.  St  Rep. 
i»96  U.  S^  544,  24  L.  Ed.  674;  Richardi,  Ins.  Cas.  381, 


350 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


§123) 


SUBSEQUENT  PAROL  WAIVERS. 


351 


for  application  when  the  statement  relates  to  rights  depending  upon 
contracts  yet  to  be  made,  to  which  the  person  complaining  is  to  be  a 
party.  He  has  it  in  his  power  in  such  cases  to  guard  in  advance  against 
any  consequences  of  a  subsequent  change  of  intention  and  conduct  by 
the  person  with  whom  he  is  dealing.  For  compliance  with  arrange- 
ments respecting  future  transactions,  parties  must  provide  by  stipu- 
lations in  their  agreements  when  reduced  to  writing.  The  doctrine, 
carried  to  the  extent  for  which  the  assured  contends  in  this  case,  would 
subvert  the  salutary  rule  that  the  written  contract  must  prevail  over 
previous  verbal  arrangements,  and  open  the  door  to  all  the  evils  which 
that  rule  was  intended  to  prevent."  ^* 

The  principles  upon  which  rests  the  doctrine  that  prior  parol  waivers 
cannot  be  shown,  as  thus  set  forth  by  the  Supreme  Court,  are  so  clear, 
and  so  little  obscured  by  the  shadows  cast  by  closely  related  principles, 
that  there  would  seem  to  be  no  excuse  for  any  conflict  of  authority 
with  reference  to  their  application,  although  unfortunately  many  con- 
flicting cases  are  to  be  found  in  our  reports.  Where  cases  are  found 
in  which  evidence  of  prior  parol  waivers  has  been  admitted,  the  error 
of  the  court  will  usually  be  found  to  be  due  to  a  failure  to  distinguish 
prior  parol  waivers  from  subsequent  parol  waivers,  which,  as  will 
presently  be  seen,  are  radically  different  in  nature.  Thus,  in  the  re- 
cent case  of  Continental  Ins.  Co.  of  New  York  v.  Browning,^ ^  the 
court  held  admissible  evidence  to  show  an  agreement  made  between 
the  insured  and  the  insurance  agent,  prior  to  the  execution  of  the 
policy,  to  the  eflFect  that  the  insured  "need  not  worry  about  meeting 
the  payments  promptly,  and  that  the  company  would  see  that  his  policy 
was  kept  alive,  even  if  his  payments  were  behind  a  few  days."  This 
agreement  did  not  appear  in  the  policy,  which,  instead,  contained  a 
provision  that  a  failure  to  pay  any  installment  of  the  premium  when 
due  would  relieve  the  company  of  liability  during  the  time  in  which 
such  installment  remained  due  and  unpaid.  There  was  also  other  evi- 
dence tending  to  show  that  after  the  issue  of  the  policy  the  company 
gave  the  insured  reason  to  suppose  that  prompt  payment  of  the  pre- 
mium installments  as  required  by  the  policy  would  not  be  insisted 
upon.    From  the  principle  stated  above,  it  is  clear  that  the  previous 

i«  To  the  same  effect,  see  Thompson  v.  Insurance  Co.,  104  U.  S.  252,  259, 
26  L.  Ed.  765;  Gray  v.  Insurance  Co.,  155  N.  Y.  180,  49  N.  E.  675;  Moore  v. 
Insurance  Co.,  141  N.  Y.  219,  36  N.  E.  191 ;  National  Mut.  Ben.  Ass'n  v.  Hick- 
man, 86  Ky.  256,  5  S.  W.  565;  Fitchburg  Sav.  Banlt  v.  Amazon  Ins.  Co.,  125 
Mass.  431;  Germania  Ins.  Co.  v.  Bromwell,  62  Ark.  45,  34  S.  W.  83;  Mobile 
Life  Ins.  Co.  v.  Pruett,  74  Ala.  497 ;  Union  Cent.  Life  Ins.  Co.  v.  Chowning,  8 
Tex.  Civ.  App.  459,  28  S.  W.  117;  Wells  v.  Insurance  Co.,  28  Ind.  App.  620, 
62  N.  E.  501,  88  Am.  St.  Rep.  208. 

17  (Ky.  1902)  70  S.  W.  660,  24  Ky.  Iaw  Rep.  992.  See,  also.  State  Mut  Ins. 
Go.  V.  Latourette  (Ark.)  74  S.  W.  300. 


ag^reement  was  wholly  inadmissible,  but  that  the  evidence  of  the  sub- 
sequent conduct  of  the  insurer  was  proper. 

SUBSEQUENT  PAROL  WAIVERS. 

123.  A  written  contract  may  be  altered  or  abrogated  at  will  by  tbe 
■nbsequent  parol  ag^reement  of  the  parties.  Hence  any  con- 
dnct  or  acts  of  the  insurer  subsequent  to  the  execution  of  the 
policy  may  be  freely  shown  by  parol  in  order  to  prove  a  uraiver 
of  any  term  thereof.  The  tenns  most  frequently  thus  shown 
to  have  been  waived  are; 

(a)  The  requirement  of  prompt  payment  of  premiums  by  oustoma'- 

rily  receiving  overdue  premiums. 

(b)  Limitations  upon  the  authority  of  inferior  agents  by  permitting 

the  exercise  of  the  pow^ers  denied. 

(o)  The  condition  of  forfeiture  for  nonpayment  of  premiums  by  ac- 
cepting an  overdue  premium  or  otherwise  indicating  that  the 
policy  is  regarded  as  still  in  force. 

(d)  Conditions  requiring  proofs  of  loss,  submission  to  arbitration, 
or  other  acts  subsequent  to  the  completion  of  the  contract,  by 
absolutely  denying  liability,  or  otherwise  showing  that  the  per- 
formance of  such  acts  is  not  desired  or  expected. 

There  is  no  principle  of  right  or  reason,  or  any  rule  of  authority, 
which  can  prevent  the  parties  to  a  written  agreement  from  altering 
that  agreement  in  any  way  they  may  desire,  or  abandoning  it  alto- 
gether, by  mere  parol  agreement.  Under  modern  decisions  it  is  even 
held  that  a  contract  under  seal  may  be  altered  by  the  mutual  parol 
agreement  of  the  parties,  the  consent  of  each  party  to  such  modifica- 
tion calling  for  the  similar  consent  of  the  other. ^®  Hence  we  con 
elude,  without  difficulty,  that,  however  formally  a  policy  may  have 
been  executed  in  writing,  the  parties  thereto  can  subsequently,  at  their 
pleasure,  vary  that  contract  in  any  respect  they  may  desire,  and  such 
an  agreement  will  not  in  any  wise  involve  the  parol  evidence  rule,  since 
it  plainly  does  not  come  within  its  terms.  This  agreement  can  be 
made  formally  or  informally,  and  may  be  as  well  implied  from  the 
conduct  of  the  parties  as  it  may  be  expressed  by  their  words.  There- 
fore parol  evidence  is  always  admissible  to  show  a  waiver,  express 
or  implied,  of  any  of  the  terms  of  a  previously  written  contract  of  in- 
surance.^® So  the  conduct  of  the  insurer,  or  of  a  competent  agent, 
subsequent  to  the  issue  of  the  policy,  may  be  freely  shown  to  establish 
an  estoppel  against  the  insurer  claiming  a  right  under  the  strict  letter 
of  the  contract.    Another  leading  case  decided  by  the  Supreme  Court 

i«  McCreery  v.  Day,  119  N.  Y.  1,  23  N.  R  198,  6  L.  R.  A.  503,  16  Am.  St. 
Rep.  793.  See,  also,  Clark,  Cont.  (2d  Ed.)  p.  418.  But  in  Canada  it  seems  that 
a  parol  waiver  of  a  condition  of  a  sealed  policy  cannot  be  shown.  See  Scott 
v.  Insurance  Co.,  25  U.  C.  Q.  B.  119. 

i»  New  York  Life  Ins.  Co.  v.  Eggleston,  96  U.  S.  527,  24  L.  Ed.  841;  VIELE 


!* 


I 


i: 


I 


I 


352 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


of  the  United  States  only  a  week  later  than  the  Mowry  Case,  just  dis- 
cussed (Knickerbocker  Life  Ins.  Co.  v.  Norton  2^),  well  illustrates  the 
rule  that  subsequent  parol  waivers  are  admissible.  In  that  case  the 
policy  contained  a  provision  that  "agents  of  the  company  are  not 
authorized  to  make,  alter  or  abrogate  contracts  or  waive  forfeitures." 
The  policy  also  provided  that  a  failure  to  pay  any  premium  or  note 
at  maturity  should  render  the  policy  null  and  void.  The  evidence 
showed  that  the  company  did  in  fact  allow  its  agents  to  extend  the 
time  for  the  payment  of  premium  notes,  despite  the  restriction  men- 
tioned in  the  policy.  The  insured,  after  the  maturity  of  a  premium 
note,  secured  an  extension  of  time  from  the  agent,  and  died  before 
the  expiration  of  the  extended  time.  It  was  contended  by  the  counsel 
for  the  company  that  the  admission  of  parol  testimony  of  a  waiver 
of  the  condition  of  prompt  payment  of  premium  notes  at  maturity 
was  to  vary  the  terms  of  the  written  instrument,  but  the  Supreme 
Court,  in  holding  the  evidence  admissible  and  competent,  said: 

"The  written  agreement  of  the  parties,  as  embodied  in  the  policy 
and  the  indorsement  thereon,  as  well  as  in  the  notes  and  the  receipt 
given  therefor,  was  undoubtedly  to  the  express  purport  that  a  failure 
to  pay  the  notes  at  maturity  would  incur  a  forfeiture  of  the  policy. 
It  also  contained  an  express  declaration  that  the  agents  of  the  com- 
pany were  not  authorized  to  make,  alter,  or  abrogate  contracts  or  waive 
forfeitures.  And  these  terms,  had  the  company  so  chosen,  it  could 
have  insisted  on.**  But  a  party  always  has  the  option  to  waive  a  con- 
dition or  stipulation  made  in  his  own  favor.  The  company  was  not 
bound  to  insist  upon  a  forfeiture,  though  incurred,  but  might  waive 
it.  It  was  not  bound  to  act  upon  the  declaration  that  its  agents  had 
no  power  to  make  agreements  or  waive  forfeitures,  but  might  at  any 
time,  at  its  option,  give  them  such  power.  The  declaration  was  only 
tantamount  to  a  notice  to  the  assured,  which  the  company  could  waive 
and  disregard  at  pleasure.     In  either  case,  both  with  regard  to  the 

V.  INSURANCE  CO.,  26  Iowa,  9,  96  Am.  Dec.  83;  German-Amerlcaii  Ins.  Co. 
V.  Humphrey,  62  Ark.  348,  35  S.  W.  428,  54  Am.  St  Rep.  297;  Western  Assur. 
Co.  V.  WiUiams,  94  Ga.  128,  21  S.  E.  370;  Burlington  Ins.  Co.  v.  Rivers,  9  Tex. 
Civ.  App.  177,  28  S.  W.  453;  Manufacturers'  &  Merchants'  Ins.  Co.  v.  Arm- 
strong, 145  111.  469,  34  N.  E.  553;  Grubbs  v.  North  CaroUna  Home  Ins.  Co., 
108  N.  C.  472,  13  S.  E  236,  23  Am.  St  Rep.  62;  Kenyon  v.  Association,  122 
N.  Y.  247,  25  N.  E.  299;  McFarland  v.  Insurance  Co.,  134  Pa.  590,  19  Atl.  796, 
19  Am.  St  Rep.  723;  Phenix  Ins.  Co.  v.  Bowdre,  67  Miss.  620,  7  South.  596,  19 
Am.  St.  Rep.  326;  Burson  v.  Association,  136  Pa.  267,  20  Atl.  401,  20  Am.  St 
Rep.  919;  German  Ins.  Co.  v.  Gray,  43  Kan.  497,  23  Pac.  637,  8  L.  R.  A.  70, 
19  Am.  St  Rep.  150;  Orient  Ins.  Co.  v.  McKnight,  197  111.  190,  64  N.  B.  339. 

so  96  U.  S.  234,  24  L.  Ed.  689;   Richards,  Ins.  Cas.  399;   Elliott  Ins.  Cas.  52. 

21  Carey  v.  Insurance  Co.,  84  Wis.  80,  54  N.  W.  18,  20  L.  B.  A.  267,  36  Am. 
St  Rep.  907. 


gl23) 


SUBSEQUENT  PAROL  WAIVERS. 


353 


forfeiture  and  to  the  powers  of  its  agent,  a  waiver  of  the  stipulation 
or  notice  would  not  be  repugnant  to  the  written  agreement,  because  it 
would  only  be  the  exercise  of  an  option  which  the  agreement  left  in 
it.  And  whether  it  did  exercise  such  option  or  not  was  a  fact  provable 
by  parol  evidence,  as  well  as  by  writing,  for  the  obvious  reason  that 
it  could  be  done  without  writing."  ^* 

Instances  of  Subsequent  Parol  Waivers. 

The  reports  are  full  of  illustrations  of  parol  subsequent  waivers  of 
conditions  in  insurance  contracts  concerning  the  proof  of  which,  by 
parol  testimony,  there  should  be  no  room  for  dispute.  The  principle 
applicable  to  all  such  waivers  is  the  same,  but  it  will  be  profitable  to  set 
forth  some  specific  instances  further  illustrating  the  principle  re- 
ferred to. 

Probably  the  most  frequently  occurring  waiver  by  subsequent  act  is 
the  receipt  of  an  overdue  premium,  by  which  act  the  insurer  estops 
himself  from  claiming  that  the  policy  was  forfeited  by  nonpayment  of 
such  premium  at  its  maturity.^^  So  in  many  jurisdictions  it  is  held 
that  the  insurer,  by  customarily  receiving  premiums  when  overdue, 
waives  that  condition  of  the  contract  requiring  prompt  payment,  so 
that  the  insured  may  demand  that  the  premium  shall  be  received  in 
accordance  with  that  custom  within  a  reasonable  time  after  its  ma- 
turity.** As  heretofore  stated,  however,  it  is  doubtful  whether  this 
view  is  correct,  not  because  there  is  any  question  as  to  the  admissibilit> 

»«  To  the  same  effect,  see  New  York  Life  Ins.  Co.  t.  Eggleston,  96  U.  S. 
572,  24  L.  Ed.  841;  Phcenix  Mut.  Life  Ins.  Co.  v.  Doster,  106  U.  S.  30,  34,  1 
Sup.  Ct  18,  27  L.  Ed.  65,  67;  Hartford  Life  &  Annuity  Ins.  Co.  v.  Unsell,  144 
U.  S.  439,  12  Sup.  Ct  671,  36  L.  Ed.  496. 

28  Phoenix  Mut.  Life  Ins.  Co.  v.  Doster,  106  U.  S.  34,  1  Sup.  Ct  22,  37  L.  Ed. 
67;  Mutual  Ben.  Life  Ins.  Co.  v.  Robertson,  59  111.  123,  14  Am.  Rep.  8;  Mutual 
Life  Ins.  Co.  v.  French,  30  Ohio  St.  240,  27  Am.  Rep.  443;  Walsh  v.  Insur- 
ance Co.,  30  Iowa,  133,  6  Am.  Rep.  664.  Sweetser  v.  Association,  117  Ind.  97, 
19  N.  E.  722. 

2*  Newark  Mach.  Co.  y.  Kenton  Ins.  Co.,  50  Ohio  St  549,  35  N.  B.  1060,  22 
L.  R.  A.  768;  Stewart  v.  Insurance  Co.,  155  N.  Y.  257,  49  N.  E.  876,  42  L.  R. 
A.  147;  Bodine  v.  Insurance  Co.,  51  N.  Y.  117,  10  Am.  Rep.  566;  Dilleber  v. 
Insurance  Cb.,  76  N.  Y.  567;  Knickerbocker  Life  Ins.  Co.  v.  Norton,  96  U.  S. 
234,  24  L.  Ed.  689;  De  Frece  v.  Insurance  Co.,  136  N.  Y.  144,  32  N.  E.  557; 
HOME  PROTECTION  OF  NORTH  ALABAMA  v.  AVERY,  85  Ala.  348,  5 
South.  143,  7  Am.  St.  Rep.  54;  Northwestern  Mut.  Life  Ins.  Co.  v.  Umerman, 
119  111.  329,  10  N.  E.  225;  Sweetser  v.  Association,  117  Ind.  97,  19  N.  E.  722; 
Continental  Ins.  Co.  v.  Browning,  70  S.  W.  660,  24  Ky.  Law  Rep.  992.  The 
acceptance  of  premiums  waives  previous  right  of  setting  up  a  forfeiture  on 
technical  grounds.  Supreme  Lodge  K.  P.  v.  Kaliuski,  163  U.  S.  289,  16  Sup.  Ct 
1047,  41  L.  Ed.  163;  Appleton  v.  Insurance  Co.,  59  N.  H.  541,  47  Am.  Rep.  220; 
McCorkle  v.  Association,  71  Tex.  149,  8  S.  W.  516;  Unsell  v.  Insurance  Co. 
(C.  C.)  32  Fed.  443. 

Vance  Ins. — 2B 


4 


!l 


II 


354 


WAIVBB  AND  ESTOPPEL. 


(Ch.  10 


of  the  evidence,  but  because  it  is  doubtful  whether  all  the  elements 
of  a  waiver  are  present.** 

Another  class  of  subsequent  waivers  frequently  occurring  includes 
those  cases  in  which  conditions  in  the  policy  placing  restrictions  upon 
the  authority  of  subordinate  agents  are  shown  to  be  waived  by  evi- 
dence that  the  company  has  actually  allowed  the  agent  to  exercise  the 
powers  that  have  been  expressly  denied  by  the  condition  in  question. 
The  Norton  Case,**  discussed  above,  is  typical  of  this  class.  So  the 
condition  requiring  proofs  of  loss,"  or  appraisement,"  or  that  ques- 
tions in  dispute  shall  be  submitted  to  arbitration,"  or  requiring  that 
any  other  acts  shall  be  done  as  conditions  precedent  to  the  right  to 
claim  performance  by  the  insurer,  can  be  shown  to  have  been  waived 
by  him  by  such  acts  of  himself  or  his  agent  as  clearly  show  that  the 
performance  of  those  conditions  is  not  expected  or  required. 

2  8  KNICKERBOCKER  LIFE  INS.  CO.  v.  NORTON,  96  U.  S.  234,  24  L.  Ed. 
689,  Richards,  Ins.  Cas.  399,  Elliott,  Ins.  Cas.  52. 

2«  KNICKERBOCKER  LIFE  INS.  CO.  V.  NORTON,  supra. 

27  If  the  insured  in  good  faith  does  what  he  plainly  intends  as  a  compliance 
with  the  requirements  of  his  policy  in  regard  to  proofs  of  loss,  the  failure  of 
the  insurance  company  to  notify  him  of  any  objections  to  the  proofs  furnished 
constitutes  a  waiver  of  any  further  proof.  Moyer  v.  Insurance  Office,  176  Pa. 
579,  35  Atl.  221,  53  Am.  St.  Rep.  690. 

Where  the  insurance  company  receives  and  returns  proofs  of  loss  without 
making  any  objections  thereto,  it  will  be  deemed  to  have  waived  any  defects 
therein.  Vangindertallen  v.  Insurance  Co.,  82  Wis.  112,  51  N.  W.  1122,  33 
Am.  St.  Rep.  29;  Welsh  v.  Assurance  Corp.,  151  Pa.  607,  25  Atl.  142,  31  Am. 
St.  Rep.  786;  Insurance  Co.  of  North  America  v.  McDowell,  50  111.  120,  99 
Am.  Dec.  497;  McBryde  v.  Insurance  Co.,  55  S.  C.  589,  33  S.  E.  729,  74  Am.  St. 
Rep.  769.  If  the  insurer  denies  his  liability  for  a  loss,  he  thereby  waives  any 
defects  in  the  proofs  submitted  to  him.  ANGIER  v.  ASSURANCE  CO.,  10 
S.  D.  82,  71  N.  W.  761,  66  Am.  St  Rep.  685;  German- American  Ins.  Co.  v. 
Norris,  100  Ky.  29,  37  S.  W.  267,  66  Am.  St.  Rep.  324;  Insurance  Co.  v.  Non- 
nent,  91  Tenn.  1,  18  S.  W.  395;  German  Ins.  Co.  v.  Gray,  43  Kan.  497,  23  Pac. 
637,  8  L.  R.  A.  70,  19  Am.  St.  Rep.  150.  The  required  proo?  of  loss  within  sixty 
days  is  waived  by  the  insurer  by  denying  his  liability  on  other  grounds  till 
after  the  lapse  of  the  given  period.  Germania  Fire  Ins.  Co.  v.  Pitcher,  160 
Ind.  392,  64  N.  E.  921. 

After  the  adjuster  of  an  insurance  company  had  visited  the  premises  and 
examined  the  loss,  it  was  held  no  defense  that  preliminary  proofs  of  loss  were 
not  furnished  to  the  company  as  required  by  the  policy.  McClelland  v.  In- 
surance Co.,  107  La.  124,  31  South.  691. 

28  See  Bangor  Sav.  Bank  v.  Niagara  Fire  Ins.  Co.,  85  Me.  68,  26  Atl.  991,  20 
L.  R.  A.  650,  35  Am.  St.  Rep.  341. 

29  Famum  v.  Insurance  Co.,  83  Cal.  246,  23  Pac.  869,  17  Am.  St  Rep.  233. 
When  an  insurance  policy  makes  arbitration  of  loss  a  condition  precedent  to 
suit,  and  the  insured  demands  arbitration,  which  is  refused  by  the  insurer, 
such  refusal  constitutes  a  waiver  of  the  arbitration  condition.  Continental 
Ins.  Co.  V.  Wilson,  45  Kan.  250,  25  Pac.  629,  23  Am.  St  Rep.  720;  Numey  v. 
Insurance  Co.,  63  Mich.  633,  30  N.  W.  350,  6  Am.  St  Rep.  338.  The  right  to 
arbitrate  is  waived  by  a  failure  to  respond  to  a  letter  of  the  insured  demand- 


g  124)    ^  CONTEMPORANEOUS  PAROL  WAIVERS.  355 


124. 


(a) 


Cb) 


CONTEMPORANEOUS  PAROL  WAIVERS. 

Evidence  of  oircnmstances  attending  the  delivery  of  the  policy 
may  be  offered  as  showing  a  waiver  or  estoppel  as  to  some  con- 
dition of  the  policy  nnder  two  different,  though  apparently  sint- 
ilar,  states  of  fact. 

Snch  evidence  may  be  offered  by  the  insured  to  shox7  a  'waiver 
of  a  future  or  executory  condition,  in  the  nature  of  a  condition 
subsequent.  By  the  weight  of  authority,  parol  evidence  is  not 
admissible  for  such  a  purpose. 

Or  the  insured  may  desire  to  prove  by  parol  that  the  circum- 
stances under  which  the  contract  was  made  w^ere  such  as  make 
it  inequitable  for  the  insurer  to  daini  benefit  from  the  breach 
of  a  condition  which  would  prevent  the  valid  inception  of  the 
contract,  being  in  the  nature  of  a  condition  precedent.  By  the 
great  weight  of  authority,  parol  evidence  is  admissible,  not  for 
the  purpose  of  altering  a  term  of  the  written  contract,  but  to 
estop  the  insurer  from  deriving  an  unfair  advantage  from  snch 
temL. 


Assuming  it  to  be  settled  on  unquestionable  principle  that  prior 
waivers  of  conditions  of  subsequently  written  contracts  cannot  be 
proved  by  parol,  and  that  subsequent  waivers  of  the  conditions  of  a 
previously  written  contract  may  always  be  so  shown,  we  have  next  to 
consider  the  difficult  and  confusing  question  as  to  the  admissibility 
of  parol  evidence  to  prove  what  has  been  heretofore  denominated  a 
contemporaneous  waiver  or  estoppel.  It  is  upon  this  subject  that  the 
greatest  confusion  and  the  fiercest  conflict  are  to  be  found  among  the 
authorities.  For  purposes  of  clearness,  we  must  note  here  an  impor- 
tant distinction  that  exists  between  a  contemporaneous  waiver,  strictly 
so  called,  and  a  proper  estoppel  contemporaneous  with  the  delivery  of 
the  policy :  (1)  At  the  time  of  delivering  a  policy  that  contains  a  con- 
dition avoiding  it  if  the  building  insured  shall  remain  unoccupied  for 
a  specified  time,  the  general  agent  of  the  insurer  expressly  waives  the 
benefit  of  that  condition,  and  the  insured  accepts  the  policy  with  the 
understanding  that  that  condition  shall  not  be  operative.  This  is  a 
waiver  proper,  but  it  is  apparent  that  on  sound  principle  such  a  waiver, 
although  contemporaneous  with  the  delivery  of  the  policy,  and  indu- 
cing its  acceptance,  cannot  be  shown  by  parol  without  a  clear  violation 
of  the  parol  evidence  rule.  Therefore  we  conclude  that  a  contempo- 
raneous waiver  of  an  executory  condition,  or  condition  subsequent, 

ing  arbitration.  Milwaukee  Mechanics*  Ins.  Co.  v.  Schallman,  188  111.  213,  59 
N.  E.  12.  See  Hickerson  v.  Insurance  Co.,  96  Tenn.  193,  33  S.  W.  1041,  32  L. 
R.  A.  172;  Hayes  v.  Insurance  Co.,  170  Mass.  492,  49  N.  B.  754;  Manchester 
Fire  Assur.  Co.  v.  Koerner,  13  Ind.  App.  372,  40  N.  E.  1110;  Virginia  Fire  & 
Marine  Ins.  Co.  v.  Cannon,  18  Tex.  Civ.  App.  588,  45  S.  W.  945;  Brock  v.  In- 
surance Co.,  102  Mich.  583,  61  N.  W.  67,  26  L.  R.  A.  623, 47  Am.  St  Rep.  562. 


356 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


ri 


,1 1 


tj;! 


cannot  be  proved  by  parol  testimony."     (2)  A  general  agent  delivers 
to  the  insured  a  policy  which  purports  to  insure  his  property  against 
destruction  by  fire,  and  receives  from  the  insured  the  premium  paid 
for  such  insurance,  although  the  agent  knows  full  well  that  a  part  of 
the  property  which  he  professes  to  insure  is  on  leased  ground,  which 
fact,  by  the  terms  of  a  condition  written  in  the  policy  delivered,  makes 
the  policy  absolutely  void  in  its  inception."     Again  an  agent  of  the 
insurer,  in  preparing  the  application,  through  mistake  or  fraud,  false- 
ly writes  in  the  application  answers  that  have  been  truthfully  given  by 
the  applicant ;  the  applicant  signs  the  falsified  application ;  and  subse- 
quently the  insurer,  through  his  agent,  delivers  to  the  applicant  a 
policy  which  contains  a  provision  making  it  void  in  its  inception  by 
reason  of  the  false  statement  written  in  the  application.    The  agent  de- 
livering the  policy  on  behalf  of  the  company  knows  that  the  policy  is 
void  if  the  condition  referred  to  is  to  be  enforced.^^    These  are  typi- 
cal cases  involving  the  application  of  the  peculiar  doctrine  of  equitable 
estoppel  as  especially  applied  in  actions  upon  insurance  contracts.     It 
is  clear  that  there  is  fraud  on  the  part  of  the  insurer's  agent  in  pre- 
tending to  make  a  valid  contract,  when  by  its  terms  he  knows  it  to 
be  invalid,  and  that  the  insured,  if  acting  in  good  faith,  has  been  mis- 
led into  paying  money  for  a  contract  which  by  its  terms  conferred  no 
benefit  whatsoever  upon  him.     Therefore  the  insured  would  have  his 
remedy  at  law  in  an  action  to  recover  the  premiums  paid,  or  in  equity 
in  a  suit  for  reformation  or  rescission.    But  under  the  peculiar  facts 
of  these  cases,  such  usual  remedies  would  be  wholly  inadequate,  and 
far  from  doing  justice  between  the  parties.     For  usually  it  is  only 
when  a  loss  occurs  that  the  insurer  desires  to  rescind  the  contract,  or 
that  the  insured,  who  has  acted  in  good  faith,  learns  of  the  fraud  of 
the  insurer's  agent  entitling  him  to  a  rescission ;  and,  when  a  loss  has 
occurred,  the  restitution  of  premiums  paid  by  the  insured  is  not  at  all 
what  he  desires  or  what  he  is  equitably  entitled  to  receive.     He  does 
not  wish  to  rescind  the  contract,  but  to  enforce  it,  despite  the  presence 
of  a  condition  which,  under  the  facts  of  the  case,  will,  if  given  literal 
effect,  render  the  contract  unenforceable.    Can  he  do  so  in  an  action  at 
law  ?  '  To  this  question  different  answers  have  been  given  by  the  Amer- 
ican courts.  .    . 

Before  examining  the  diverse  views  taken  by  these  courts,  it  is  ad- 
visable first  to  state  certain  pertinent  propositions  from  which  there 

80  Ripley  V.  Insurance  Co..  30  N.  Y.  136,  86  Am.  Dec.  362 ;  United  Firemen's 
Ins.  Co.  V.  Thomas,  53  U.  S.  App.  517,  27  C.  C.  A.  42,  82  Fed.  406,  47  L.  R.  A. 

450 

8*1  See  VAN  SCHOICK  T.  INSURANCE  CO.,  68  N.  Y.  434,  Richards,  Ins. 

Cas  362 

8i  Compare  UNION  MUT.  LIFE  INS.  CO.  Y.  WILKINSON,  13  Wall.  222,  20 

L.  Ed.  617,  Richards,  Ins.  Cas.  354. 


i 


§124) 


CONTEMPORANEOUS  PAROL  WAIVERS. 


357 


can  be  no  respectable  dissent:  (1)  The  insured  cannot  be  heard  to 
deny,  in  an  action  at  law,  that  he  has  knowledge  of  all  the  statements 
made  in  an  application  signed  by  him,  and  of  all  conditions  and  terms 
of  a  policy  accepted  by  him.  (2)  The  knowledge  of  the  agent  of  a  fact 
material  to  a  transaction  on  behalf  of  the  insurer  must  be  in  all  cases 
imputed  to  the  insurer.  (3)  The  law  requires  the  exercise  of  a  high 
degree  of  good  faith  on  the  part  of  both  parties  to  the  contract  of  in- 
surance— of  the  insurer  in  no  less  degree  than  of  the  insured.  (4)  The 
insured,  in  demanding  that  the  insurer  shall  be  equitably  estopped 
from  enforcing  a  legal  right  given  under  the  letter  of  his  contract,  must 
himself  occupy  an  equitable  position,  and  must  show,  on  his  part, 
conduct  free  from  any  imputation  of  bad  faith."  (5)  Parol  contempo- 
raneous evidence  cannot  be  received  for  the  purpose  of  contradicting 
a  valid  written  instrument,  whether  that  instrument  be  the  policy  or 
the  application.  (6)  But  parol  evidence  may  always  be  received  to 
show  that  a  writing  alleged  to  be  a  valid  written  instrument  is  not 
really  what  it  purports  to  be,  but  is  invalid,  and  not  the  obligation  of 
the  alleged  parties.  Another  proposition  stated  as  true  in  the  pre- 
ceding chapter,  but  opposed  by  much  authority,  will  be  thus  stated  and 
relied  upon  in  the  following  discussion :  (7)  The  rights  of  the  parties 
to  the  contract  of  insurance  will  not  be  affected  by  attempted  limita- 
tions upon  the  authority  of  the  agent  of  the  insurer,  which  are  im- 
proper and  invalid  because  (a)  contrary  to  truth,  as  that  no  agent 
whatever  can  waive  a  condition  of  the  policy,  save  in  writing,  or  that 
the  representative  of  the  insurer  is  the  agent  of  the  insured,  or  (b) 
because  such  limitation  is  imposed  upon  a  legal  incident  of  the  relation 
of  principal  and  agent,  and  not  upon  conferred  authority,  as  that  the 
insurer  will  not  be  bound  by  representation  made  by  or  to  his  agent 
in  the  procurement  of  the  insurance,  or  that  he  will  be  bound  by  only 
such  information  acquired  as  is  written  in  the  application. 

These  propositions  being  now  regarded  as  true,  we  have  next  to 
consider  whether,  under  facts  such  as  exist  in  the  typical  cases  set 
forth  above,  the  insured  shall  be  allowed,  in  an  action  at  law,  to  avoid 
a  forfeiture  clearly  incurred  under  a  condition  oi  the  written  policy 
by  introducing  parol  evidence  showing  that  it  would  be  inequitable 
to  permit  the  insurer  to  take  advantage  of  such  a  forfeiture.  The 
whole  contest,  however  voluminously  waged  in  the  courts,  narrows 
itself  to  this  single  issue:  Does  the  admission  of  such  evidence  have 
the  effect  of  altering  or  contradicting  a  term  of  the  policy,  and  thus 
violating  the  parol  evidence  rule?  There  is  need  of  no  argument  to 
prove  that  the  parol  evidence  rule,  derived  by  the  common  sense  of  the 


88  Clemans  v.  Assembly,  131  N.  Y.  485,  30  N.  E.  496,  16  L.  R.  A.  33;  Gal- 
braith's  Adm'r  v.  Insurance  Co.,  12  Bush  (Ky.)  29;  NEW  YORK  LIFE  INS. 
CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct  837,  29  L.  Ed.  834. 


358 


WAIVER  AND  ESTOPPBL. 


(Ch.10 


I 


race  from  its  common  experiences  during  the  centuries  of  the  com- 
mon law's  existence,  and  carefully  defined  by  successive  adjudications 
of  common-law  courts,  is  of  too  great  value  to  yield  to  the  demands 
of  occasional  equities  in  the  determinatin  of  insurance  causes.  In 
speaking  of  this  famous  rule.  Justice  Miller,  in  Union  Mut.  Life  Ins. 
Co.  V.  Wilkinson,'*  makes  the  following  sound  observations:  "The 
great  value  of  the  rule  of  evidence  here  invoked  cannot  be  easily  over- 
estimated. As  a  means  of  protecting  those  who  are  honest,  accurate, 
and  prudent  in  making  their  contracts,  against  fraud  and  false  swear- 
ing, against  carelessness  and  inaccuracy,  by  furnishing  evidence  of  what 
was  intended  by  the  parties,  which  can  always  be  produced  without 
fear  of  change  or  liability  of  misconstruction,  the  rule  merits  the  eulo- 
gies it  has  received.  But  experience  has  shown  that  in  reference  to 
these  very  matters  the  rule  is  not  perfect.  The  written  instrument 
does  not  always  represent  the  intention  of  both  parties,  and  sometimes 
it  fails  to  do  so  as  to  either ;  and,  where  this  has  been  the  result  of  ac- 
cident or  mistake  or  fraud,  the  principle  has  been  long  recognized 
that  under  proper  circumstances,  and  in  an  appropriate  proceeding,  the 
instrument  may  be  set  aside  or  reformed,  as  best  suits  the  purposes 
of  justice.  A  rule  of  evidence  adopted  by  the  courts  as  a  protection 
against  fraud  and  false  swearing  would,  as  was  said  in  regard  to  the 
analogous  rule  known  as  the  *  Statute  of  Frauds,'  become  the  instru- 
ment of  the  very  fraud  it  was  intended  to  prevent,  if  there  did  not 
exist  some  authority  to  correct  the  universality  of  its  application.  It 
is  upon  this  principle  that  courts  of  equity  proceed  in  giving  the  relief 
just  indicated ;  and  though  the  courts,  in  a  common-law  action,  may  be 
more  circumscribed  in  the  freedom  with  which  they  inquire  into  the 
origin  of  written  agreements,  such  an  inquiry  is  not  always  forbidden 
by  the  mere  fact  that  the  party's  name  has  been  signed  to  the  writing 
offered  in  evidence  against  him." 

In  answer  to  the  question  propounded  above,  Justice  Miller  continues 
in  the  same  case :  "In  the  case  before  us  a  paper  is  offered  in  evidence 
against  the  plaintiff  containing  a  representation  concerning  a  mat- 
ter material  to  the  contract  on  which  the  suit  is  brought,  and  it  is  not 
denied  that  he  signed  the  instrument,  and  that  the  representation  is 
untrue.  But  the  parol  testimony  makes  it  clear,  beyond  a  question,  that 
this  party  did  not  intend  to  make  that  representation  when  he  signed 
the  paper,  and  did  not  know  he  was  doing  so,  and  in  fact  had  refused 
to  make  any  statement  on  that  subject.  If  the  writing  containing  this 
representation  had  been  prepared  and  signed  by  the  plaintiff  in  his  ap- 
plication for  a  policy  of  insurance  on  the  life  of  his  wife,  and  if  the 
representation  complained  of  had  been  inserted  by  himself,  or  by  some 


»*  13  WalL  222,  20  L.  Ed.  617,  Rlcliards,  Ina  Cas.  354^  Woodnifif,  Ins.  Cas. 
428. 


§124) 


CONTEMPORANEOUS  PAROL  WAIVERS. 


359 


one  who  was  his  agent  alone  in  the  matter,  and  forwarded  to  the  prin- 
cipal office  of  the  defendant  corporation,  and  acted  upon  as  true  by 
the  officers  of  the  company,  it  is  easy  to  see  that  justice  would  author- 
ize them  to  hold  him  to  the  truth  of  the  statement,  and  that,  as  they 
had  no  part  in  the  mistake  which  he  made,  or  in  the  making  of  the 
instrument  which  did  not  truly  represent  what  he  intended,  he  should 
not,  after  the  event,  be  permitted  to  show  his  own  mistake  or  care- 
lessness to  the  prejudice  of  the  corporation. 

"If,  however,  we  suppose  the  party  making  the  insurance  to  have 
been  an  individual,  and  to  have  been  present  when  the  application  was 
signed,  and  soliciting  the  assured  to  make  the  contract  of  insurance, 
and  that  the  insurer  himself  wrote  out  all  these  representations,  and 
was  told  by  the  plaintiff  and  his  wife  that  they  knew  nothing  at  all  of 
this  particular  subject  of  inquiry,  and  that  they  refused  to  make  any 
statement  about  it,  and  yet,  knowing  all  this,  wrote  the  representation 
to  suit  himself,  it  is  equally  clear  that  for  the  insurer  to  insist  that  the 
policy  is  void  because  it  contains  this  statement  would  be  an  act  of 
bad  faith  and  of  the  grossest  injustice  and  dishonesty.  And  the  rea- 
son for  this  is  that  the  representation  was  not  the  statement  of  the 
plaintiff,  and  that  the  defendant  knew  it  was  not  when  he  made  the 
contract,  and  that  it  was  made  by  the  defendant,  who  procured  the 
plaintiff's  signature  thereto. 

"It  is  in  precisely  such  cases  as  this  that  courts  of  law  in  modem  times 
have  introduced  the  doctrine  of  equitable  estoppels,  or,  as  it  is  some- 
times called,  estoppels  in  pais.  The  principle  is  that  where  one  party 
has  by  his  representations  or  his  conduct  induced  the  other  party  to 
a  transaction  to  give  him  an  advantage  which  it  would  be  against 
equity  and  good  conscience  for  him  to  assert,  he  would  not,  in  a  court 
of  justice,  be  permitted  to  avail  himself  of  that  advantage.  And  al- 
though the  cases  to  which  this  principle  is  to  be  applied  are  not  as  well 
defined  as  could  be  wished,  the  general  doctrine  is  well  understood, 
and  is  applied  by  courts  of  law  as  well  as  equity  where  the  technical 
advantage  thus  obtained  is  set  up  and  relied  on  to  defeat  the  ends 
of  justice  or  establish  a  dishonest  claim. 

"It  has  been  applied  to  the  precise  class  of  cases  of  the  one  before 
us  in  numerous  well-considered  judgments  by  the  courts  of  this  coun- 
try.'" Indeed,  the  doctrine  is  so  well  understood  and  so  often  enforced 
that,  if,  in  the  transaction  we  are  now  considering,  Ball,  the  insurance 
agent  who  made  out  the  application,  had  been  in  fact  the  underwriter 
of  the  policy,  no  one  would  doubt  its  applicability  to  the  present  case. 


I 


3  8  Citing  PLUMB  r.  INSURANCE  CO.,  18  N.  Y.  392,  72  Am.  Dec.  526;  Row- 
ley V.  Insurance  Co.,  36  N.  Y.  550;  Woodbury  Sav.  Bank  &  Bldg.  Ass'n  v. 
Charter  Oak  Fire  &  Marine  Ins.  Co.,  31  Conn.  526;  Combs  ?•  Insurance  Co., 
13  Mo.  148,  97  Am.  Dec.  383. 


360 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


\ 


r  I 


Yet  the  proposition  admits  of  as  little  doubt  that  if  Ball  was  the  agent 
of  the  insurance  company,  and  not  of  the  plaintiff,  in  what  he  did  in 
filling  up  the  application,  the  company  must  be  held  to  stand  just  as 
he  would  if  he  were  the  principal."  This  celebrated  opinion,  which  has 
been  followed  by  nearly  all  of  the  courts  in  this  country,  and  which  is 
of  so  great  importance  both  on  that  account  and  because  of  its  logical 
force  and  clearness  of  expression  as  to  justify  such  an  extensive  quo- 
tation, closes  with  the  following  quotation  from  a  New  York  case :  •• 

"  'By  the  interested  or  officious  zeal  of  the  agents  employed  by  the 
insurance  companies  in  the  wish  to  outbid  each  other  and  procure  cus- 
tomers, they  not  unfrequently  mislead  the  insured  by  a  false  or  er- 
roneous statement  of  what  the  application  should  contain,  or,  taking 
the  preparation  of  it  into  their  own  hands,  procure  his  signature  by  an 
assurance  that  it  is  properly  drawn  and  will  meet  the  requirements 
of  the  policy.  The  better  opinion  seems  to  be  that  when  this  course 
is  pursued  the  description  of  the  risk  should,  though  nominally  pro- 
ceeding from  the  insured,  be  regarded  as  the  act  of  the  insurers/ 

"The  modern  decisions  fully  sustain  this  proposition,  and  they  seem 
to  us  founded  in  reason  and  justice,  and  meet  our  entire  approval. 
This  principle  does  not  admit  oral  testimony  to  vary  or  contradict 
that  which  is  in  writing,  but  it  goes  upon  the  idea  that  the  writing  of- 
fered in  evidence  was  not  the  instrument  of  the  party  whose  name  is 
signed  to  it;  that  it  was  procured  under  such  circumstances  by  the 
other  side  as  estop  that  side  from  using  it  or  relying  on  its  contents; 
not  that  it  may  be  contradicted  by  oral  testimony,  but  that  it  may  be 
shown  by  such  testimony  that  it  cannot  be  lawfully  used  against  the 
party  whose  name  is  signed  to  it."  " 

A  few  of  the  states,  however,  repudiate  this  doctrine  as  laid  down 
by  the  Supreme  Court  in  the  Wilkinson  Case,  and  by  a  majority  of 
the  state  courts  in  those  cases  which  follow  it.  These  dissenting  courts 
hold  that  the  effect  of  proving  such  an  estoppel  as  we  are  now  dis- 
cussing, by  parol,  amounts  to  an  alteration  of  the  written  contract, 
and  a  clear  violation  of  the  parol  evidence  rule.  The  courts  of  New 
Jersey  have  been  most  earnest  in  their  support  of  this  view,  the  reason 
for  which  may  be  best  set  forth  by  quoting  the  vigorous  language  of 
Beasley,  C.  J.,  in  Dewees  v.  Manhattan  Ins.  Co.,'®  decided  in  New 
Jersey  in  1872.    In  commenting  upon  the  rule  laid  down  in  the  leading 

••  Rowley  v.  Insurance  Co.,  36  N.  Y.  550. 

»T  There  Is  undoubtedly  a  growing  tendency  among  the  courts  that  allow 
parol  waivers  frankly  to  admit  that  in  doing  so  the  parol  evidence  rule  is  vio- 
lated, and  an  exception  established  in  favor  of  holders  of  insurance  policies. 
See  Welch  v.  Association  (Wia)  U8  N.  W.  227;  Spalding  v.  Insurance  Co.,  7X 
N.  H.  441.  52  Atl.  858. 

••  35  N.  J.  Law,  366,  Richards,  Ins.  Cas.  369.    See,  also,  FRANKLIN  FIRE 


§124) 


CONTEMPORANEOUS  PAROL  WAIVERS. 


361 


t* 


m 


New  York  case— Plumb  v.  Cattaraugus  County  Mut.  Ins.  Co., 
which  the  doctrine  permitting  parol  evidence  to  be  admitted  to  show 
an  equitable  estoppel  was  first  enunciated  in  New  York,  the  Chief 
Justice  said :  "In  my  apprehension,  the  doctrine  can  be  made  to  appear 
plausible  only  by  closing  the  eyes  to  the  reason  of  the  rule  which  re- 
jects, in  the  presence  of  written  contracts,  evidence  by  parol.  That  rea- 
son is  that  the  common  good  requires  that  it  shall  be  conclusively  pre- 
sumed in  an  action  at  law,  in  the  absence  of  deceit,  that  the  parties 
have  committed  their  real  understanding  to  writing.  Hence  it  neces- 
sarily follows  that  all  evidence  merely  oral  is  rejected,  whose  effect  is  ' 
to  vary  or  contradict  such  expressed  understanding.  Such  rejection 
arises  from  the  consideration  that  oral  testimony  is  unreliable,  in  com- 
parison with  that  which  is  written.  It  is  idle  to  say  that  the  estoppel, 
if  permitted  to  operate,  will  prevent  a  fraud  or  inequitable  result  Most 
parol  evidence  contradictory  of  a  written  instrument  has  the  same  ten- 
dency, but  such  evidence  is  rejected,  not  because,  if  true,  it  ought  not 
to  be  received,  but  because  the  written  instrument  is  the  safer  criterion 
of  what  was  the  real  intention  of  the  contracting  parties.  In  the  case 
now  criticised,  the  party  insured  stipulated  against  the  existence  of 
buildings  within  a  definite  number  of  feet  from  the  insured  property. 
By  the  admission  of  parol  testimony,  this  stipulation  was  restricted  and 
limited  in  its  effect.  This  result,  no  doubt,  was  strictly  just,  if  we  as- 
sume that  the  parol  evidence  was  true;  but,  standing  opposed  to  the 
written  evidence,  the  law  presumes  the  reverse.  The  alternative  is 
unavoidable.  It  is  a  choice  between  that  which  is  written  and  that 
which  is  unwritten.  In  the  case  cited,  the  effect  of  the  rule  adopted 
by  the  court  was  to  give  a  different  effect  to  the  written  terms  from  that 
which  they  intrinsically  possessed — a  result  induced  by  the  admission 
of  oral  evidence.  This  I  cannot  but  think  was  a  palpable  alteration  of 
the  agreement  of  the  parties.  The  mistake  of  the  court  appears  to 
have  been  in  regarding  simply  the  legal  effects  of  the  facts  which  were 
proved  by  parol.  Receiving  that  testimony  into  the  case,  a  clear  estop- 
pel was  made  out ;  but  the  error  consisted  in  the  circumstance  that  such 
oral  evidence  was,  on  rules  well  settled,  inadmissible." 

INS.  CO.  V.  MARTIN,  40  N.  J.  Law,  568,  29  Am.  Rep.  271,  WoodruflP,  Ins.  Cas. 
435. 

In  the  former  case  the  plaintiff  was  not  permitted  to  show  by  parol  that  at 
the  time  of  the  issue  of  the  policy  in  suit  the  agent  of  the  insurer  knew  that 
the  property  insured  adjoined  a  stable,  which  fact,  by  the  terms  of  the  policy, 
render  the  insurance  void.  In  the  Martin  Case  the  court  held  inadmissible 
evidence  that  the  agent  of  the  insurer  had  inspected  the  property  insured,  and 
knew  that  it  was  a  country  tavern,  though  it  was  misdescribed  in  the  policy 
as  a  boarding  house. 

See  all  of  the  New  Jersey  cases  collected  in  Dimick  y.  Metropolitan  Life 
Ins.  Co.  (N.  J.  Err.  &  App.)  55  Atl.  291,  62  L.  R.  A.  774. 

»•  18  N.  Y.  392,  72  Am.  Dec.  526. 


.  1 


3G2 


WAIYKB,  AND  ESTOPPBL. 


(Ch.  10 


§124) 


CX)NTEMPORANEOUS  PAROL  WAIVERS. 


363 


1 


Present  State  of  the  Authorities. 

It  is  believed  that  nearly  all  the  states  have  accepted  the  doctrine 
allowing  parol  proof  of  facts  contemporaneous  with  the  delivery  of 
the  policy  constituting  an  estoppel,  whereby  the  insurer  is  prevented 
from  obtaining  the  benefit  of  a  term  of  his  written  contract,  provided 
that  term  invalidates  the  policy  in  its  inception.*®  Earlier  cases  *^  in 
some  of  these  states  hold  that  such  estoppels  could  not  be  proved  by 
parol,  and  in  New  York  there  has  been,  almost  up  to  the  present  time, 
great  uncertainty  as  to  the  rule  in  question.  As  evidence  of  this  we 
find,  as  late  as  1890,  the  court  of  that  state  saying  in  Kenyon  v.  Knights 
Templar  &  Masonic  Mut.  Aid.  Ass'n :  *^  "The  cases  in  which  knowl- 
edge of  the  agent  through  whom  insurance  is  taken  may  operate  to 
defeat  the  right  of  the  company  to  avail  itself  of  the  fact  so  known 
at  the  time  it  is  taken  are  those  in  which  there  is  no  application  signed 
by  the  assured  stating  to  the  contrary  of  such  existing  fact,  but  rests 
upon  a  condition  expressed  in  the  policy  merely.  Then  it  may  be  pre- 
sumed that  the  statement  of  it  in  the  policy  as  required  by  the  condition 
was  omitted  by  mistake  or  waived.  Such  is  not  understood  to  be  the 
rule  when  the  alleged  breach  of  warranty  is  founded  upon  a  misstate- 
ment by  the  assured  in  the  application  made  and  subscribed  by  him."  *• 

*o  Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  B.  763,  57  L.  R.  A.  318, 
88  Am.  St.  Rep.  625;  State  Mut.  Ins.  Co.  v.  Latourette  (Ark.)  74  S.  W.  300; 
Born  V.  Insurance  Co.,  120  Iowa,  299,  94  N.  W.  849. 

Notice  to  an  insurance  agent  at  the  time  of  the  application  of  facts  material 
to  tile  risk  is  notice  to  the  insurer,  and  will  prevent  it  from  insisting  on  a 
forfeiture  for  causes  within  the  knowledge  of  the  agent.  Home  Ins.  Co.  v. 
Mendenhall,  104  111.  458,  45  N.  E.  1078,  36  L.  R.  A.  374;  Mesterman  v.  Insur- 
ance Co.,  5  Wash.  524,  32  Pac.  458,  34  Am.  St.  Rep.  877;  Haire  v.  Insurance  Co., 
93  Mich.  481,  53  N.  W.  623,  32  Am.  St.  Rep.  516;  Philadelphia  Tool  Co.  v.  Brit- 
ish-America Assur.  Co.,  132  Pa.  236,  19  Atl.  77,  19  Am.  St.  Rep.  596.  Con- 
ditions in  a  policy  are  waived,  which,  to  the  knowledge  of  an  agent,  would 
make  the  policy  void  as  soon  as  delivered.  Menk  v.  Insurance  Co.,  76  Cal.  51, 
14  Pac.  837,  9  Am.  St.  Rep.  158;  Follette  v.  Association,  110  N.  C.  377,  14  S. 
E.  923,  15  L.  R.  A.  668,  28  Am.  St.  Rep.  693;  Dowling  v.  Insurance  Co.,  92 
Wis.  63,  65  N.  W.  738,  31  L.  R.  A.  112.  Contemporaneous  parol  evidence  is 
admissible  to  show  that  the  statements  of  the  insured  in  the  application  were 
true,  according  to  the  interpretation  put  upon  them  by  the  insured.  Farm- 
ers' &  Mechanics'  Benev.  Fire  Ins.  Ass'n  v.  Williams,  95  Va.  248,  28  S.  B.  214. 
A  false  statement  made  by  the  insured  through  ignorance,  but  known  to  be 
false  to  the  agent,  does  not  avoid  the  policy.  Hartford  Ins.  Co.  v.  Haas,  87 
Ky.  531,  9  S.  W.  720,  2  L.  E.  A.  64;  Lynchburg  Fire  Ins.  Co.  v.  West,  76  Va. 
575,  44  Am.  Rep.  177. 

♦1  See  Jennings  v.  Chenango  County  Mut.  Ins.  Co.,  2  Denio  (N.  Y.)  75; 
Kennedy  v.  Insurance  Co.,  10  Barb.  (N.  Y.)  285;  Sheldon  v.  Insurance  Co.,  22 
Conn.  235,  58  Am.  Dec.  420.  In  the  last  case,  however,  the  insured  offered  to 
show  a  parol  waiver  of  an  executory  condition,  which  plainly  could  not  be 
done. 

42  122  N.  Y.  247,  25  N.  E.  299. 

^i  See,  also,  BOHRBACH  y.  U^SUEANGB  CO.,  62  N.  Y.  47,  20  Am.  Rep. 


But  the  later  cases  have  gone  the  full  length  of  holding  that  the  plain- 
tiff may  show  by  parol  that  false  statements  appearing  in  an  applica- 
tion signed  by  himself  were  falsely  inserted  by  the  insurer's  agent, 
and  that  correct  answers  had  in  fact  been  made  to  the  insurer  through 
his  agent,  thus  avoiding  a  forfeiture  of  the  policy  in  accordance  with 
its  literal  terms.** 

In  Rhode  Island  the  courts  refuse  to  acquiesce  in  the  general  doctrine 
that  the  communication  of  the  facts,  as  they  actually  exist,  to  the  agent, 
will  estop  the  insurer  to  claim  a  forfeiture  by  reason  of  a  false  repre- 
sentation due  to  an  untrue  statement  inserted  by  the  agent  in  the  ap- 
plication without  the  consent  of  the  insured,  not,  however,  on  the 
ground  that  parol  evidence  of  such  facts  is  inadmissible  as  contradict- 
ing a  term  of  the  policy,  but  because  of  the  peculiar  holding  of  that 
state  that  the  agent,  in  filling  out  the  application,  acts  for  the  applicant, 
and  not  for  the  insurer.* '^  Following  the  view  taken  by  the  New  Jer- 
sey Tcourt,  as  expressed  by  Chief  Justice  Beasley  in  the  quotation  given 
above,  are  to  be  found  on  this  side  of  the  Atlantic  **  only  the  courts 
of  Massachusetts,*^  and  possibly  Connecticut;*®  and  now,  since  the 

451;  Alexander  v.  Insurance  Co.,  66  iS.  Y.  464,  23  Am.  Rep.  76;  Allen  v.  In- 
surance Co.,  123  N.  Y.  6,  25  N.  E.  309. 

In  Dimick  v.  Insurance  Co.  (N.  J.  Err.  &  App.)  55  Atl.  291,  62  L.  R.  A.  774, 
all  the  New  York  cases  are  set  forth  and  examined.  The  conclusion  of  the 
court  being  "that  the  Court  of  Appeals  of  New  York  has  not  adhered  with  en- 
tire consistency  to  any  definite  rule." 

**  See  Sternaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  7C3,  57  L.  R.  A. 
318,  88  Am.  St.  Rep.  625;  WOOD  v.  INSURANCE  CO.,  149  N.  Y.  382,  44  N. 
E.  80,  52  Am.  St.  Rep.  733.  In  the  Sternaman  Case  the  plaintiff  was  allowed 
to  show  by  parol  that  true  answers  had  been  given  to  the  medical  examiner, 
and  not  the  false  ones  written  by  the  medical  examiner  in  the  application  that 
was  signed  by  the  insured,  although  it  was  expressly  stipulated  that  the  med- 
ical examiner  should  be  regarded  as  the  agent  of  the  applicant,  and  that  the 
company  would  not  be  bound  by  any  "information  or  statement  not  contained 
in  this  application,  and  in  the  statements  made  to  the  medical  examiner,  re- 
ceived or  acquired  at  any  time  by  any  person." 

*6  See  Reed  v.  Insurance  Co.,  17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A.  496; 
Wilson  V.  Insurance  Co.,  4  R.  I.  141;  O'Rourke  v.  Insurance  Co.,  23  R.  1.  457, 
50  Atl.  834,  57  L.  R.  A.  496,  91  Am.  St.  Rep.  643. 

*«  That  the  English  rule  is  firmly  established  in  opposition  to  parol  waivers, 
see  Biggar  v.  Assurance  Co.  ri902]  1  K.  B.  516,  71  K.  B.  79,  in  which  the  agent 
in  preparing  the  application,  which  he  falsified,  was  held  to  represent  the  in- 
sured, and  not  the  insurer. 

*7  Batchelder  v.  Insurance  Co.,  135  Mass.  449;  CAKES  v.  INSURANCE  CO., 
135  Mass.  248;  Jenkins  v.  Insurance  Co.,  7  Gray  (Mass.)  370;  Lee  v.  Insurance 
Co.,  3  Gray  (Mass.)  583;  Barrett  v.  Insurance  Co.,  7  Cush.  (Mass.)  175. 

*8  RYAN  V.  INSURANCE  CO.,  41  Conn.  168,  19  Am.  Rep.  490,  Richards,  Ins. 
Cas.  408. 

But  in  this  case  the  refusal  of  the  court  to  hold  the  insurer  estopped  by 
the  agent's  writing  a  false  statement  in  the  application  was  based  rather  on 
the  grounds  that  the  act  was  beyond  the  agent's  authority,  and  that  the  insured 


I. 


ri 


3G4 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


I 

1 

j 
'  i 

I    I 


decision  in  the  case  of  Northern  Assur.  Co.  v.  Grand  View  Bldg.  Ass'n,** 
it  would  seem  that  the  Supreme  Court  of  the  United  States  may  be 
classed  as  an  advocate  of  this  view  of  the  question.  Prior  to  the  decision 
of  that  case,  which  was  rendered  in  January,  1902,  it  was  generally 
thought  that  the  Supreme  Court  had  fully  committed  itself  to  the  view 
taken  by  the  majority  of  the  state  courts.  In  fact,  the  case  of  Union 
Mut.  Life  Ins.  Co.  v.  Wilkinson,*^®  from  which  we  have  quoted  ex- 
tensively, has  long  been  regarded  as  the  leading  authority  supporting 
this  doctrine.  This  case  has  been  followed  in  two  other  cases  in  the 
same  court, '^^  and  has  been  cited  with  approval  in  many  others.  In 
New  York  Life  Ins.  Co.  v.  Fletcher,"  decided  in  1886,  the  court  dis- 
tinguished the  Wilkinson  Case  on  the  ground  that  in  the  latter  case  the 
application  contained  no  limitation  upon  the  authority  of  the  agent  to 
bind  his  principal  by  making  representations  or  receiving  information 
on  behalf  of  the  insurer.  The  theory  of  the  decision  in  the  Fletcher 
Case,  however,  undoubtedly  shows  a  tendency  to  depart  from  the  doc- 
trine  announced  by  the  court  in  the  Wilkinson  Case,  since  it  approves 
the  Connecticut  case — Ryan  v.  World  Mut.  Life  Ins.  Co.**' — ^in  holding 
that  the  insured  could  not  escape  the  consequences  of  a  false  represen- 
tation in  the  application  that  has  been  signed  by  himself  by  proving 
that  correct  information  was  given  to  the  agent  at  the  time  the  appli- 
cation was  made.  The  case  of  Northern  Assur.  Co.  v.  Grand  View 
Bldg.  Ass'n  ®*  arose  upon  these  facts,  as  found  by  the  jury  in  the  trial 
court :  The  defendant  issued  to  the  plaintiff  a  policy  of  fire  insurance 
containing  the  usual  clause  avoiding  the  insurance  if  the  insured  then 
had,  or  should  thereafter  procure,  any  other  contract  of  insurance  on 
the  same  property  without  the  consent  of  the  insurer  indorsed  on  the 

could  Dot  deny  knowledge  of  the  false  statement,  than  because  parol  proof  of 
the  facts  was  incompetent.  See  Peck  v.  Insurance  Co.,  22  Conn.  575,  and 
Woodbury  Sav.  Bank  &  Bldg.  Ass'n  v.  Charter  Oak  Fire  &  Marine  Ins.  Co.,  31 
Conn.  517,  which  seem  to  accord  with  the  general  rule, 

*»  183  U.  S.  308,  22  Sup.  Ct.  133,  46  L.  Ed.  213. 

The  Circuit  Court  of  Appeals  for  the  Seventh  Circuit  has  also  apparently 
so  held.  See  Union  Nat  Bank  v.  German  Ins.  Co.,  34  U.  S.  App.  397,  18  C.  C. 
A.  203,  71  Fed.  473. 

60  13  Wall.  222,  20  L.  Ed.  617,  Richards,  Ins.  Cas.  354,  Woodruff,  Ins.  Cas. 
423. 

61  American  Life  Ins.  Co.  v.  Mahone,  21  Wall.  152,  22  L.  Ed.  593;  Eames  v. 
Insurance  Co.,  94  U.  S.  621,  24  L.  Ed.  298. 

52  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct.  837, 
29  L.  Ed.  934,  Woodruff,  Ins.  Cas.  527. 

83  RYAN  V.  INSURANCE  CO.,  41  Conn.  168,  19  Am.  Rep.  490,  Richards,  Ins. 
Cas.  408. 

But  that  the  Insured  Is  not  in  all  cases  bound  by  all  the  terms  written  in  a 
policy  accepted  without  reading,  see  McMaster  v.  Insurance  Co,  183  U^  &. 
25,  22  Sup.  Ct.  10,  46  L.  Bd.  64. 

s«  183  U.  S.  308,  22  Sup.  Ct  133,  46  L.  Ed.  213. 


gm) 


CONTEMPORANEOUS  PAROL  WAIVERS. 


365 


policy  in  writing.    It  also  contained  the  stipulation  that  no  representa- 
tive of  the  company  should  have  power  to  waive  this  condition  unless 
such  waiver  should  be  written  on  the  policy.    At  the  time  of  the  issue 
of  this  policy  the  insured  had  other  insurance  on  the  same  property, 
of  which  he  gave  information  to  the  agent  of  the  insurer,  but  the  con- 
sent of  the  insurer  was  not  indorsed  on  the  policy.    The  sum  of  these 
two  concurrent  policies  was  $4,000,  while  the  total  value  of  the  property 
insured  at  the  time  it  was  destroyed  by  fire  was  $4,140.     Proofs  of 
loss  being  duly  made,  the  insurer  declined  to  pay  on  the  ground  that 
the  policy  had  become  void  by  breach  of  the  condition  agamst  other 
insurance.    In  the  Circuit  Court  the  plaintiff  was  allowed  to  introduce 
parol  evidence  showing  that  the  other  insurance  was  known  to  the 
agent  at  the  time  of  the  issue  of  the  policy  in  suit,  and  the  insurance 
company  was  held  to  be  estopped  thereby  to  claim  the  benefit  of  the 
forfeiture  under  the  condition  against  other  insurance.    In  the  Circuit 
Court  of  Appeals  for  the  Eighth  Circuit,"  the  judgment  of  the  lower 
court  was  affirmed;  Sanborn,  J.,  dissenting.     In  the  Supreme  Court 
of  the  United  States,  however,  the  judgment  of  the  Circuit  Court  of 
Appeals  was  reversed  by  a  divided  court ;  Chief  Justice  Fuller  and  Jus- 
tices Harlan  and  Peckham  dissenting.    The  majority  of  the  court  held 
that  evidence  of  the  information  given  to  the  agent  of  the  existence 
of  other  insurance  was  not  admissible  to  establish  an  estoppel  against 
the  insurer,  but  on  what  grounds  this  decision  is  based  it  is  extremely 
difficult  to  ascertain.    They  are  probably  to  be  found  in  this  extract 
from  the  opinion  of  Mr.  Justice  Shiras,  which  the  great  importance  of 
the  case  justifies  our  quoting:    "The  plaintiff's  case  stands  solely  on 
the  proposition  that  because  it  is  alleged,  and  the  jury  have  found, 
that  the  agent  had  notice  or  knowledge  of  the  existence  of  insurance 
existing  in  another  company  at  the  time  the  policy  in  suit  was  executed 
and  accepted,  and  received  the  premium  called  for  in  the  contract, 
thereby  the  insurance  company  is  estopped  from  availing  itself  of  the 
protection  of  the  conditions  contained  in  the  policy.    In  other  words, 
the  contention  is  that  an  agent  with  no  authority  to  dispense  with  or 
alter  the  conditions  of  the  policy  could  confer  such  power  upon  him- 
self by  disregarding  the  limitations  expressed  in  the  contract;  those 
limitations  being,  according  to  all  the  authorities,  presumably  known  to 
the  insured.     It  was  not  shown  that  the  company,  when  it  received  the 
premium,  knew  of  the  outstanding  insurance,  nor  that,  when  made 
aware  of  such  insurance,  it  elected  to  ratify  the  act  of  its  agent  in  ac- 
cepting the  premium.    On  the  contrary,  all  the  record  discloses  is  that 
the  jury  found  that  the  agent  knew,  when  the  policy  in  the  defendant 
company  was  issued  and  delivered  to  the  plaintiff,  that  there  was  then 
subsisting  fire  insurance  to  the  amount  of  $1,500  in  another  fire  in- 

••  41  C.  C.  A.  207,  101  Fed.  77, 


3G6 


WAIVER  AND  ESTOPPEL. 


(Ch.  la 


surance  company,  and  that  such  knowledge  had  been  communicated  to 
the  agent  by  or  on  behalf  of  the  assured.    There  is  no  finding  that  the 
agent  communicated  to  the  company,  or  to  its  general  agent  at  Chi- 
cago, at  the  time  he  accounted  for  the  premium,  the  fact  that  there  was 
existing  insurance  on  the  property,  and  that  he  had  undertaken  to 
waive  the  applicable  condition.     Indeed,  it  appears  from  the  letter  of 
defendant's  manager  at  Chicago,  to  whom  the  proofs  of  loss  had  been 
sent,  which  letter  was  put  in  evidence  by  the  plaintiff,  and  is  set  forth 
in  the  bill  of  exceptions,  that  the  additional  insurance  held  by  the  plain- 
tiff was  without  the  knowledge  or  consent  of  the  company;  and  it  fur- 
ther appears,  and  was  found  by  the  jury,  that,  immediately  on  the  com- 
pany's being  informed  of  the  fact,  the  amount  of  the  premium  was 
tendered  by  the  agents  of  the  company  to  the  insured.    So  that  there  is 
not  the  slightest  ground  for  claiming  that  the  insurance  company,, 
with  knowledge  of  the  facts,  either  accepted  or  retained  the  premium. 
The  plaintiff's  case,  at  its  best,  is  based  on  the  alleged  fact  that  the 
agent  had  been  informed  at  the  time  he  delivered  the  policy  and  received 
the  premium  that  there  was  other  insurance.    The  only  way  to  avoid 
the  defense  and  escape  from  the  operation  of  the  condition  is  to  hold 
that  it  is  not  competent  for  fire  insurance  companies  to  protect  them- 
selves by  conditions  of  the  kind  contained  in  this  policy.     So  to  hold 
would,  as  we  have  seen,  entirely  subvert  well-settled  principles  de- 
clared in  the  leading  English  and  American  cases,  and  particularly  in 
those  of  this  court."    From  the  portion  of  the  opinion  thus  quoted,  it 
will  be  seen  that  Justice  Shiras  apparently  gives  the  following  reasons 
for  a  decision  that  is  opposed  to  the  strong  and  almost  unbroken  cur- 
rent of  American  authority,  and  certainly  inconsistent  with  the  leading 
early  cases  decided  by  the  Supreme  Court :    (1)  That  the  agent,  by  rea"^ 
son  of  the  conditions  contained  in  the  policy,  presumably  known  to 
the  insured,  had  no  authority  to  alter  the  conditions  of  the  policy,  and 
that  he  could  not  confer  such  power  on  himself.    As  to  this  statement, 
It  is  submitted  that,  whatever  may  be  the  validity  of  such  a  limitation 
upon  the  agent's  power  to  waive  conditions  subsequent,  it  cannot  have 
any  effect  upon  his  power  while  representing  his  company  in  making 
a  contract,  so  to  act  as  to  estop  the  company  from  insisting  upon 
a  condition  precedent,  which  the  insured  had  a  right  to  suppose,  un- 
der the  circumstances,  had  been  waived."     (2)   That  there  was  no 
evidence  that  the  agent  communicated  to  the  company  his  knowledge 
of  the  other  insurance  existing  at  the  time  the  policy  in  suit  was  de- 

»«  On  this  point,  see  especially  WOOD  v.  INSURANCE  CO.,  149  N  Y  382 
44  N.  E.  80.  52  Am.  St.  Rep.  733,  cited  by  the  court,  183  U.  S.,  at  p'age*  327! 
22  Sup  Ct.  133.  46  L.  Ed.  213.    See,  also,  Continental  Life  Ins.  Co.  v.  Chamber' 

if 'J'  }R^-  ^-  ^^*  ^^  ^'"P-  ^^  ^'^'  33  L.  Ed.  341;  Medley  v.  Insurance  Co.  (W. 
Va.)  47  S.  E.  101. 


§124) 


CONTEMPORANEOUS  PAROL  WAIVERS. 


3G7 


livered,  and  that  therefore  the  company  had  never  had  knowledge 
of  such  other  insurance.  (3)  That  the  company  had  never  ratified  the 
act  of  the  agent  in  delivering  the  policy  with  knowledge  of  the  other 
insurance,  since,  upon  acquiring  information  of  that  fact,  it  had  imme- 
diately tendered  the  amount  of  the  premium  to  the  insured. 

In  view  of  the  authorities,  as  well  as  of  the  principles  of  reason  in- 
volved, the  reasons  thus  given  for  so  radical  a  departure  from  a  doc- 
trine so  generally  accepted  as  that  of  the  admissibility  of  evidence  of 
parol  contemporaneous  waivers  seem  truly  remarkable.  The  doctrine 
of  the  New  Jersey  cases,  which  are  approved  by  Justice  Shiras  in  the 
opinion  under  discussion,  is  at  least  logical  and  consistent  throughout. 
Those  cases  hold  that  the  evidence  is  simply  inadmissible  because  it 
alters  a  written  contract,  and  that  the  mode  of  making  the  contract  is 
immaterial — ^whether  it  was  made  directly  with  the  insurer,  or  by  the 
intervention  of  an  agent.  But  the  inference  to  be  drawn  from  the  opin- 
ion of  the  Supreme  Court  in  the  Northern  Assurance  Company  Case 
is  that  if  the  information  had  been  given  to  the  insurer,  or  to  an  agent 
having  the  power  to  receive  that  information,  evidence  thereof  would 
have  been  admissible  to  show  an  estoppel,  but  that  another — an  entirely 
different — rule  applies  in  this  case,  because,  forsooth,  the  policy,  de- 
livered after  the  virtual  completion  of  the  contract,  contained  a  stipu- 
lation that  the  agent,  who  had  up  to  that  time  been  the  sole  representa- 
tive of  the  insurer  in  the  premises,  had  no  authority  to  waive  any  con- 
dition of  that  policy.  Such  an  ex  post  facto  restriction  is  clearly  in- 
competent to  limit  the  apparent  powers  of  the  insurer's  agent,  even  if  it 
be  granted  that  such  a  restriction  can  be  valid  at  all  when  questions  of 
such  estoppels  as  we  are  now  discussing  are  involved.  There  seems 
to  be  no  legitimate  means  of  escape  from  the  conclusion  that,  as  to 
all  transactions  affecting  the  inception  of  the  policy,  the  knowledge  of 
the  agent  must,  as  a  matter  of  law,  be  deemed  to  be  the  knowledge  of 
the  insurer. 

Nor  is  the  position  of  the  court,  essentially  weak  in  itself,  well  for- 
tified by  authority.  The  court,  after  citing  some  early  English  cases, 
none  of  which  are  directly  in  point,  cites  cases  from  Massachusetts 
and  Connecticut,  and  makes  long  quotations  from  New  Jersey  cases, 
in  all  of  which  states,  as  heretofore  stated,  the  prevailing  doctrine  as 
to  parol  estoppels  is  denied.  It  then  cites  some  New  York  cases, 
which,  however,  are  admitted  to  have  been  overruled.  Other  cases  are 
cited  from  Michigan,  Rhode  Island,  and  Vermont,  holding  that  an 
agent  can  waive  conditions  only  in  the  mode  prescribed  by  the  policy. 
These  cases,  however,  refer  only  to  the  waiver  of  conditions  subse- 
quent, and  do  not  involve  the  question  of  estoppel  to  claim  a  forfeiture 
under  a  condition  precedent,  affecting  the  inception  of  the  contract. 

The  strongest  support  for  the  decision  in  the  principal  case  is  found 


368 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


in  Carpenter  v.  Providence  Washington  Ins.  Co.,"  in  which  the  facts 
were  very  similar,  except  that  in  the  Carpenter  Case  there  was  not  only 
existing  insurance,  alleged  to  have  been  known  to  the  agent  of  the  in- 
surer, but  there  was  also  other  insurance  subsequently  procured  in 
clear  violation  of  the  condition  of  the  policy  providing  that  such  other 
insut-ance  should  avoid  the  policy  unless  consent  thereto  was  indorsed 
on  the  policy  in  writing.    In  that  case,  in  an  opinion  by  Story,  J.,  the 
court  held  that  parol  notice  given  to  the  agent  of  such  other  insurance 
was  not  a  sufficient  compliance  with  the  conditions  of  the  policy.     It 
is  plain,  however,  from  the  opinion,  that  the  court  had  in  mind  as 
much  the  breach  of  the  condition  subsequent  as  of  the  condition  pre- 
cedent; and,  as  we  have  already  seen,  a  majority  of  the  courts  hold 
that  any  mode  of  waiving  a  condition   subsequent  required  by  the 
policy  must  be  strictly  complied  with,  if  insisted  upon.     Further,  it 
has  generally  been  thought  that  the  Carpenter  Case,  in  so  far  as  it 
holds  that  a  parol  contemporaneous  waiver  cannot  be  shown,  had 
been  repudiated  by  the  Supreme  Court  in  subsequent  decisions." 

The  court  disposed  in  summary  manner  of  the  previous  cases  in 
the  same  court  which  had  been  supposed  to  have  committed  it  to  the 
view  that  parol  evidence  of  facts  communicated  to  the  agent  is  ad- 
missible to  prove  such  an  estoppel  as  was  claimed  by  the  plaintiff  in 
the  case.  Union  Mut.  Life.  Ins.  Co.  v.  Wilkinson  '^^  was  distinguished 
on  the  ground  that  the  false  statement  made  in  the  signed  applica- 
tion was  not  a  part  of  the  contract,  so  that  the  evidence  of  such  falsity 
was  admissible,  as,  in  effect,  proving  the  non-execution  of  the  state- 
ment. But  the  case  of  American  Life  Ins.  Co.  v.  Mahone,'*  in  which 
the  false  statements  were  made  warranties  and  parts  of  the  policy, 
and  which  expressly  followed  Union  Mut.  Life  Ins.  Co.  v.  Wilkinson, 
is  not  even  mentioned  by  the  court;  nor  is  Continental  Life  Ins.  Co.  v. 
Chamberlain."     Eames  v.  Insurance  Co.,«*  which  also  expressly  fol- 

5T  16  Pet.  495, 10  L.  Ed.  1044.  ,     „    ^ 

58  See  McElroy  v.  Assurance  Co.,  94  Fed.  997,  36  C.  C.  A.  615;  Pechner  v. 
Insurance  Co.,  65  N.  Y.  207.  See,  also.  Fireman's  Fund  Ins.  Co.  v.  Norwood, 
32  U.  S.  App.  490,  69  Fed.  74,  78,  16  C.  C.  A.  136. 

59  Union  Mut.  Life  Ins.  Co.  v.  Wilkinson,  13  Wall.  222,  20  L.  Ed.  617,  Rich- 
ards, Ins.  Cas.  354,  Woodruff,  Ins.  Cas.  423. 

60  21  Wall.  152,  22  L.  Ed.  593.  .  .  ^^ 

•1 132  U.  S.  304, 10  Sup.  Ct.  87,  33  L.  Ed.  341.  In  this  case  the  plaintiff  was 
allowed  to  show  by  parol  that  the  insured  had  told  the  agent,  who  was  made 
the  agent  of  the  insurer  by  an  Iowa  statute,  that  he  had  other  insurance  m 
fraternal  associations,  which  the  agent  declared  to  be  no  insurance,  and  so 
wrote  in  the  application.  The  court  seemed  to  distinguish  this  case  from  the 
Fletcher  Case  on  the  ground  that  the  limitations  in  the  policy  upon  the  power 
of  the  agent  to  modify  or  waive  any  terms  of  the  contract  were,  in  a  sense, 
ne-^atived  by  the  statute,  and  tliat  the  term  "other  insurance"  was  not  of  such 


62  94  U.  S.  621,  24  L.  Ed.  298. 


CONTEMPORANEOUS  PAROL  WAIVERS. 


369 


§124) 

lows  the  Wilkinson  Case,  was  distinguished  on  the  same  principle 

as  was  that  case. 

In  concluding  this  discussion  of  the  Northern  Assurance  Case,  the 
length  of  which  is  excused  only  by  the  great  importance  of  the  prin- 
ciple involved,  it  is  proper  to  note  that  the  facts  as  found  by  the  jury 
come  dangerously  near  to  justifying  an  imputation  of  bad  faith  on 
the  part  of  the  insured.  Even  the  well-known  liberal  valuation  of 
the  jury  placed  the  value  of  the  property  insured  at  little  more  than 
$100  beyond  the  aggregate  sum  of  the  two  concurrent  policies.  No 
insurance  company  would  be  willing  so  completely  to  cover  with  in- 
surance any  property,  as  the  temptation  to  secure  a  ready  and  easy 
market  for  the  property  by  incendiary  means  would  be  too  great  to 
make  the  risk  safe.  The  insured  in  this  case  must  have  known  that 
this  second  insurance  contract  was  in  fraud  of  the  company,  and,  as 
we  have  already  seen,  the  insured  is  in  no  position  to  claim  an  estop- 
pel as  against  the  insurer  unless  his  own  hands  are  clean.  He  must 
have  been  honestly  misled  by  the  act  alleged  as  an  estoppel.  It  is 
probable  that  this  suspicion  of  fraud  on  the  part  of  the  plaintiff  in  this 
case  had  much  to  do  with  inducing  the  majority  of  the  court  to  deliver 
an  opinion  which  cannot  but  be  regretted.  For  there  can  be  little 
doubt  but  that,  whatever  may  be  the  merits  of  the  particular  case,  stu- 
dents of  insurance  law  will  join  the  Chief  Justice  and  Justices  Harlan 
and  Peckham  in  their  dissent  from  the  opinion  as  written  by  Justice 
Shiras." 


certain  meaning  as  to  preclude  the  admission  of  parol  evidence  to  explain  It. 
See  this  case  followed,  and  the  Northern  Assur.  Co.  Case  distinguished,  in 
CarroUton  Furniture  Mfg.  Co.  v.  American  Credit  Indemnity  Co.,  124  Fed.  25, 
59  C.  C.  A.  545. 

««  It  is  probable  that  this  case  will  not  be  generally  followed.  In  conclud- 
ing his  opinion  in  Virginia  Fire  &  Marine  Ins.  Co.  v.  Richmond  Mica  Co. 
(Va.  1904)  46  S.  B.  463,  Whittle,  J.,  speaks  as  follows:  "Much  reliance  has 
been  placed  by  counsel  for  the  plaintiff  in  error  upon  the  opinion  of  Mr.  Jus- 
tice Shiras  in  the  case  of  Northern  Assur.  Co.  v.  Grand  View  Bldg.  Ass'n,  183 
U.  S.  308,  23  Sup.  Ct  183,  46  L.  Ed.  214,  reversing  the  Judgment  of  the  Cir- 
cuit Court  of  Appeals  of  the  Eighth  Circuit.  While  the  pronouncements  of 
that  great  comrt  must  always  command  the  highest  respect,  its  judgment  in 
the  particular  case  is  deprived  of  much  value  as  a  precedent  by  the  circum- 
stance that  it  is  not  in  harmony  with  many  former  decisions  of  that  court, 
and  that  the  Chief  Justice,  Mr.  Justice  Harlan,  and  Mr.  Justice  Peckham  did 
not  concur  in  the  opinion  of  the  majority.  Since  that  decision  was  rendered, 
Mr.  Justice  Shiras  has  retired  from  the  bench,  and  been  succeeded  by  Mr.  Jus- 
tice Day,  who  presided  in  the  Circuit  Court  of  Appeals  in  the  case  of  Queen 
Insurance  Co.  v.  Union  Bank  &  Trust  Co.,  Ill  Fed.  699,  49  C.  C.  A.  555,  where 
a  different  conclusion  was  reached.  So  there  are  now  on  that  bench  at  least 
four  justices  who  entertain  views  opposed  to  those  of  the  majority,  as  ex- 
pressed in  the  case  referred  to.  In  this  state  of  the  law,  this  court  can 
hardly  be  expected  to  abandon  its  own  well-considered  precedents  to  follow 

Vance  Ins. — 24 


370 


WAIVEll  AND  ESTOrPEL. 


(Ch.  10 


Summary, 

As  the  conclusion  to  be  drawn  from  the  foregoing  discussion  of 
the  cases,  we  may  add  this  proposition  to  those  which  have  been  pre- 
viously stated:  That  when  an  insurer,  through  his  agent,  delivers 
a  policy  of  insurance  as  a  valid  contract,  and  receives  the  premium 
payable  thereunder  as  for  valid  insurance,  knowing  at  the  time  of  de- 
livery that  the  contract,  in  accordance  with  its  terms,  is  null  and  void, 
the  insurer  will  be  deemed  to  have  waived  the  operation  of  the  avoid- 
ing conditions ;  and  evidence  of  such  a  waiver  or  estoppel  may  be  by 
parol.  Such  evidence  is  received,  not  for  the  purpose  of  altering  the 
written  contract  made  by  the  parties,  or  of  varying  any  of  its  terms, 
nor  to  show  that  the  contract  intended  to  be  made  was  different  from 
the  contract  as  written,  but  merely  for  the  purpose  of  showing  that, 
under  the  circumstances  attending  the  making  of  that  contract,  it 
is  inequitable  for  the  insurer  to  claim  any  advantage  under  the  terms 
in  question.  The  rule  above  stated— that  the  insured,  by  signing  the 
application  or  accepting  a  delivered  policy,  must  be  deemed  to  consent 
to  all  the  terms  written  therein — does  not  interfere  with  the  applica- 
tion of  the  principle  just  stated.  He  must  admit  that  the  policy  re- 
ceived, and  upon  which  he  seeks  to  recover,  is  the  contract  which  he 
made;  but  even  then  he  may  show  by  parol  such  facts  as  will  estop 
the  insurer  to  enforce  some  of  the  conditions  of  the  contract  thus  ad- 
mitted to  have  been  made.  But  here  again  must  be  noted  an  impor- 
tant difference  between  the  constructive  knowledge  of  the  contents 
of  the  application  or  policy  which  the  law  must  necessarily  impute  to 
the  insured,  and  his  actual  knowledge  of  falsehood  or  fraud  in  these 
instruments.  When  the  insured  has  no  actual  knowledge  of  false- 
hood or  fraud  in  these  instruments,  he  will  not  be  affected  with  bad 
faith,  and  is  therefore  in  a  condition  to  claim  an  estoppel.  But  if  he 
has  such  actual  knowledge,  he  aids  and  abets  the  insurance  agent  in  his 
purpose  to  defraud  the  insurer,  and  should  not  be  heard  demanding 
any  equitable  relief  from  the  legal  consequences  resulting  from  his 
own  fraudulent  conduct.'* 

the  questionable  ruling  of  another  tribunal."  See,  also,  Oarrollton  Furniture 
Mfg.  Co.  V.  American  Credit  Indemnity  Co.,  124  Fed.  25,  59  C.  C.  A.  545,  dis- 
tinguishing the  Northern  Assur.  Co.  Case.  The  Northern  Assur.  Co.  Case  was 
followed  in  West  Virginia  in  Maupin  v.  Insurance  Co.,  45  S.  E.  1003,  but  dis- 
approved in  Medley  v.  Insurance  Co.,  47  S.  E.  101,  105.  It  is  also  disapproved 
in  Orient  Ins.  Co.  v.  McKnight,  197  111.  190,  64  N.  K  339. 

64  NEW  YORK  LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct  837, 
29  L.  Ed.  934;  Clemans  v.  Supreme  Assembly,  181  N.  Y.  485, 30  N.  B.  496, 16  L. 
R.  A.  33;  Lewis  v.  Insurance  Co.,  39  Conn.  100.  But  see  Sun  Life  Ins.  Co.  v. 
PhilUps  (Tex.  Civ.  App.)  70  S.  W.  603. 


g§  125-126) 


WHAT  CONSTITDTES  A  WAIVER. 


371 


WHAT  CONSTITUTES  A  WAIVER. 

125.  Tie   Insnpep  will  be  deemed   to   have  waived  •  right   ezistiac 

imder  a  contract  of  insurance  only  when  the  following  oircnm- 
stances  exist  i  ^^ 

(a)   The  right  must  be  known  to  the  insurer  or  his  proper  agent. 

The  words  or  conduct  of  the  insurer  must  be  such  as  to  cause 
the  insured  reasonably  to  beUeve  that  such  right  has  been  re- 
linquished. 

(c)  The  insured  must,  in  honest  reliance  upon  such  belief,  act  in 
such  a  way  as  to  change  his  condition,  and  subject  himself  to 
loss  or  injury  if  the  right  were  insisted  upon. 

126.  In   some   Jurisdictions    waivers    lacking    the    third    element    Co) 

above  are  enforced;  the  intention  of  the  insured  to  regard  the 
forfeited  policy  as  still  existing  being  regarded  as  sufficient, 
Respective  of  its  expression  or  its  effect  upon  the  conduct  of 
the  insured.  It  is  difficult  to  Justify  such  a  doctrine  on  either 
principle  or  authority.  ~wi« 

Assuming  that  evidence  for  the  purpose  of  showing  a  parol  waiver 
of  conditions  in  an  insurance  policy  is  admissible,  it  next  becomes 
necessary  to  determine  what  facts  must  be  proved  to  exist  in  order  to 
establish  such  a  waiver.    In  view  of  the  present  state  of  the  authorities, 
his  determination  is  not  without  difficulty.    In  some  jurisdictions  the 
terms     waiver"  and  "estoppel"  are  divorced  from  their  usual  joint 
significance    so  that  evidence  not  sufficient  to  constitute  a  technical 
estoppel  will  be  regarded  as  sufficient  to  raise  an  implication  of  a 
waiver  while  other  courts  hold  that  nothing  short  of  proof  of  an  estop-, 
pe  Iwi  1  estabhsh  an  implied  waiver.    The  distinction  existing  between 
a  strict  waiver  and  an  estoppel  has  already  been  discussed.    When  the 
waiver  IS  express,  the  distinction  is  not  difficult;  but  it  was  concluded 
that,  when  the  waiver  is  to  be  implied  from  the  conduct  of  the  in- 
surer, by  the  better  authority,  the  distinction  ceases  to  be  of  prac 
Tl  ^^Pf/tf  ^^-     It  therefore  becomes  necessary  now  to  state  the 
elements  that  go  to  make  up  such  an  implied  waiver  or  estoppel 

A  Right  cannot  be  Waived  unless  Known. 

An  estoppel  is  established  for  the  puqiose  of  preventing  a  wrongs 
It  cannot  be  possible  for  the  insurer  to  w^ng  the  insured  by  aTS 
of  conduct  upon  which  the  latter  may  rely  to  his  prejudice  Lless  the 
nsurer  knew  of  the  existence  of  the  righi  which  LUduct  a^p^^^^^ 
to  Ignore.  The  mere  fact  that  the  insured  mistakes  the  mS  o 
the  insurer's  conduct  cannot  affect  the  rights  of  the  parties  where  th. 

w  misleading."    Thus,  if  the  insurer,  knowing  of  the  breach  of  a  con- 
J,    -  micii.  40^  i  Am.  Kep.  670;  Allen  y.  Insurance  Ob,  12  Vt  366; 


372 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


§§  125-126) 


WHAT   CONSTITUTES  A  WAIVER. 


373 


dition  of  the  policy  which  would  avoid  it  in  accordance  with  its  terms, 
accepts  a  premium,  the  insured  may  naturally  enough  infer  that  the 
insurer  does  not  intend  to  insist  upon  the  forfeiture  to  which  he  is 
entitled,  and,  so  thinking,  continues  to  pay  his  premiums,  which  he 
certainly  would  not  do  if  he  considered  the  policy  annulled.     The  in- 
surer knows  that  he  is  misleading  the  insured  to  his  hurt,  and  thereby 
wrongs  him;  consequently  he  is  estopped  by  the  law  from  reaping 
the  reward  of  his  own  wrong.     So  the  receipt  by  the  insurer  of  a  pre- 
mium paid  after  a  breach  of  condition  which  is  unknown  to  him 
may  induce  the  insured  to  continue  his  payments  upon  the  suppo- 
sition that  a  forfeiture  will  not  be  claimed.    But  here  the  insurer  has 
done  the  insured  no  legal  wrong,  not  having  consciously  misled  him. 
Therefore  he  is  not  estopped  to  set  up  the  breach  of  condition  as 
creating  a  forfeiture.     So,  in  Globe  Mut.  Life  Ins.  Co.  v.  Wolff,««  it 
was  held  that  the  receipt  of  a  premium  by  the  insurer  without  knowl- 
edge that  the  insured  was  then  residing  in  a  district  prohibited  by  the 
policy  would  not  waive  a  forfeiture  already  incurred  on  account  of  the 
breach  of  this  condition  of  residence. 

The  Conduct  of  the  Insurer  must  be  Misleading. 

The  insurer  cannot  be  estopped  unless  his  words  and  conduct  were 
such  as  to  give  the  insured  reasonable  cause  for  believing  that  he  had 
relinquished  the  right  in  question.  Mere  silence  on  the  part  of  the 
insurer  after  acquiring  knowledge  of  the  right  to  enforce  a  forfeiture 
will  not  afford  the  insured  any  reasonable  ground  for  supposing  that 

Finley  v.  Insurance  Co.,  30  Pa.  311,  72  Am.  Dec.  705;  Moore  ▼.  Life  Ass'n 
(Mich.)  95  N.  W.  573;  Dover  Glassworks  Co.  v.  American  Fire  Ins.  Co.,  1  Marv. 
(Del.)  32,  29  Atl.  1039,  65  Am.  St.  Rep.  264. 

In  Skinner  v.  Norman,  165  N.  Y.  565,  59  N.  B.  309,  80  Am.  St  Rep.  776,  the 
agent  of  the  insured,  who  procured  the  insurance,  told  the  insurer  that  he  did 
not  know  whether  the  property  was  incumbered  or  not  The  insurer  issued 
the  policy  without  further  inquiry,  and  was  held  to  thereby  waive  that  pro- 
vision of  the  policy  declaring  the  insurance  void  if  the  property  should  be  in- 
cumbered. —    A  v* 

The  knowledge  of  the  insurer  must  be  of  such  character  as  to  effect  nis 
conscience.  Constructive  notice  is  not  sufficient  Therefore  record  of  an  in- 
cumbrance is  not  such  notice  to  the  insurer  as  to  affect  him  with  an  estoppel. 
Phoenix  Ins.  Co.  v.  Overman,  21  Ind.  App.  516,  52  N.  E.  771;  Milwaukee  Me- 
chanics'  Ins.  Co.  v.  Niewedde,  12  Ind.  App.  145,  39  N.  E.  757. 

So,  by  the  better  authority,  the  insurance  company  is  not  charged  with 
knowledge  of  statements  made  in  previous  applications  of  the  insured,  kept  on 
file,  so  as  to  be  estopped  to  take  advantage  of  a  misrepresentation  in  a  subse- 
quently accepted  application,  unless  the  officers  of  the  company  had  actual 
knowledge  of  such  statements.  Hackett  v.  Supreme  Council,  168  N.  Y.  588, 
(X)  N.  E.  1112,  affirming  44  App.  Div.  524,  60  N.  Y.  Supp.  806. 

Contra,  O'Rourke  v.  Insurance  Co.,  23  R.  L  467,  50  Atl.  834,  57  L.  E.  A.  496, 
91  Am.  St  Rep.  643. 

•«  95  U.  S.  326,  24  L.  Ed.  387. 


the  insurer  does  not  at  the  proper  time  intend  to  claim  the  benefit  of 
the  forfeiture,®^  unless  the  terms  of  the  policy  or  the  peculiar  circum- 
stances of  the  case  impose  upon  him  the  duty  of  affirmative  action. •• 
In  opposition  to  this  principle,  however,  it  is  held  in  many  states  that 
it  is  the  duty  of  the  insurer  to  inform  the  insured  of  a  forfeiture  that 
has  come  to  his  knowledge,  and  to  declare  the  policy  canceled,  and  that 
if  he  fails  to  do  so,  and  allows  the  insured  to  continue  in  the  belief 
that  the  policy  is  still  valid,  the  insurer  will  be  estopped  to  deny  its 
validity.®® 

These  latter  cases  appear  to  proceed  upon  the  theory  that  a  stipulation 
that  a  specified  act — procuring  other  insurance,  for  example — shall 
render  the  policy  "void,"  is  to  be  construed  as  if  it  read  "voidable  at 
the  option  of  the  insurer" ;  thus  requiring  affirmative  action  on  the  part 
of  the  insurer  in  order  to  avoid  the  contract,  as  in  the  case  of  for- 
feiture of  a  lease  for  condition  broken  by  entry  of  the  lessor.  But, 
it  seems  more  reasonable,  and  certainly  more  in  accord  with  authority, 
to  regard  the  contract  of  insurance  after  the  breach  of  a  condition  that 
by  its  terms  renders  the  insurance  "void,"  not  as  merely  voidable,  but 
rather  as  void  until  revived  by  an  affirmative  act  of  the  insurer.  The 
view  that  the  contract  after  condition  broken  becomes  merely  voidable, 
and  so  binding  upon  the  insurer  until  avoided  by  cancellation  within 
a  reasonable  time,  and  before  loss,  is  well  illustrated  by  Swedish-Ameri- 
can Ins.  Co.  v.  Knutson.''"  A  provision  of  the  contract  declared  that 
the  policy  should  be  "null  and  void"  if  the  insured  should  procure  other 
insurance  without  the  consent  of  the  insurer,  to  be  noted  on  the  policy. 
Without  consent,  the  insured  procured  other  insurance,  and  then  no- 

•7  Equitable  Life  Assur.  Soc.  v.  McElroy,  83  Fed.  631,  28  C.  C.  A.  365;  Ad- 
reveno  v.  Life  Ass'n  (C.  C.)  38  Fed.  806;  Gibson  Electric  Co.  v.  Liverpool  & 
London  &  Globe  Ins.  Co.,  159  N.  Y.  418,  54  N.  E.  23;  Armstrong  v.  Insurance 
Co.,  130  N.  Y.  560,  29  N.  E.  991;  Titus  v.  Insurance  Co.,  81  N.  Y.  410;  Mueller 
V.  Insurance  Co.,  87  Pa.  399;  Knickerbocker  Ins.  Co.  v.  Gould,  80  111.  388; 
Boyd  V.  Insurance  Co.,  90  Tenn.  212,  16  S.  W.  470,  25  Am.  St.  Rep.  676;  Find- 
eisen  v.  Insurance  Co.,  57  Vt.  520;  JOHNSON  v.  INSURANCE  CO.,  41  Minn. 
396,  43  N.  W.  59;  Insurance  Co.  v.  Kittle,  39  Mich.  51;  Robinson  v.  Fire 
Ass'n,  63  Mich.  90,  29  N.  W.  521;  Davey  v.  Insurance  Co.,  Fed.  Cas.  No.  3,590; 
West  End  Hotel  &  Land  Co.  v.  American  Fire  Ins.  Co.  (C.  C.)  74  Fed,  114; 
Morrow  v.  Insurance  Co.,  84  Iowa,  256,  51  N.  W.  3. 

«8  For  a  case  in  which  the  circumstances  were  such  as  to  impose  on  the 
insurer  a  duty  to  speak,  so  that  silence  worked  a  proper  estoppel,  see  Ben- 
ninghofif  v.  Insurance  Co.,  93  N.  Y.  503.  Also,  see  Morrison  v.  Insurance  Co . 
69  Tex.  353,  6  S.  W.  605,  5  Am.  St.  Rep.  63. 

«•  Phoenix  Ins.  Co.  v.  Spiers,  87  Ky.  285,  8  S.  W.  453;  Grubbs  v.  Insurance 
Co.,  108  N.  C.  472,  13  S.  E.  236,  23  Am.  St.  Rep.  62;  Hamilton  v.  Insurance  Co 
94  Mo.  353,  7  S.  W.  261;  Williamsburg  City  Fire  Ins.  Co.  v.  Gary,  83  111  453- 
Phoenix  Ins.  Co.  v.  Johnston,  143  111.  106,  32  N.  B.  429;  Orient  Ins.  Co  v  Me- 
Knight,  197  111.  190,  64  N.  E.  339;  Home  Ins.  Co.  of  New  York  v.  Marple  1 
Ind.  App.  411,  27  N.  E.  633.  ' 

TO  67  Kan.  71,  72  Pac.  526. 


374 


WAIVER  AND  ESTOPPBL, 


(Ch.  10 


tified  the  insurer  of  that  fact  The  latter  made  no  response  to  this 
notice,  and  was  held  thereby  to  have  waived  its  right  to  avoid  the 
policy,  the  court  saying:  "The  company  claims  that,  even  though  it 
received  proper  notice  of  the  additional  insurance,'  it  did  not  indorse  its 
consent  thereto  upon  the  policy,  and  hence  that  the  policy  was  void. 
Some  two  months  elapsed  from  the  giving  of  the  notice  until  the  loss 
occurred.  Upon  receiving  the  notice  the  company  had  a  right  to  take 
advantage  of  the  provisions  of  its  policy  and  by-laws.  The  provisions 
quoted  therefrom  were  inserted  for  its  sole  benefit.  When  it  assumed 
to  remain  passive,  the  assured  was  deprived  of  any  opportunity  to 
protect  himself  if  the  policy  were  to  be  forfeited.  The  term  Void,*  as 
used  in  the  contract,  is  to  be  regarded  as  meaning  that  the  insurer 
had,  at  its  exclusive  option,  the  right  to  treat  the  policy  as  a  nullity. 
It  was  put  to  its  election  whether  or  not  it  would  do  so  upon  receipt 
of  the  notice,  and,  having  failed  to  act  within  a  reasonable  time,  it  is 
estopped  to  claim  a  forfeiture  when  it  became  to  its  advantage  to  do  so, 
after  loss  had  occurred." 

In  conclusion  we  may  safely  say  that  by  the  better  reasoned  cases, 
if  not  by  the  clear  weight  of  authority,  mere  silence  is  not  sufficient 
to  constitute  a  waiver,  in  the  absence  of  circumstances  of  estoppel.  The 
insurer  must  have  actually  and  consciously  misled  the  insured. 

The  Insured  must  have  been  Prejudiced. 

By  what  appears  to  be  the  better  reason,  and  by  the  better  consid- 
ered, though  not  the  more  numerous,  cases,  it  is  held  not  to  be  sufficient 
that  the  insurer  has  done  acts  manifesting  his  intention  to  regard  a 
policy  as  still  existing,  although  knowing  a  ground  of  forfeiture.  It 
is  further  necessary  that  the  insured,  acting  in  reliance  upon  this  in- 
tention of  the  insurer,  as  expressed  by  his  acts,  shall  have  so  changed 
his  position  as  to  be  left  in  a  worse  condition  than  would  have  been 
his  if  he  had  known  that  the  forfeiture  was  to  be  enforced.  That  is 
to  say,  the  insured  must  have  relied  upon  this  apparent  intention  of 
the  insurer,  and  so  have  been  induced  to  pay  out  money  or  do  some 
other  act  which  he  would  otherwise  have  left  undone,  or  in  some  other 
way  have  suflFered  detriment.  In  short,  an  implied  waiver  should  not 
be  considered  as  established  unless  the  insured  shall  have  proved  the 
existence  of  all  facts  necessary  to  constitute  an  estoppel  in  pais. 

The  Opposing  View — No  Estoppel  Necessary. 

In  some  jurisdictions  the  waiver  of  rights  under  insurance  policies 
has  been  assimilated  to  that  different  class  of  waivers  to  be  found  in 
other  branches  of  the  law,  whereby  a  person  entitled  to  escape  a  just 
obligation  by  pleading  a  mere  technical  defense  declines  to  avail  him- 
self of  that  right.  Such  waivers  do  not  require  any  consideration,  and 
elements  of  estoppel  are  only  faintly  to  be  discerned  in  cases  in  which 


ga  125-126) 


WHAT  CONSTITUTES  A  WAIVER. 


375 


they  arise.  Thus  a  person  may,  without  consideration  or  estoppel, 
bind  himself  by  his  waiver  of  a  right  to  plead  the  statute  of  limita- 
tions, if  he  relinquishes  that  right  in  the  manner  prescribed  by  law. 
So  a  surety  entitled  to  plead  in  defense  of  an  action  on  the  debt  an 
extension  of  time  to  the  principal  debtor  may  waive  that  right  by  merely 
acknowledging  himself  to  be  liable.''^  Such  a  waiver  is  binding  with- 
out consideration  or  estoppel.  Likewise  the  indorser  of  a  negotiable 
instrument  may  waive  a  defense  of  a  lack  of  notice  of  dishonor  by 
merely  promising  to  pay,  without  more.^*  Waivers  of  this  class  are 
peculiar,  resting  largely  upon  the  conditions  which  have  given  rise 
to  the  peculiar  rules  governing  in  the  law  merchant,  and  can  scarcely 
serve  as  proper  precedents  or  even  analogues  for  the  determination 
of  insurance  causes.  Nevertheless  there  is  undoubtedly  a  strong  tend- 
ency manifested  by  the  courts  to  extend  to  the  insurance  contract 
the  rule  validating  waivers  that  are  supported  neither  by  a  considera- 
tion, nor  by  circumstances  of  estoppel.  This  is  especially  true  with 
regard  to  those  conditions  of  the  insurance  policy  that  pertain  to  mat- 
ters after  a  loss,  such  as  those  requiring  notice  of  loss,  or  proofs  of 
loss,  appraisement,  or  arbitration.  These  conditions,  operating  subse- 
quently to  the  loss,  do  not  go  to  the  main  purpose  of  the  contract, 
which  is  to  secure  current  protection.  After  the  loss  takes  place, 
the  liability  of  the  insurer  becomes  fixed  in  accordance  with  the  exe- 
cuted terms  of  the  contract,  and  the  purpose  of  these  subsequently 
operating  conditions  is  merely  to  put  the  insurer  in  possession  of  such 
facts  and  information  as  may  be  necessary  to  enable  him  fairly  to  ad- 
just the  loss.  They  operate  by  their  breach  to  defeat  a  right  already 
fixed,  as  do  conditions  subsequent.  They  are  therefore  regarded  with 
even  more  of  disfavor  by  the  courts  than  are  those  other  conditions 
operating  before  a  loss,  as  conditions  precedent  to  the  continued  exist- 
ence of  the  policy.  This  distinction  is  made  strikingly  manifest  by 
the  rule  already  stated — that,  while  circumstances  rendering  the  pay- 
ment of  a  premium  at  the  time  of  its  maturity  absolutely  impossible 
do  not  prevent  the  forfeiture  of  the  insured's  rights  in  accordance  with 
the  terms  of  the  policy,  yet  impossibility  of  giving  notice  of  loss  or 
proofs  of  loss  within  a  stipulated  time  does  excuse  a  failure  to  do  so."' 
In  view  of  the  highly  technical  character  of  these  conditions  to  be 
performed  after  loss,  the  courts  go  great  lengths  in  order  to  prevent 
merely  technical  forfeitures.  In  order  to  do  this,  it  has  been  dis- 
tinctly held  in  some  states  that  any  expression  of  intention,  or  any  con- 
duct from  which  can  be  implied  an  intention   on  the  part  of  the  in- 


\ 


'»  See  Hooper  v.  Pike,  70  Minn.  829,  72  N.  W.  8?9,  68  Am.  St  Rep.  512. 
»*  Sigerson  v.  Mathews,  20  How.  496,  15  L.  Ed.  989. 
«•  See  ante,  p.  96.^ 


376 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


surer  not  to  claim  a  technical  forfeiture,  will  constitute  a  waiver,^* 
which,  being  once  made,  can  never  be  revoked.""^  Thus  in  a  Michi- 
gan case  ^®  proofs  of  loss  that  were  furnished  a  few  days  later  than 
required  by  the  policy  were  retained  by  the  insurer  without  objection 
being  made  either  to  their  form  or  contents  or  time  of  presentation. 
It  seems  that  the  insurer  also  made  repairs  upon  another  building 
covered  by  the  same  policy,  and  damaged  by  the  same  fire.  It  was 
held  that  these  acts  of  the  insurer  were  sufficient  evidence  of  an  in- 
tention on  his  part  not  to  object  to  the  failure  of  the  insured  to  fur- 
nish the  proofs  of  loss  in  season.  The  acts  of  the  insurer  apparently 
recognizing  the  validity  of  the  policy  did  not  cause  the  insured  to 
change  his  position  or  act  otherwise  to  his  prejudice.  Since  the  in- 
surer at  all  times  kept  within  his  rights,  and  did  no  wrong  to  the  in- 
sured, there  seems  to  be  no  reason  why  he  should  not  have  been  al- 
lowed to  enforce  his  contract  as  it  was  made.''^ 

A  somewhat  similar  case  has  recently  been  decided  in  Indiana.''' 
In  this  case  the  policy  required  proofs  of  loss  to  be  furnished  within 
sixty  days.  The  insured  sought  to  show  a  waiver  of  this  condition  by 
proving  that  the  company  had  declined  to  pay  the  policy,  not  because 
of  the  breach  of  this  condition,  but  on  an  entirely  different  ground. 
The  court  held  very  properly  that,  if  the  refusal  to  pay  took  place  be- 
fore the  expiration  of  the  sixty  days  within  which  the  proof  of  loss 
could  be  made,  the  insurer  was  thereby  estopped  to  complain  of  the  fail- 
ure of  the  insured  to  give  such  proofs.  But  in  holding  the  pleading 
of  the  plaintiff  to  be  good,  the  court  went  further,  and  held  that,-  even 
though  the  refusal  of  the  insurer  to  pay  was  given  after  the  expira- 
tion of  the  sixty  days,  it  would  nevertheless  constitute  a  waiver  of 
the  condition  requiring  proofs  of  loss.  Such  a  holding  would  seem 
to  be  indefensible,  and  in  the  last  paragraph  of  the  opinion  the  court 
apparently  recedes  from  its  advanced  position. 

T*  Home  Fire  Ins.  Co.  v.  Kuhlman,  58  Neb.  488,  78  N.  W.  936,  76  Am.  St. 
Rep.  111. 

7  5  Home  Fire  Ins.  Oo.  v.  Kuhlman,  58  Neb.  488,  78  N.  W.  936,  76  Am.  St. 
Rep.  Ill;  Bennett  v.  Insurance  Co.,  203  111.  439,  67  N.  E.  971;  Piatt  v.  Insur- 
ance Co.,  153  111.  113,  38  N.  E.  580,  26  L.  R.  A.  853,  46  Am.  St.  Rep.  877. 

7*  Hibernia  Ins.  Co.  v.  O'Connor,  29  Mich.  241.  To  the  same  effect,  se* 
Weiss  V.  Insurance  Co.,  148  Pa.  349,  23  Atl.  991. 

77  See  St  Louis  Ins.  Co.  v.  Kyle,  11  Mo.  278,  49  Am.  Dec.  74. 

78  Germania  Fire  Ins.  Co.  v.  Pitcher,  160  Ind.  392,  64  N.  E.  921.  In  this  case 
there  was  evidence  that  the  delay  of  the  Insured  was  caused  by  protracted 
and  misleading  negotiations  for  settlement,  which  should  always  estop  the  in- 
««urer  to  complain  of  the  natural  consequences  of  his  own  conduct.  See 
Gristock  v.  Insurance  Co.,  84  Mich.  161,  47  N.  W.  549;  Id.,  87  Mich.  428,  49 
N.  W.  634;  Eastern  R.  Co.  v.  Relief  Fire  Ins.  Co.,  105  Mass.  570;  State  Ins, 
Co.  V.  Todd,  83  Pa.  272;  Burlington  Ins.  Co.  v.  Toby,  10  Tex.  Civ.  App.  425, 
30  S.  W.  1111. 


g§  125-126) 


WHAT  CONSTITUTES  A  WAIVER. 


377 


Same — The  New  York  Decisions. 

The  decisions  of  the  Court  of  Appeals  of  New  York  have  done 
much  to  throw  the  law  into  confusion,  and  are  far  from  being  con- 
sistent and  harmonious  among  themselves.  In  the  leading  case  of 
Titus  V.  Insurance  Co.,^®  the  insurer  defended  on  the  ground  that  the 
policy  was  avoided  in  accordance  with  its  terms  by  the  foreclosure  of 
a  mortgage  upon  the  property  insured.  But  it  was  held  that  the  act 
of  the  insurer,  after  he  had  notice  of  the  breach  of  condition,  in  re- 
quiring the  insured  to  submit  to  an  examination  under  oath,  and  thus 
to  be  put  to  trouble  and  expense,  amounted  to  a  waiver  of  the  forfeiture. 
The  waiver  was  based  specifically  on  the  fact  that  the  insurer  recognized 
the  contract  as  valid  when  he  required  the  insured  to  do  acts  which  he 
was  bound  to  do  only  under  the  contract.  In  so  holding,  the  court  said : 
"But  it  may  be  asserted  broadly  that  if,  in  any  negotiations  with  the 
insured,  after  knowledge  of  the  forfeiture,  it  recognizes  the  continued 
validity  of  the  policy,  or  does  acts  based  thereon,  or  requires  the  in- 
sured by  virtue  thereof  to  do  some  act  or  incur  some  trouble  or  ex- 
pense, the  forfeiture  is,  as  matter  of  law,  waived ;  and  it  is  now  settled 
by  this  court,  after  some  difference  of  opinion,  that  such  a  waiver 
need  not  be  based  upon  any  new  agreement  or  an  estoppel."  This 
case  was  approved  and  followed  by  numerous  subsequent  cases,  until 
in  1892,  in  Armstrong  v.  Insurance  Co.,«<>  it  was  stated  that,  in  the 
absence  of  an  express  waiver,  there  must  exist  some  of  the  elements 
of  an  estoppel  before  the  insurer  could  be  deemed  to  have  waived  any 
condition  of  the  policy.  But  in  Kiernan  v.  Insurance  Co."  the  court 
suffered  a  serious  relapse.  In  that  case  it  was  held  that  the  insurer 
had  waived  his  right  to  insist  upon  a  forfeiture  of  the  policy  incurred 
by  a  breach  of  the  condition  forbidding  the  incumbrance  of  the  prop- 
erty insured  without  the  consent  of  the  insurer,  by  proceeding  with  an 
appraisal  of  the  loss  after  knowledge  of  the  breach  of  condition,  al- 
though the  policy  contained  an  express  provision  that  no  proceeding 
relating  to  the  appraisal  should  be  deemed  a  waiver  of  any  condition 
of  the  policy.  In  its  opinion  the  court  said :  "There  may  be  a  waiver 
by  express  agreement,  or  through  estoppel ;  but  neither  is  required  to 
effect  that  result,  as  words  or  acts  from  which  an  intention  to  waive 
may  reasonably  be  inferred  are  sufficient,  at  least  when  acted  upon." 
In  the  latest  case — Gibson  Electric  Co.  v.  Liverpool  &  London  &  Globe 
Ins.  Co.^2 — the  court  reviews  all  of  the  preceding  cases,  and  mani- 
fests a  strong  disposition  to  adopt  the  sound  view  that  a  waiver  can- 
not be  valid  unless  supported  either  by  a  consideration  or  by  circum- 
stances of  estoppel.  In  holding  that  the  insurer's  continuation  of  ap- 
praisal proceedings,  after  notice  of  a  breach  of  condition  avoiding  the 


T»  81  N.  r.  410. 

•0  130  N.  Y.  560,  29  N.  E.  991. 


81  150  N.  Y.  190,  44  N.  E.  698. 

82  159  N.  Y.  418.  54  N.  B.  23. 


m 


378 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


ii 


policy,  did  not  amount  to  a  waiver  of  the  forfeiture  so  incurred,  the 
court  said:  "Although  the  decisions  of  this  court  of  which  we  have 
made  this  brief  review  •'  seem  to  warrant  the  conclusion  that  an  in- 
surer, even  under  the  provision  of  a  standard  policy,  may  estop  itself 
from  claiming  or  may  waive  a  forfeiture  under  its  conditions  by  its 
acts  and  the  requirements  it  makes  of  the  insured  after  knowledge 
of  the  forfeiture,  still  the  circumstances  and  acts  which  are  required 
to  constitute  such  an  estoppel  or  waiver  seem  to  be  quite  firmly  es- 
tablished. Thus,  in  the  absence  of  an  express  waiver,  at  least  some  of 
the  elements  of  an  estoppel  must  exist.  The  insured  must  have  been 
misled  by  some  act  of  the  insurer,  or  it  must,  after  knowledge  of  the 

8»  After  discussing  TITUS  v.  INSURANCE  CO.,  supra,  the  court  thus  states 
the  results  of  the  preceding  decisions:  "The  question  as  to  what  constitutes 
a  waiver  of  a  forfeiture  under  the  provisions  of  a  fire  insurance  policy  has 
often  been  considered  by  this  court.  Thus,  in  Weed  v.  Insurance  Co.,  116  N. 
Y.  106,  22  N.  R  229,  it  was  decided  that,  to  establish  a  waiver  of  a  forfeiture 
in  a  policy  of  insurance,  the  proof  must  show  a  distinct  recognition  of  the 
validity  of  the  policy  after  a  knowledge  of  the  forfeiture  by  the  person  by 
whom  it  is  claimed  such  forfeiture  was  waived.  In  Roby  v.  Insurance  Co., 
120  N.  Y.  510,  518,  24  N.  E.  810,  it  was  declared  that  where,  after  knowledge 
of  the  forfeiture  of  a  policy,  the  insurer  recognizes  its  continued  validity,  does 
acts  based  thereon,  and  requires  the  insured,  by  virtue  thereof,  to  do  some  act 
or  incur  some  trouble  or  expense,  the  forfeiture  is,  as  a  matter  of  law,  waived, 
and  the  waiver  need  not  be  based  upon  any  new  agreement,  or  upon  estoppel. 
In  that  case  it  was  said  that  *the  policy  in  question  was  void  or  valid  as  a 
whole.  If  any  part  was  valid,  it  was  all  valid.  The  defendant  admitted  that 
it  was  operative  in  all  its  parts.'  Pratt  v.  Insurance  Co.,  130  N.  Y.  206,  29 
N.  E.  117,  Is  to  the  eflfect  that  where  the  agents  or  committee  of  an  insurance 
company,  after  being  apprised  of  facts  affecting  the  policy,  asked  the  insured 
to  fill  out  the  blank  proofs  of  loss  which  they  gave  him,  called  for  his  books, 
required  him  to  furnish  information,  which  they  knew  involved  trouble  and 
loss  of  time  for  him  to  obtain,  it  was  a  ratification  of  the  policy,  and  a  waiver 
of  the  forfeiture.  It  was  decided  in  Armstrong  v.  Insurance  Co.,  130  N.  Y. 
560,  29  N.  E.  991,  that,  while  a  waiver  of  a  condition  of  forfeiture  contained  in 
a  policy  of  insurance  need  not  be  based  upon  a  technical  estoppel,  yet,  in  the 
absence  of  an  express  waiver,  some  of  the  elements  of  an  estoppel  must  exist, 
and  that  the  insured  must  have  been  misled  by  some  action  of  the  company, 
or  it  must  have  done  something,  after  knowledge  of  a  breach  of  the  condition, 
which  could  only  be  done  by  virtue  of  the  policy,  or  have  required  something 
from  the  assured  which  he  was  bound  to  do  only  at  the  request  of  the  com- 
pany under  a  valid  policy,  or  have  exercised  a  right  which  it  had  only  by  vir- 
tue of  such  policy.  In  that  case  it  was  held,  as  it  was  in  the  Titus  Case,  that 
a  waiver  could  not  be  inferred  from  mere  silence,  but  would  require  some 
aflSrmative  action  on  the  part  of  the  insurer  which  Indicated  that  it  intended 
to  waive  the  result  of  the  plalntifTs  breach.  Bishop  v.  Insurance  Co.,  130  N. 
Y.  488,  29  N.  E.  844,  is  to  the  eflfect  that  a  company  issuing  a  policy  containing 
a  provision  that  it  shall  not  be  modified  or  changed,  except  in  writing  signed 
by  it,  may  by  its  conduct  estop  itself  from  enforcing  the  provision  against  a 
party  who  has  acted  in  reliance  upon  such  conduct.  Again,  in  Ronald  v.  As- 
sociation, 132  N.  Y.  378,  30  N.  E.  739,  it  was,  in  eflfect,  said  that,  in  the  ab- 
sence of  any  agreement,  a  waiver  of  forfeiture  of  a  policy  results  only  from 


g§  125-126) 


WHAT  CONSTITUTES  A  WAIVER. 


379 


'■ 


breach,  have  done  something  which  could  only  be  done  by  virtue  of 
the  policy,  or  have  required  something  of  the  assured  which  he  was 
bound  to  do  only  under  a  valid  policy,  or  have  exercised  a  right  which 
it  had  only  by  virtue  of  such  policy." 

Bstoppel  by  Requiring  Performance  of  the  Contract 

It  will  be  observed  that,  in  accordance  with  the  theory  of  the  New 
York  decisions,  the  insurer  is  deemed  to  waive  any  forfeiture  in- 
curred, and  to  recognize  the  policy  as  valid,  by  requiring  the  insured 
to  perform  any  of  the  conditions  pertaining  to  matters  subsequent 
to  the  loss,  such  as  furnishing  proofs  of  loss  or  exhibiting  accounts. 
This  theory,  however,  is  believed  to  be  incorrect  on  principle,  though 
supported  by  the  undoubted  weight  of  authority."*  Assuming,  as 
one  reasonably  may,  that  the  insurer  desires  to  act  in  all  respects  fairly 

negotiations  or  transactions  with  the  insured,  by  which  the  insurer,  after 
knowledge  of  the  forfeiture,  recognizes  the  continued  existence  of  the  policy, 
or  does  acts  based  thereon,  or  requires  the  insured,  by  virtue  thereof,  to  do 
fiome  act  or  incur  some  expense  or  trouble.  Quinlan  v.  Insurance  Co.,  133  N. 
Y.  356,  31  N.  E.  31,  28  Am.  St.  Rep.  645,  is  in  many  respects  similar  to  the 
case  at  bar.  In  that  case  the  policy  contained  the  same  provisions  as  the  pol- 
icy in  suit,  relating  to  proceedings  to  foreclose  a  mortgage,  and  also  as  to  the 
power  of  an  agent  to  waive  any  of  the  conditions  or  provisions  of  the  policy; 
and  it  was  held  that  the  provisions  in  a  policy  to  the  eflfect  that  no  representa- 
tive of  the  company  should  have  power  to  waive  any  condition  or  provision, 
except  by  writing  indorsed  upon  the  policy,  were  valid,  and  that  the  condition 
that  such  waiver  was  to  be  written  upon  the  policy  was  of  the  essence  of  the 
authority  of  the  agent  to  act,  and  that  a  consent  or  act  not  so  indorsed  was 
void;  citing  Walsh  v.  Insurance  Co.,  73  N.  Y.  10;  Marvin  v.  Insurance  Co.,  85 
N.  Y.  278,  39  Am.  Rep.  657.  Of  that  case  it  may  be  said,  however,  that  it  was 
held  that  the  agent  had  no  authority  whatever  to  bind  the  company,  in  writ- 
ing or  otherwise,  or  to  waive  any  condition  of  the  policy.  In  Kiernan  v.  Insur- 
ance Co.,  150  N.  Y.  190,  44  N.  E.  698,  it  was  held  that,  when  an  appraisal  of 
the  loss  under  a  fire  insurance  policy  is  proper  in  any  event,  the  fact  that  one 
was  had  at  the  request  of  the  company  has  no  bearing  upon  the  question  of 
forfeiture.  The  question  of  waiver  was  also  considered  in  Van  Tassel  v.  In- 
surance Co.,  151  N.  Y.  130,  45  N.  E.  365,  where  it  was,  in  eflfect,  held  that,  in 
the  absence  of  a  subsequent  waiver,  the  rights  of  the  insured  are  to  be  deter- 
mined as  of  the  date  of  the  fire,  and  tliat,  to  establish  a  waiver,  a  preponder- 
ance of  evidence  is  requisite.  In  Walker  v.  Insurance  Co.,  156  N.  Y.  628,  51 
N.  E.  392,  where  an  insurer,  after  having  made  a  contract  of  fire  insurance,  in 
ignorance  of  the  existence  of  a  chattel  mortgage  which  rendered  the  insur- 
ance voidable,  learned  of  the  existence  of  the  mortgage,  and  thereafter  treated 
the  policy  as  valid,  and  put  the  insured  to  trouble  or  expense  on  account  there- 
of, it  was  held  that  those  acts  were  evidence  from  which  the  jury  might  find 
a  waiver  of  a  forfeiture." 

84  TITUS  V.  INSURANCE  CO.,  81  N.  Y.  419;  Home  Fire  Ins.  Co.  v.  Phelps. 
51  Neb.  623,  71  N.  W.  303;  German  Ins.  Co.  v.  Gibson,  53  Ark.  494,  14  S.  W. 
<>72;  Marthinson  v.  Insurance  Co.,  64  Mich.  372,  31  N.  W.  291;  Carpenter  v. 
Insurance  Co.,  61  Mich.  635,  28  N.  W.  749;  OSHKOSH  GASLIGHT  CO.  v.  GER- 
MANIA  FIRE  INS.  CO.,  71  Wis.  454,  37  N.  W.  819,  5  Am.  St.  Rep.  233;  Grubbs 
V.  Insurance  Co.,  108  N.  C.  472,  13  S.  E.  236,  23  Am.  St  Rep.  62. 


j 


r  ..j 


380 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


with  regard  to  the  settlement  of  a  loss  that  has  occurred,  it  would 
seem  that  he  is  justly  entitled  to  all  of  the  information  for  which  he 
stipulated  in  the  contract.  He  may  have  knowledge  of  a  technical 
ground  of  forfeiture,  and  yet  consider  that  his  interest  would  be  best 
subsei*ved  by  paying  the  claim,  despite  the  forfeiture,  provided  that 
the  claim  shall  prove  to  be  in  all  respects  honest  and  equitable.  In 
deciding  upon  the  character  of  the  claim,  he  may  very  properly  desire 
the  information  to  be  obtained  through  the  proofs  of  loss,  or  by  the 
award  of  appraisers,  or  by  the  report  of  an  adjuster.  If,  after  se- 
curing the  information  desired,  the  insurer  decides  that  the  claim  is 
not  a  just  one,  there  seems  to  be  no  sufficient  reason  for  denying 
him  the  right  to  set  up  the  previously  known  ground  of  forfeiture. 
Nor  can  the  insured  justly  claim  that  in  demanding  proofs  of  loss 
or  the  performance  of  other  subsequent  conditions  of  the  contract,  the 
insurer  has  induced  him  to  do  acts  or  to  incur  expense  and  trouble 
which  otherwise  he  would  have  omitted.  The  insured  performs  these 
acts  because  he  had  contracted  so  to  do,  and  not  because  the  insurer 
had  induced  him  to  perform  them.®"  It  is  in  accordance  with  this 
principle  that  the  standard  form  of  fire  policy  provides:  "This  com- 
pany shall  not  be  held  to  have  waived  any  provision  or  condition  of 
this  policy  or  any  forfeiture  thereof  by  any  requirement,  act,  or  pro- 
ceeding on  its  part  relating  to  the  appraisal  or  to  any  examination 
herein  provided  for ;  and  the  loss  shall  not  become  payable  until  sixty 
days  after  the  notice,  ascertainment,  estimate,  and  satisfactory  proof 
of  the  loss  herein  required  have  been  received  by  this  company,  includ- 
ing an  award  by  appraisers  when  appraisal  has  been  required."  This 
condition  is  valid,  and  will  be  given  full  effect.®' 

«5  Wheaton  v.  Insurance  Co.,  76  Cal.  415,  18  Pac.  758,  9  Am.  St.  Rep.  216; 
Banco  de  Sonera  v.  Bankers'  Mut.  Casualty  Co.  (Iowa)  95  N.  W.  232;  Freed- 
man  v.  Insurance  Co.,  175  Pa.  350,  34  Atl.  730.  See,  also,  Briggs  v.  Insurance 
Co.,  65  Mich.  52,  31  N.  W.  616;  JOHNSON  v.  AMERICAN  INS.  CO.,  41  Minn. 
396,  43  N.  W.  59. 

8  •  Hayes  v.  Insurance  Co.,  132  N.  C.  702,  44  S.  E.  404,  95  Am.  St  Rep. 
627;  Keet-Rountree  Dry  Goods  Co.  v.  Mercantile  Town  Mut.  Ins.  Co.,  100 
Mo.  App.  504,  74  S.  W.  469;  Gibson  Electric  Co.  v.  Liverpool  &  London  &  Globe 
Ins.  Co.,  159  N.  Y.  418,  54  N.  E.  23;  Kieman  v.  Insurance  Co.,  150  N.  Y.  190, 
44  N.  E.  698. 


|§  127-128) 


WHAT  MAY  BE  WAIVED. 


WHAT  MAT  BE  WAIVED. 


881 


127.  Either  party  may  waive  any  condition  of  the  contract  innring 

to  his  sole  benefit,  or  any  right  which  he  may  have  with  refer- 
ence thereto, 
EXCEPT  when  the  public  welfare  requires  the  maintenance  of  the 
right  sought  to  be  waived,  such  as  is  given  by  a  positive  rule 
of  common  law  or  of  statute.  Agreements  to  waive  such 
rights  are  of  no  effect. 

128.  While  there  is  some  authority  to  the  contrary,  it  is  well  settled 

that  the  by-laws  and  regulations  of  a  mutual  company  may 
be  waived  by  its  of&cers  as  fully  as  can  any  other  terms  of  the 
insurer's  contract.  ^ 

As  a  general  rule,  any  person  may  waive  any  right  that  distinctively 
belongs  to  him.  So  either  party  to  a  life  insurance  contract  may  waive 
any  right  or  privilege  of  whatsoever  character  that  he  may  take  under 
the  contract,  provided  that  right  or  privilege  is  distinctively  his  own. 
As  has  already  been  readily  inferred,  the  questions  of  waiver  usually 
presented  to  the  courts  in  connection  with  insurance  contracts  are 
those  affecting  waivers  by  the  insurer,  and  usually  concern  those  con- 
ditions of  the  contract  that  operate  to  give  special  rights  or  privileges 
to  the  insurer,  such  as  the  conditions  that  entitle  the  insurer  to  con- 
sider the  policy  void  in  case  the  insured  violates  any  of  the  numerous 
conditions  specified  in  the  policy. 

Conditions  Against  Waiver. 

The  validity  of  the  condition  found  in  the  ordinary  life  policy  forbid- 
ding waivers  of  any  terms  of  the  contract  by  any  of  the  representa- 
tives of  the  company,  save  in  some  specified  manner — usually  by 
writing  indorsed  on  the  policy — has  already  been  fully  discussed  in  the 
preceding  chapter,  but,  for  purposes  of  completeness,  the  conclusions 
reached  may  properly  be  summarily  repeated  here.  Such  a  condition  is 
manifestly  for  the  sole  benefit  of  the  insurer,  and  he  may  waive  that  con- 
dition if  he  sees  fit,  as  well  as  any  other  of  the  policy."  It  is  clear  that, 
if  any  representative  of  the  company  has  authority  to  make  such  a  con- 
dition against  waivers,  he  must  also  have  authority  to  unmake  or  waive 
it**     In  such  a  case  the  terms  of  the  condition  waived  can  have  no 

87  City  Planing  &  Shingle  Mill  Co.  v.  Merchants',  Manufacturers'  &  Citizens' 
Mut.  Fire  Ins.  Co.,  72  Mich.  654,  40  N.  W.  777,  16  Am.  St.  Rep.  552;  German 
Ins.  Co.  V.  Gibson,  53  Ark.  494, 14  S.  W.  672;  Billings  v.  Insurance  Co.,  34  Neb. 
502,  52  N.  W.  397;  Corson  v.  Insurance  Co.,  113  Iowa,  641,  85  N.  W.  806;  TilUs 
V.  Insurance  Co.  (Fla.)  35  South.  171. 

8  8  Thus  a  general  agent  having  general  power  to  make  contracts  on  behalf 
of  the  company  has  apparent  power  to  waive  forfeitures,  despite  a  term  of  the 
contract  limiting  that  power  to  certain  specified  officers,  ^tna  Life  Ins.  Oo. 
V.  Fallow  (Tenn.)  77  S.  W.  937;  Indian  River  State  Bank  t.  Hartford  Fire 
Ins.  Co.  (Fla.)  35  South.  228. 


i 


382 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


effect  upon  the  validity  of  the  waiver.  These  conditions  forbidding- 
waiver  operate,  therefore,  merely  as  notice  to  the  insured  of  limitations 
placed  by  the  insurer  upon  the  powers  of  the  agent  under  the  policy. 
1  he  insured,  after  the  receipt  of  the  policv,  must  be  deemed  to  have 
knowledge  of  the  limitation ;  and,  if  that  limitation  upon  the  authority 
of  the  agent  be  true  in  fact,  and  be  kept  true,  any  attempt  by  the  agent 
to  make  a  subsequent  waiver  by  any  act  in  excess  of  his  powers  as  thus 
limited  will  necessarily  be  inoperative. »«  But  as  heretofore  observed 
if  the  insurer  has  in  fact  permitted  parol  waivers  by  an  agent,  the 
condition  in  the  policy  denying  to  the  agent  the  power  to  make  waivers 
except  in  wnting,  being  untrue,  will  be  nugatory.** 

This  condition  against  waivers,  being  thus  seen  to  be  operative  only 
as  a  notice  to  the  insured,  cannot,  in  the  nature  of  things,  in  any  wise 
affect  the  powers  of  the  agent  with  regard  to  transactions  prior  to  the 
delivery  of  the  policy.  As  to  such  transactions,  the  agent  will  be 
deemed  to  have  such  powers  as  the  insurer  has  allowed  him  to  appear 
to  possess;  that  is,  powers  coextensive  with  the  business  intrusted  to 
him.  In  accordance  with  this  principle,  it  is  held  by  the  great  weight 
of  authority  that  conditions  in  the  policy  prohibiting  waivers  by  the 
agents  of  the  company  have  no  application  to  transactions  relating  to 
the  inception  of  the  policy.** 

• 

««» WILKLNS  v.  INSURANCE  CO.,  43  Minn.  177,  45  N.  W.  1.  Woodruff,  Ins. 
Cas.  515;  Walsh  v.  Insurance  Co.,  73  N.  T.  5;  MESSELBACK  v.  NORMAN 
Txro^;. J*  ^^^'  ^^  ^'  ^'  ^'  ^i^^iards,  Ins.  Cas.  397 ;  KNICKERBOCKER  LIFE 
INS.  CO.  V  NORTON,  96  U.  S.  234,  24  L.  Ed.  689,  Richards,  Ins.  Cas.  399,  El- 
hott  Ins.  Cas.  52;  KYTE  v.  ASSURANCE  CO.,  144  Mass.  43,  10  N.  E.  518. 
Avoodniff,  Ins.  Cas.  477. 

Some  courts  hold  that  a  condition  prohibiting  waivers  by  any  representative 
of  the  company,  save  In  writing,  is  repugnant,  and  therefore  void  in  toto.  while 
the  restriction  of  that  power  to  certain  designated  officers  will  operate  as  a 
valid  hmltation  upon  the  power  of  other  agents  to  grant  waivers  Comoam 
LAMBERTON  v.  INSURANCE  CO.,  39  Minn.  129,  39  N.  W  76  1  L  R  T 
^f  ;.f.''^or'^^^'^^  ^'  INSURANCE  CO.,  supra.  In  Renler  v.  InsurancrCo  ' 
74  Wis  89,  42  N.  W.  208,  it  was  held  that  a  condition  that  no  waiver  should 
be  valid,  unless  "In  writing,  signed  by  the  president  or  secretary  of  the  com- 
pany," was  ineffectual,  as  being  unreasonable  and  repugnant,  especially  in 
the  case  of  insurance  by  a  foreign  company.    See,  also,  Westchester  Fire 

ir*  ^?;7*  ^^^^^  ^  ^^^^'  ^^»   Eastern  Ry.  Co.  v.  Relief  Fire  Ins.  Co    105 
Mass.  570.  * 

•0  Knickerbocker  Life  Ins.  Co.  ▼.  Norton,  96  U.  S.  234,  24  L.  Ed  689   Rich- 

^^?f '.J[Sf-  ^^^-  ^^'  ^"*°"'  ^^«-  ^^«-  52.  And  see  cases  cited  in  note  22  'supra 
•1  The  restnctlons^lnserted  in  the  contract  upon  the  power  of  the  agent  to 
waive  any  condition,  unless  done  in  a  particular  manner,  cannot  be  deemed  to 
apply  to  those  conditions  which  relate  to  the  inception  of  the  contract  when 
it  appears  that  the  agent  has  delivered  it  and  received  the  premium  with  full 
know  edge  of  the  actual  situation.  To  take  the  benefit  of  a  contract,  with  full 
knowledge  of  all  the  facts,  and  attempt  afterwards  to  defeat  it  when  calle<J 
upon  to  perform,  by  asserting  conditions  relating  to  those  facts,  would  be  tcv 
claim  that  no  contract  wag  made,  and  thus  operate  as  a  fraud  upon  the  other 


§g  127-128) 


WHAT  MAY  RE   WAIVED. 


383 


"• 


Rights  in  Which  Public  is  Concerned  cannot  he  Waived. 

But  it  follows,  as  a  correlative  proposition  to  that  stated  above,  that 
a  party  to  a  contract  of  insurance  cannot  waive  any  right  therein  which 
does  not  belong  solely  to  himself.  If  the  public  is  concerned  in  the 
maintenance  of  that  right,  he  will  not  be  allowed  to  waive  it  to  the 
prejudice  of  the  public.  Such  rights  involving  a  public  interest  are 
usually  statutory,  being  derived  from  those  statutes  that  have  been 
enacted  for  the  purpose  of  protecting  the  public  against  the  fraudu- 

party."    WOOD  v.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St. 
Rep.  733. 

That  the  court  considered  Itself  full-handed  with  reasons  for  this  holding  is 
apparent  from  the  opinion  rendered  in  Robbins  v.  Insurance  Co.,  149  N.  Y. 
477,  44  N.  E.  159:  "The  rule  that  an  insurance  company  will  not  be  permitted 
to  defeat  a  recovery  upon  a  policy  issued  by  it  by  proving  the  existence  of 
facts  which  would  render  it  void,  where  it  had  full  knowledge  of  them  when 
the  policy  was  issued,  is  too  well  established  by  the  authorities  in  this  state 
to  require  further  discussion.  It  is  manifest  that  the  facts  in  this  case  bring 
it  clearly  within  the  principle  of  the  cases  cited.  Whether  the  decisions  of 
this  class  of  cases  proceed  upon  the  charitable  theory  that  the  insurance  com- 
pany by  mistake  omitted  to  make  the  required  indorsement,  or  intended  to 
waive  the  provision  regarding  it,  or  upon  the  idea  that  its  purpose  was  to  de- 
fraud the  insured,  and  is  for  that  reason  estopped,  is  of  but  little  consequence, 
as  any  one  of  those  theories  is  sufficient  to  avoid  the  defense  relied  upon  in 
this  case." 

To  the  same  effect,  see  Medley  v.  Insurance  Co.  (W.  Va.)  47  S.  E.  101;  Vir- 
ginia Fire  &  Marine  Ins.  Co.  v.  Richmond  Mica  Co.  (Va.)  46  S.  E.  463;  Do'wling 
V.  Insurance  Co.,  168  Pa.  234,  31  Atl.  1087. 

(5ontra,  see  RYAN  v.  INSURANCE  CO.,  41  Conn.  168,  19  Am.  Rep.  490, 
Richards,  Ins.  Cas.  408,  approved  in  NEW  YORK  LIFE  INS.  CO.  v.  FLETCH- 
ER, 117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934.  There,  however,  the  limita- 
tion was  contained  in  the  application,  and  not  in  the  policy  merely.  But 
Northern  Assur.  Co.  v.  Grand  View  Bldg.  Ass'n,  183  U.  S.  308,  22  Sup.  Ct.  133, 
46  L.  Ed.  213,  seems  to  be  squarely  opposed  to  the  prevailing  view  as  stated  in 
the  text. 

It  is  also  held  by  many  authorities  that  this  limitation  upon  the  power  of 
agents  to  waive  forfeitures  "refers  to  the  conditions  which  go  to  the  making  * 
of  the  contract  of  insurance,  and  not  to  provisions  relating  to  the  proofs  of  loss 
which  are  to  be  performed  in  the  event  of  a  loss,  and  consequently  this  stipu- 
lation does  not  operate  to  prevent  the  company  from  making  a  waiver  of  proof 
of  loss  by  conduct  or  otherwise  than  by  express  agreement."  Farmers'  Fire 
Ins.  Co.  V.  Baker,  94  Md.  545,  51  Atl.  184;  O'Leary  v.  Insurance  Co.,  100 
Iowa,  390,  69  N.  W.  686;  Citizens'  Ins.  Co.  v.  Stoddard,  197  111.  330,  64  N.  E. 
355;  Indian  River  State  Bank  v.  Hartford  Fire  Ins.  Co.  (Fla.)  35  South.  228, 
246.  Probably  a  more  correct  statement  of  the  principle  involved  in  these 
cases  (in  which  the  alleged  waiver  was  by  absolute  denial  of  liability  by  an 
agent  authorized  to  make  such  denial,  always  held  to  dispense  with  the  neces- 
sity of  giving  proofs  of  loss)  is  that  no  limitation  or  term  of  a  contract  can  do 
away  with  the  doctrine  of  estoppel.  Any  attempt  expressly  to  waive  a  con- 
dition operating  after  loss  would  be  subject  to  the  limitation  contained  in  the 
policy  upon  the  agent's  authority;  but,  if  the  company's  conduct  is  such  as 
to  work  an  estoppel  in  fact,  its  condition  will  not  be  aided  by  a  term  in  the 
policy  denying  its  liability  to  be  estopped. 


f 


Ul 


3Si 


WAIVER  AND  ESTOPPEL. 


(Ch.  10 


lent  and  oppressive  eonduct  of  insurance  companies.  Thus,  where  a 
statute  provides  that  no  policy  shall  become  forfeited  for  nonpayment 
of  the  premium  unless  notice  of  a  specified  kind  is  given  by  the  insurer 
of  default  in  payment,  the  insured  cannot  waive  his  right  to  receive 
such  notice.®^  So  of  those  statutes  requiring  the  insurer  to  pay  the 
full  amount  set  forth  in  his  policy  in  case  of  total  loss;  any  agree- 
ment in  the  policy  that  the  amount  recovered  shall  be  limited  to  the 
actual  value  of  the  property  destroyed,  or  to  three-fourths  of  such 
value,  will  not  operate  to  preclude  the  insured  from  claiming  the  full 
benefit  of  the  statute.®' 

There  are  certain  common-law  rights,  also,  which  are  so  deeply 
embedded  in  public  policy  that  a  waiver  of  them  will  not  be  tolerated. 
Thus  it  is  contrary  to  public  poUcy  that  wagering  insurance  shall  be 
written.  The  insurer  therefore  will  not  be  allowed  to  waive  his  right 
to  set  up  the  defense  of  a  lack  of  insurable  interest.®*  Neither  will 
the  insurer  be  allowed  to  waive  his  right  to  hold  the  policy  void  in 
case  the  insured  comes  to  his  death  by  the  execution  of  a  legal  judg- 
ment.®*^ Nor  when,  by  some  authorities,  the  insured  has  died  by  his 
sane  act  of  self-destruction.*® 

Again,  while  rights  may  be  waived,  facts,  which  are  known  to  be 
stubborn  things,  cannot  be  waived.  Therefore  the  agreement  by  the 
insured,  set  forth  in  the  policy,  that  the  person  who  is  really  the  agent 
of  the  insurer  shall  be,  instead,  the  agent  of  the  insured,  cannot,  on 
sound  principle,  operate  as  a  waiver  of  the  right  of  the  insured  to  rely 
upon  the  truth  of  the  matter,  which  is  that  the  agent  is,  under  facts  of 
the  case,  the  representative  of  the  insurer."  Neither,  by  the  better 
authority,  can  the  insured  waive  the  consequence  of  the  operation  of 
a  settled  rule  of  law  by  agreeing  that  the  insurance  company  shall 
not  be  charged  with  knowledge  of  the  facts  known  or  fraud  perpe- 
trated by  its  representatives.** 

•a  Baxter  v.  Insurance  Co.,  119  N.  Y.  450,  23  N.  E.  1048,  7  L.  R.  A.  293.  And 
«ee  Rosenplanter  v.  Society,  96  Fed.  721,  37  C.  C.  A.  566,  46  L.  R.  A.  473. 

»3  Pennsylvania  Fire  Ins.  Co.  v.  Drackett,  63  Ohio  St  41,  57  N.  E.  962,  18 
Am.  St.  Rep.  608;  Reilly  v.  Insurance  Co.,  43  Wis.  449,  28  Am.  Rep.  552;  Hart- 
ford Fire  Ins.  Co.  v.  Bourbon  County  Court,  72  S.  W.  739,  24  Ky.  Law  Rep. 
1850.  The  courts  do  not  seem  inclined  to  extend  this  rule  to  statutory  provi- 
sions intended  for  the  benefit  of  the  insurer.  See  Ellis  v.  Insurance  Co.,  113 
€al.  612,  45  Pac.  988,  54  Am.  St  Rep.  373. 

•4  CLEMENT  v.  INSURANCE  CO.,  101  Tenn.  22,  46  S.  W.  561,  42  L.  R.  A. 
247,  70  Am.  St  Rep.  650 ;  Anctil  v.  Insurance  Co.  [1899]  App.  Cas.  609. 

•B  Burt  V.  Insurance  Co.,  187  U.  S.  362,  23  Sup.  Ot  139,  47  L.  Ed.  216. 

••  RITTER  v.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct  300,  42  L.  Ed.  693. 

»7  Stemaman  v.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318, 
«8  Am.  St  Rep.  625;  KAUSAL  v.  INSURANCE  CO.,  31  Minn.  17,  16  N.  W. 
430,  47  Am.  Rep.  776,  Richards,  Ins.  Cas.  392,  Woodruff,  Ins.  Cas.  517. 

•8  Pamo  V.  Insurance  Co.,  114  Iowa,  132,  86  N.  W.  210;  Indian  River  State 


§§  127-128) 


WHAT   MAY  BE   WAIVED. 


385 


Regulations  of  Mutual  Companies. 

It  is  held  by  the  Massachusetts  decisions,*'  and  perhaps  in  other 
states,  that  the  by-laws  and  regulations  of  a  mutual  company  cannot 
be  waived  by  its  officers,  inasmuch  as  all  persons  becoming  members 
of  such  an  association  are  charged  with  knowledge  of  its  regulations, 
and  therefore  of  these  implied  limitations  upon  the  powers  of  its  rep- 
resentatives. This  view,  however,  is  rejected,  and  properly  so,  by  the 
great  weight  of  authority  in  this  country.^**®  Until  the  issue  of  a 
certificate  by  which  the  recipient  is  made  a  member  of  the  association, 
he  is  a  total  stranger  to  it  and  its  regulations,  and  should  not  be  char- 
ged with  a  knowledge  of  its  by-laws  and  rules  any  more  than  would 
any  other  stranger. 

Conditions  of  the  Standard  Policy, 

There  has  been  some  question  whether  the  terms  of  a  contract  pre- 
scribed by  law,  as  the  standard  form  of  fire  policy  in  New  York,  could 
be  waived.  Probably  an  express  waiver  of  any  term,  though  in  writ- 
ing, would  be  invalid,  as  changing  the  prescribed  form,  but  it  is  now 
well  settled  that  an  implied  waiver  or  estoppel  can  be  shown  as  readily 
under  the  standard  policy  as  in  other  cases.* ®^ 

Bank  v.  Hartford  Fire  Ins.  Co.  (Fla.)  35  South.  228.    But  see  NEW  YORK 
LIFE  INS.  CO.  v.  FLETCHER,  117  U.  S.  519,  6  Sup.  Ct.  837,  29  L.  Ed.  934. 

»»  McCoy  V.  Insurance  Co.,  133  Mass.  85;  Mulrey  v.  Insurance  Co.,  4  Allen 
(Mass.)  116,  81  Am.  Dec.  689.    And  see  Pitney  v.  Insurance  Co.,  65  N.  Y.  21. 

100  Pratt  V.  Insurance  Co.,  130  N.  Y.  206,  29  N.  E.  117;  Susquehanna  Mut- 
Fire  Ins.  Co.  v.  Elkins,  124  Pa.  484,  17  Atl.  24,  10  Am.  St.  Rep.  608;  Railway 
Passenger  &  Freight  Conductors'  Mutual  Aid  &  Benefit  Ass'n  v.  Tucker,  157 
111.  194,  42  N.  E.  398,  44  N.  E.  286;  Towle  v.  Insurance  Co.,  91  Mich.  219,  51 
N.  W.  987;  KAUSAL  v.  INSURANCE  CO.,  31  Minn.  17,  16  N.  W.  430,  47  Am. 
Rep.  776,  Richards,  Ins.  Cas.  392,  Woodruff,  Ins.  Cas.  517. 

101  See  this  question  fully  discussed  in  Moore  v.  Insurance  Co.,  141  N.  Y. 
219,  36  N.  E.  191;  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  31  N.  E.  31,  28  Am. 
St.  Rep.  645;  Skinner  v.  Norman,  165  N.  Y.  565,  59  N.  E.  309,  80  Am.  St.  Rep. 
776;  and  WOOD  v.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St. 
Rep.  733.  As  to  the  Massachusetts  standard  policy,  see  Parker  v.  Insurance 
Co.,  162  Mass.  479,  39  N.  E.  179.  For  a  discussion  of  the  Wisconsin  cases,  see 
Welch  V.  Fire  Ass'n  (Wis.  1904)  98  N.  W.  227. 

Vance  Ins. — ^25 


I 


3S6 


EIGHTS  UNDER  THB  POLICY. 


(Ch.  11 


OHAPTEB  XL 

RIGHTS  UNDER  THB  POLIOX; 

129.  In  General. 

130-131.  The  Beneficiary. 
132-134.  Vested  Rights  of  the  Beneficiary. 

135.  (Contingent  Interest  of  the  Beneficiary. 

136.  Mere  Expectancy  of  Benefit. 

137-138.  Beneficiaries  in  Mutual  Benefit  Associations. 

139.  The  Rights  of  Creditors  of  the  Insured— Fire  Polidea 

140.  Life  Policy  Payable  to  Insured. 

141.  Policy  Payable  to  a  Third  Person. 

142.  When  the  Creditor  Is  the  Assured. 
143-145.  The  Rights  of  the  Assignee. 

146-147.    Rights  of  the  Mortgagor  and  Mortgagee. 

148.    Rights  of  Life  Tenant  and  Remainderman. 
149-150.    Subrogation. 

IN  GENERAIf 

129.  As  In  the  case  of  any  other  contract,  the  rights  arising  ont  of 
the  contract  of  insurance,  whether  of  the  imniediate  parties 
or  of  others  claiming  through  them,  are  to  be  determined  by 
the  terms  of  the  contract  itself,  as  soundly  and  reasonably 
construed. 

When  the  right  to  demand  of  the  insurer  the  payment  of  money 
has,  under  the  terms  of  the  policy,  become  fixed  by  reason  of  the  hap- 
pening of  the  contingency  insured  against,  many  contests  may  arise 
as  to  who  shall  be  entitled  to  receive  the  money  when  paid.  In  the 
case  of  life  insurance  the  creditors  of  the  deceased  may  contend  with 
his  surviving  wife  and  children,  or  with  other  designated  beneficiaries, 
or  the  creditors  of  an  insolvent  insured  may  claim  such  portion  of  the 
proceeds  of  a  policy  made  payable  to  a  named  beneficiary  as  will  make 
good  the  sum  diverted  from  the  payment  of  debts  to  the  payment  of 
premiums.  If  the  insurance  be  of  property,  a  mortgagee  may  claim  the 
proceeds  of  a  policy  to  satisfy  an  incumbrance  upon  the  property  dam- 
aged or  destroyed,  or  a  vendee  of  property  destroyed  before  convey- 
ance may  claim  the  insurance  money  paid  to  the  vendor.  These,  and 
other  questions  involving  rights  under  the  insurance  contract,  must 
necessarily  be  determined  in  accordance  with  the  terms  of  the  contract 
itself.  A  reasonable  and  sound  construction  of  the  policy  is,  however, 
necessary  to  a  correct  solution  of  such  questions,  due  regard  being  had 
to  the  nature  of  the  contract,  its  purpose,  and  the  intention  of  the 
parties  as  discoverable  in  the  terms  of  the  contract    All  of  the  rules 


THE   BENEFICIARY. 


387 


§§  130-131) 

presently  to  be  stated  in  detail  are  but  amplifications  of  this  general  rule 
as  given  above. 

Life  policies  may  provide  that,  upon  maturity,  the  proceeds  shall  be 
payable  to  the  insured  or  his  personal  representatives,  or  to  some  per- 
son or  persons  designated  as  beneficiaries  of  the  insurance.  The 
person  designated  thus  as  beneficiary  may  stand  in  any  one  of  several 
relations  to  the  person  whose  life  is  insured.  The  rights  of  such  ben- 
eficiaries (sometimes  termed  the  "assured")  in  all  of  these  relations  will 
now  be  considered. 


THE  BENEFICIARY. 


130. 


(a) 
(b) 


(2) 
(3) 


The  beneficiary  is  the  person  designated  by  tbe  terms  of  tlie 
contract  as  the  one  to  receive  the  proceeds  of  the  insurance. 
Such  beneficiary  may  be 

A  person  insured  or  his  personal  representative. 

Some  one  other  than  the  insured,  who  may  be 

(1)  The  assured,  or  the  one  procuring  and  maintaining  the  con- 
tract. 

One  whom  the  insured,  for  a  valuable  consideration,  has  des- 
ignated as  beneficiary,  or 

One  whose  nomination  as  beneficiary  is  due  to  mere  bounty 
of  the  insured. 

The  term  as  ordinarily  used  includes  only  third  persons  desig- 
nated by  the  party  insured  as  beneficiaries. 

131.   The  rights  of  beneficiaries  vary  greatly  with  the  terms  of  differ- 
ing contracts.     They  may  be 
Vested 
(1>   Absolutely  and  indefeasibly,  ov 

(2)  Conditionally,  subject  to  being  divested  by  the  happealsc  of 
some  condition  subsequent. 

Contingent  upon  the  happening  of  some  condition  precedent. 
Mere  expectancies  or  possibilities  of  benefits  to  be  received. 


(a) 


Cb) 
(c) 


In  msurance  law  the  term  "beneficiary"  is  ordinarily  used  to  indicate 
only  those  persons  who,  though  not  parties  to  the  contract,  are  men- 
tioned m  It  as  the  recipients  of  the  proceeds  of  the  insurance.  Such  a 
restncted  significance  thus  attached  to  the  term  merely  points  to  the 
fact  that  most  of  the  litigation  involving  such  questions  concerns  rights 
claimed  by  such  third  persons  as  beneficiaries.  A  broader  use  of  the 
term  would  include  also  those  who,  upon  a  proper  basis  of  insurable 
interest,  secure  insurance  for  their  own  benefit  upon  the  lives  of  others 
Fortunately,  the  rights  of  this  latter  class  of  beneficiaries  are  not  com- 
plex, and  seldom  give  rise  to  questions  of  difficulty. 

Insurance  for  the  BeneAt  of  the  Insured  or  His  Personal  Representa- 
tives, 

Policies  are  frequently  made  payable  to  the  insured  if  he  survives 
a  specified  endowment  period,  and  to  his  estate,  or  to  his  personal  rep- 


388 


BIGHTS    UNDER   THE   POLICY. 


(Ch.  11 


§8  130-131) 


THE  BENEFICIABT. 


389 


resentatives  upon  his  death  prior  to  the  expiration  of  that  period.  In 
such  cases  the  policy  is  a  chose  in  action,  which  the  insured  may  dis- 
pose of,  assign,  or  incumber  as  he  sees  fit,  and  which  can  be  seized  on 
execution  or  assigned  in  bankruptcy,  provided  it  has  by  its  terms  a 
cash  surrender  value.  Otherwise,  it  is  not  liable  to  seizure  for  pay- 
ment of  debts,  even  though  it  may  have  a  reserve  value  on  the  books 
of  the  company,  or  even  though  the  insurer,  of  his  own  motion,  may 
be  willing  to  pay  cash  for  its  surrender.* 

A  policy  by  its  terms  payable  to  the  "estate"  of  the  insured  can  be 
collected  by  his  personal  representatives;  likewise  if  it  is  payable  to 
his  "legal  representatives,"  *  although  it  is  held  in  some  jurisdictions 
that  the  phrase  is  to  be  construed  as  meaning  heirs '  or  next  of  kin. 
So  a  policy  made  payable  to  the  "heirs"  of  the  insured  requires  pay- 
ment to  such  of  his  relations  as  would  be  his  heirs  or  distributees 
if  he  had  died  intestate  and  not  to  his  personal  representatives.* 

Policies  payable  to  the  insured  or  his  estate,  however,  cause  relatively 
little  litigation,  which  more  frequently  arises  in  connection  with  those 
policies  that  by  their  terms  are  payable  to  some  other  person  than  the 
one  whose  life  is  insured.  Such  other  person  may  occupy  one  of  three 
relations  toward  the  insured : 

(1)  He  may  himself  be  the  person  who  procures  the  contract  and 
i:)ays  the  premium  necessary,  to  maintain  it.  Such  a  person  is  thus  an 
immediate  party  to  the  contract,  and  is  ordinarily  called  the  "assured." 

(2)  The  third  person  named  as  beneficiary  may  have  paid  a  valuable 
consideration  for  his  selection  as  such ;  that  is,  the  insured  may  have 
taken  out  the  policy  for  the  benefit  of  a  creditor  or  to  secure  some 
other  obligation. 

(3)  The  beneficiary  may  be  one  who  gives  no  consideration  what- 
soever for  any  rights  that  may  be  acquired  in  the  policy,  but  is  desig- 
nated as  recipient  of  the  proceeds  of  the  policy  through  mere  bounty 
of  the  insured. 

The  Assured  as  Beneficiary, 

The  rights  of  the  assured  as  a  party  to  the  contract  are,  of  course, 
definitely  fixed  by  the  terms  of  that  contract,  and  cannot  in  any  wise 
be  changed  or  affected  by  the  acts  of  the  insured,  unless  such  acts 
amount  to  a  breach  of  some  term  or  condition  of  the  policy.    The  rights 

1  Phoenix  Mnt  Life  Ina  Oo.  v.  Opper,  75  Conn.  295,  53  Atl.  586.    See  infra, 

p.  405. 

2  Alford  v.  Insurance  Oo.,  88  Minn.  478,  93  N.  W.  517. 

•  Leonard  v.  Harney,  63  App.  Div.  294,  71  N.  Y.  Supp.  546,  reversed  in  173 
N.  Y.  352,  66  N.  E.  3. 

4  Mullen  V.  Reed,  64  Conn.  240,  29  Atl.  478,  24  L.  R.  A.  664,  42  Am.  St  Rep. 
174;  Lyons  y.  Yerex,  100  Mich.  214,  58  N.  W.  1112,  43  Am.  St  Rep.  452;  Phil- 
lips V.  Carpenter,  79  Iowa,  600,  44  N.  W.  898. 

Contra,  gee  In  re  Duncombe's  Estate,  3  Ont.  Law  Rep.  510. 


of  such  an  assured  are  ordinarily  mere  choses  in  action,  which  may  be 
freely  assigned  by  him  or  seized  in  satisfaction  of  any  debts  that  he 
may  owe,  provided  they  possess  a  determinable  money  value.  The 
only  serious  difficulty  that  arises  in  determining  the  rights  of  the  as- 
sured occurs  in  cases  in  which  the  policy  has  been  taken  out  to  secure 
a  debt  owed  by  the  insured  to  the  assured.  Whether,  after  payment 
of  the  debt,  the  insured  or  his  personal  representative  has  any  rights 
in  the  policy,  is  a  difficult  question,  which  will  be  reserved  for  dis- 
cussion in  a  later  section.* 

Third  Persons  as  Beneficiaries. 

An  immense  mass  of  case-law  has  grown  up  in  the  process  of  deter- 
mining the  rights  of  third  persons,  not  parties  to  the  contract,  who 
have  been  designated  as  beneficiaries.  Before  making  the  statement 
in  detail  of  the  several  rules  that  have  been  established  by  the  courts, 
it  is  well  to  observe  generally  that,  although  the  position  of  the  bene- 
ficiary is  peculiar  in  contract  law,  it  is  yet  subject  in  its  determination 
to  all  the  rules  governing  the  construction  of  ordinary  contracts.  Con- 
tracts of  life  insurance  are  of  almost  infinite  variety  in  their  terms. 
These  terms  fix  the  rights  of  the  beneficiary,  but  in  their  construction 
all  the  terms  must  be  taken  together  in  the  attempt  to  discover  the 
intention  of  the  parties,  and  they  must  also  be  construed  with  refer- 
ence to  the  general  purposes  of  the  insurance  contract.  Considering 
the  terms  of  these  widely  differing  contracts,  it  will  be  observed  that 
they  fall  into  three  general  classes  with  reference  to  the  relation  which 
such  a  beneficiary  occupies  toward  the  immediate  contracting  parties: 

(1)  The  rights  of  the  beneficiary  may  be  vested  absolutely  or  con- 
ditionally in  accordance  with  the  terms  of  the  policy. 

(2)  Those  rights  may  be  contingent  upon  the  happening  of  some 
event  set  forth  in  the  policy,  as  a  condition  precedent  to  the  acquisi- 
tion of  any  rights  by  such  beneficiary  under  the  provisions  of  the 
contract. 

(3)  The  person  designated  as  beneficiary  may  be  given  no  rights  such 
as  have  the  quality  of  property;  that  is,  he  may  be  designated  as  the 
one  to  whom  there  is  an  expectancy  or  bare  possibility  of  benefit  to 
accrue  upon  the  maturity  of  the  policy. 

The  rights  of  these  several  classes  of  beneficiaries  will  now  be  con- 
sidered in  detail. 

■  See  infra,  S  142. 


v 


390 


EIGHTS   UNDER  THE   POLICY, 


(Ch.ll 


VESTED  BIGHTS  OP  THE  BENEFICIARY. 

132.  TN  GENEBAI.— TXThea  the  poUcy  provides  that  the  proceeds  shaU 

be  payable  to  a  certain  designated  person,  subject  to  no  condi- 
tion precedent,  the  law  regards  the  title  of  the  policy  as  vested 
in  such  person  Immediately  upon  Its  valid  Issue,  even  though 
it  may  remain  in  the  possession  of  the  Insured. 

133.  BIGHTS  ABSOLUTELY  VESTED-Where  the  title  vests  in  the 

beneficiary  without  any  condition  of  defeasance,  the  rights 
of  the  beneficiary  become  absolute,  and  by  the  weight  of  au- 
thority are  characteHzed  by  all  of  the  attributes  of  property. 
They  may  not  be  defeated  by  any  act  of  the  insured  or  of  the 
insurer,  or  in  any  other  way  without  the  consent  of  the  bene- 
ficiary. They  may  be  transferred  and  assigned  by  the  bene- 
ficiary, and  are  subject  to  the  payment  of  his  debts  as  are  any 
other  choses  in  action.  This  is  equally  true  whether  the  bene- 
ficiary has  given  a  consideration  for  such  rights  or  not. 

134.  BIGHTS  CONDITIONALLY  VESTED—By  the  terms  of  the  pol- 

icy the  rights  of  the  beneficiary,  as  thus  vested,  may  be  subject 
to  be  defeated  by  the  happening  of  some  condition  subsequent, 
as  of  death  before  the  insured.  While  such  rights  are  neces- 
sarily defeated  by  the  happening  of  the  condition  specified, 
they  cannot  be  destroyed  in  any  other  manner  without  the  con- 
sent of  the  beneficiary. 

Rights  of  Unconditional  Beneficiary. 

It  is  well  settled  by  the  courts  of  all  English  speaking  states,  with 
the  solitary  exception  of  Wisconsin,'  that  the  rights  of  the  person  ab- 
solutely designated  as  the  recipient  of  the  moneys  to  be  paid  under  a 
contract  of  life  insurance  are  vested,  and  indefeasible  without  the  con- 
sent of  that  beneficiary^  It  must,  of  course,  be  borne  in  mind  that 
the  right  of  the  beneficiary  is  only  to  receive  moneys  that  shall  become 

•  Clark  v.  Durand,  12  Wis.  223;  FOSTER  v.  GILE,  50  Wis.  603,  7  N  W  555 
8  N.  W.  217;  Estate  of  Breitung,  78  Wis.  33,  46  N.  W.  891,  47  N.  W.  17;  Elli- 
son V.  Straw,  116  Wis.  207,  92  N.  W.  1094. 

The  case  of  Rison  v.  Wilkerson,  3  Sneed.  (Tenn.)  565,  is  sometimes  cited  aa 
opposed  to  the  general  doctrine.  The  insurance  in  that  case  was  payable  to 
the  insured,  and  not  to  any  third  person,  and  the  decision  is  sound.  See  Pratt 
V.  Insurance  Co.  (Tenn.)  17  S.  W.  352. 

1  Central  Nat.  Bank  v.  Hume,  128  U.  S.  195,  9  Sup.  Ct  41,  32  L.  Ed  370- 
Griffith  V.  Insurance  Co.,  101  Cal.  639,  36  Pac.  117,  40  Am.  St.  Rep  101-  Hen- 
drie  &  Bolthofif  Mfg.  Co.  v.  Piatt  13  Colo.  App.  15,  56  Pac.  211;  Harley  v' Heist 
86  Ind.  196,  45  Am.  Rep.  285;  Glanz  v.  Gloeckler,  104  111.  573,  44  Am  Rep  94- 
Wirgman  v.  Miller,  98  Ky.  624,  33  S.  W.  937;  Pingrey  v.  Insurance  Co.' 144 
Mass.  374,  11  N.  E.  562;  Shipman  v.  Home  Circle,  174  N.  Y.  398  67  N  E  85 
63  L.  R.  A.  347;  Holmes  v.  Gilman,  138  N.  Y.  382,  34  N.  E.  205,  20  L.  R.A  566* 
34  Am.  St  Rep.  463;  Hooker  v.  Sugg,  102  N.  C.  115,  8  S.  E.  919,  3  L.  R.  A.  217,' 
11  Am.  St.  Rep.  717;  Washington  Life  Ins.  Co.  v.  Berwald  (Tex.  Sup )  76  S  W* 
142;  Preston  t.  Insurance  Co.,  95  Md.  101,  51  Atl.  838. 


§§  132-134)         VESTED  RIGHTS  OP  THE  BENEFICIABT. 


391 


due  in  accordance  with  the  terms  of  the  policy.  Therefore,  it  follows 
that  any  act  or  default  on  the  part  of  the  insured,  which  by  the  terms 
of  the  policy  will  defeat  it,  will  also  prevent  the  rights  of  the  beneficiary, 
vested  under  the  policy,  from  becoming  effective.  It  is  the  right  of 
the  beneficiary  that  is  vested,  and  not  the  receipt  of  the  money  under 
the  policy  that  is  assured.  Thus,  if  the  insured  travels  in  latitudes  pro- 
hibited by  the  policy,  or  if  he  takes  his  own  life  contrary  to  a  stipula- 
tion in  the  policy,  the  vested  right  of  the  beneficiary  will  be  rendered 
nugatory.*  So,  a  default  in  the  payment  of  the  premiums  by  the 
insured  will  defeat  the  policy  and  deprive  the  beneficiary  of  any  bene- 
fit thereunder.  The  beneficiary  is,  however,  entitled  to  prevent  a  de- 
fault in  the  payment  of  premiums  by  himself  paying  or  tendering  such 
premiums,"  but  he  is  not  entitled  to  notice  of  the  time  when  premiums 
fall  due,*®  unless  the  insured  himself  is  entitled  to  such  notice. 

Statutory  Provisions, 

In  many  states  of  the  Union,  statutes  have  been  passed  providing 
that  when  a  policy  is  issued  upon  the  life  of  a  husband,  payable  to  his 
wife  or  to  his  wife  and  children,  whether  the  policy  be  procured  by 
the  wife  herself  or  the  husband  or  by  some  third  party,  the  rights  of 
the  wife  and  children  shall  be  deemed  vested,  and  the  money  re- 
served to  them  under  the  policy  will  come  to  them  free  from  the  debts 
of  the  husband.  Such  statutes,  however,  usually  merely  declare  in 
part  the  more  extended  rule  of  the  common  law  as  above  stated.** 

Donee  Beneficiaries  within  General  Rule, 

In  some  of  the  earlier  cases  it  is  stated  that,  if  the  beneficiary  has 
given  no  consideration  for  the  appointment,  a  delivery  of  the  policy 
to  the  beneficiary,  or  to  some  one  on  his  behalf,  will  be  necessary  in 
order  to  complete  his  right  to  the  proceeds  of  the  policy.**  But  the 
later  decisions  have  established  beyond  question  the  rule  that  the  title 
to  the  policy  vests  absolutely  in  the  beneficiary  immediately  upon  its 


t 


r 


8  McCoy  V.  Relief  Ass'n,  92  Wis.  577,  66  N.  W.  697,  47  L.  R.  A.  t581.  See, 
also,  Behling  v.  Insurance  Co.,  117  Wis.  24,  93  N.  W.  800. 

»  Mutual  Life  Ins.  Co.  v.  Hill,  178  U.  S.  347,  20  Sup.  Ct.  914,  44  L.  Ed.  1097; 
Pingrey  v.  Insurance  Co.,  144  Mass.  374,  11  N.  E.  562.  This  is  true  even  when 
the  beneficiary  is  such  only  as  voluntary  assignee.  McGlynn  v.  Curry,  82  App. 
Div.  431,  81  N.  Y.  Supp.  855. 

10  Union  Cent  life  Ins.  Co.  v.  Buxer,  62  Ohio  St.  385,  57  N.  E.  66,  49  L.  R. 
A.  737.  See,  also,  Rowe  v.  Insurance  Co.,  16  Misc.  Rep.  323,  38  N.  Y.  Supp. 
621,  as  to  assured's  right  of  notice  under  the  New  York  statute. 

11  It  is  sometimes  intimated  that  the  rule  giving  the  absolute  beneficiary 
a  vested  right  in  the  policy  had  its  origin  in  these  statutes.  Washington 
Life  Ins.  Co.  v.  Berwald  (Tex.  Sup.)  76  S.  W.  442.  See,  also,  3  Am.  &  Eng. 
Enc.  Law,  981.  But  such  can  hardly  be  the  case.  In  North  Carolina  a  simi- 
lar provision  is  incorporated  in  the  state  constitution.  See  Burwell  v.  Snow, 
107  N.  C.  82,  11  S.  E.  1090. 

12  See  LEMON  v.  INSURANCE  CO.,  38  Conn.  294. 


1^ 


392 


RIGHTS   UNDER   THE   POLICY. 


(Ch.  11 


issue,  even  though  it  may  not  come  into  the  hands  of  the  beneficiary.** 
The  l3est  statement  of  this  general  rule  under  discussion  is  probably 
found  in  the  often  quoted  opinion  of  Chief  Justice  Fuller  in  Central  Nat 
Bank  V.  Hume/*  in  which  he  says:  "It  is,  indeed,  the  general  rule  that 
a  policy,  and  the  money  to  become  due  under  it,  belong,  the  moment 
It  is  issued,  to  the  person  or  persons  named  in  it  as  the  beneficiary  or 
beneficiaries,  and  that  there  is  no  power  in  the  person  procuring  the 
insurance,  by  any  act  of  his,  by  deed,  or  by  will,  to  transfer  to  any 
other  person  the  interest  of  the  person  named." 

The  vested  rights  of  the  beneficiary  will  not  be  defeated  by  the 
suicide  of  the  insured,  unless  the  policy  expressly  so  provides,  ^'^  nor 
will  the  divorce  of  a  wife  named  as  beneficiary  in  a  policy  procured 
by  her  husband  divest  her  rights.** 

Effect  of  Murder  of  Insured  by  Beneficiary. 

It  is  a  well-settled  principle  applying  to  all  contracts  of  insurance  that 
no  person  insured  shall  under  his  contract  receive  indemnity  for  a  loss 
that  he  himself  has  intentionally  brought  about.  Thus,  it  is  held  that  a 
person  who  bums  his  own  house  may  not  recover  under  a  contract  of 
insurance  upon  that  house,  even  though  no  such  exception  exists  in 
the  contract."  In  like  manner  it  has  been  frequently  held  that,  where 
the  beneficiary  procures  the  death  of  the  insured  under  such  circum- 
stances as  to  amount  to  a  felony,  he  can  receive  no  benefit  under  the 
contract  of  insurance."  In  Cleaver  v.  Reserve  Life  Ass'n  "  (arising 
out  of  the  famous  Maybrick  Case)  it  was  held  that  the  wife,  who 
poisoned  her  husband,  could  not  make  claim  to  the  money  payable 
under  the  insurance  policy  upon  his  life. 

If,  however,  the  death  of  the  insured  was  caused  under  such  cir- 
cumstances as  do  not  amount  to  felony,  as  where  the  beneficiary  was 
insane,  the  rights  of  the  beneficiary  under  the  policy  are  not  affected.^® 

i«  Holmes  v.  Oilman,  138  N.  Y.  382,  34  N.  E.  205,  20  L.  R.  A.  566.  34  Am. 
St.  Rep.  463;  Whitehead  v.  Insurance  Co.,  102  N.  Y.  143,  6  N.  E.  267,  55  Am. 
Rep.  787 ;   Laughlin  v.  Norcross,  97  Me.  33,  53  Atl.  834. 

1*  128  U.  S.  195,  206.  9  Sup.  Ct.  41,  44,  32  L.  Ed.  370. 

"Mutual  Life  Ins.  Co.  v.  Terry,  15  Wall.  580,  21  L.  Ed.  236;    Darrow  v 
Fund  Soc,  116  N.  Y.  537.  22  N.  E.  1093,  6  L.  R.  A.  495,  15  Am.  St  Rep   430- 
Fitch  v.  Insurance  CJo..  59  N.  Y.  557,  17  Am.  Rep.  372;    Morris  v.  Assurance 
Co.,  183  Pa.  563,  39  Atl.  52;   SMLER  v.  hlFK  ASS'N.  105  Iowa.  87   74  N   W 
941,  43  L.  R.  A.  537.  .      ,  .     «.  vv. 

See,  further,  "Suicide."  post,  p.  616. 

i«  Overhiser's  Adm'x  v.  Overhiser,  63  Ohio  St.  77,  57  N.  B.  965,  50  L.  R,  A. 
552,  81  Am.  St.  Rep.  612.  ^  »^  ^ 

"  Karow  v.  Insurance  Co.,  67  Wis.  56.  15  N.  W.  27.  46  Am.  Rep.  17. 

i«  New  York  Mut  Life  Ins.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877  29 
L.  Ed.  997;  Schmidt  v.  Life  Ass'n,  III5  Iowa,  41,  83  N.  W.  800.  51  L  r'  A. 
141,  84  Am.  St.  Rep.  323.  ,  .  xv.  ^ 

i»  [1892]  1  Q.  B.  147. 

20  Holdom  V.  Ancient  Order,  159  111.  619,  43  N.  B.  772,  31  L.  R.  A.  67.  50  Am 
St  Rep.  183. 


§§  132-134)  VESTED   RIGHTS  OP  THE  BENEFICIARY, 


393 


The  rule  prohibiting  the  beneficiary  from  taking  any  rights  under  a 
policy  that  has  been  matured  by  the  murder  of  the  insured  is  not  based 
upon  the  doctrine  of  fraud,  for  it  has  been  held  that  the  murderous 
beneficiary  forfeits  all  rights  under  the  policy,  even  though  it  be 
proved  that  the  hope  of  obtaining  money  under  the  policy  was  not 
the  motive  of  the  murder. ^^  But  while  the  felonious  act  of  the  bene- 
ficiary will  defeat  his  rights  under  the  policy,  it  seems  that  it  will  not 
serve  as  a  defense  to  the  insurer,  who  must  pay  the  amount  of  the 
insurance  to  the  representatives  of  the  insured,  to  whom  the  property 
in  the  policy  is  deemed  to  revert.  Such  is  certainly  the  rule  where 
the  right  to  change  the  beneficiary  is  reserved  in  the  policy.** 

The  Theory  of  the  Rule. 

The  rights  thus  accorded  by  the  practically  unanimous  decisions  of 
the  courts  to  the  beneficiary  in  an  insurance  policy,  including  the  right 
to  bring  in  his  own  name  an  action  at  law  on  the  contract,  are  unique  in 
the  law  of  contracts.  It  is  not  easy  to  discover  in  all  cases  the  theory 
upon  which  the  courts  place  the  beneficiary  in  so  much  more  advan- 
tageous a  position  than  that  occupied  by  the  person  for  whose  benefit  an 
ordinary  contract  is  made.  It  seems,  however,  that  three  diflFerent 
views  as  to  the  nature  of  the  beneficiary's  right  in  the  insurance  policy 
have  been  adopted  by  the  different  courts: 

(1)  It  has  been  held  that  the  designation  of  the  beneficiary  is  in  its 
nature  a  declaration  of  trust,  which  must  be  held  sacred  from  inter- 
ference or  destruction  by  the  parties  to  the  contract.^' 

(2)  Other  courts  have  considered  the  beneficiary  as  a  party  to  the 
contract  made  on  his  behalf  by  the  insured.**  This  view,  making  the 
insured,  when  procuring  the  policy,  merely  the  agent  of  the  beneficiary, 
and  therefore  without  subsequent  authority  to  affect  the  rights  of  his 
principal,  affords  an  excellent  basis  for  the  rule  that  the  beneficiary's 
rights  are  indefeasible,  but  unfortunately  in  most  of  the  cases  the  view 

21  Schreiner  v.  High  Court,  35  111.  App.  576. 

22  Schmidt  v.  Life  Ass'n,  112  Iowa,  41,  83  N.  W.  800,  51  L.  R.  A.  141.  84  Am. 
St.  Rep.  323;  Cleaver  v.  Reserve  Life  Ass'n  [1892]  1  Q.  B.  147.  See,  also,  in 
this  connection,  Shea  v.  Benefit  Ass'n,  160  Mass.  289,  35  N.  E.  855,  39  Am.  St. 
Rep.  475. 

28  Small  V.  Jose,  86  Me.  120,  29  Atl.  976;  National  Life  Ins.  Co.  v.  Haley,  78 
Me.  268,  4  Atl.  415,  57  Am.  Rep.  807;  RYAN  v.  ROTHWEILER,  50  Ohio  St 
595,  35  N.  E.  681;  Woodruff's  Cases,  368;  Pingrey  v.  Insurance  Co.,  144  Mass. 
374,  11  N.  E.  562;  Ricker  v.  Insurance  Co.,  27  Minn.  193,  6  N.  W.  771.  38  Am. 
Rep.  289. 

2*  See  Washington  Life  Ins.  Co.  v.  Berwald  (Tex.  Sup.)  76  S.  W.  442;  Thomp- 
son V.  Insurance  Co.,  46  N.  Y.  674;  Whitehead  v.  Insurance  Co.,  102  N.  Y.  143, 
6  N.  E.  267,  55  Am.  Rep.  787;  Holmes  v.  Oilman,  138  N.  Y.  382,  34  N.  B.  205, 
20  L.  R.  A.  566,  34  Am.  St.  Rep.  463. 

The  New  York  cases  are  powerfully  affected  by  statute.  See,  also,  Millard- 
V.  Brayton,  177  Mass.  533,  59  N.  E.  436,  52  L.  R.  A.  117,  83  Am.  St  Rep.  294. 


f:l 


It 

I 


I 


394 


RIGHTS    UNDER    THE    POLICY. 


(Ch.  11 


§§  132-134)  VESTED  RIGHTS  OF  THE  BENEFICIARY. 


395 


I 


)♦ 

^ 


is  so  contrary  to  fact  that  it  will  scarcely  answer  as  a  satisfactory 
theory. 

(3)  Another  view,  already  referred  to  as  taken  by  some  of  the  earlier 
decisions,  is  that  the  policy,  as  a  chose  in  action,  becomes  the  property 
of  the  beneficiary  when  delivered  to  him  as  an  executed  gift.^**  This 
gift  theory,  however,  will  not  avail,  inasmuch  as  we  have  seen  that  no 
delivery  to  the  beneficiary  is  necessary  to  fix  his  rights. 

None  of  these  theories  satisfies  the  curious  student.  Neither  can 
the  vested  character  of  the  beneficiary's  right  be  explained  in  accord- 
ance with  the  general  rule  that  a  third  party  for  whose  benefit  a  con- 
tract is  made  may  enforce  that  contract,  for  it  would  seem  that  such 
a  contract,  upon  the  mutual  agreement  of  the  two  principal  parties, 
could  be  rescinded.  Furthermore,  the  fact  that  in  both  England  and 
Massachusetts  the  beneficiary  is  allowed  to  bring  an  action  in  his  own 
right  on  the  policy  strikingly  diflFerentiates  him  from  the  beneficiary 
of  an  ordinary  contract,  who  is  accorded  no  such  right  in  those  juris- 
dictions. It  seems  better  and  more  in  accordance  with  the  decisions 
to  say  that,  under  the  special  common-law  rule  that  has  grown  up, 
the  beneficiary  takes  a  peculiar  property  right,  which  must  be  recog- 
nized in  accordance  with  the  rule  above  stated.** 

In  construing  the  insurance  contract  for  the  purpose  of  determining 
who  are  entitled  to  benefits  under  it,  the  courts  are  strongly  inclined 
to  consider  the  designation  of  the  beneficiary  as  analogous  to  a  testa- 
mentary provision,*^  and  therefore  give  the  probable  intention  of  the 
insured  as  full  eflFect  as  possible.  But  this  tendency  seems  in  deroga- 
tion of  the  well-established  rule  of  law  that  the  beneficiary  takes  a 
property  right.  Thus,  it  is  held  in  many  jurisdictions  that,  where  a 
policy  is  made  payable  to  several  joint  beneficiaries,  the  rights  of  one 
dying  before  the  insured  pass  to  the  survivors  among  the  beneficiarieS; 
rather  than  to  the  deceased  beneficiary's  personal  representatives.*® 

«B  LEMON  V.  INSURANCE  CO.,  38  Conn.  294. 

2«  See  discussion  in  Ricker  v.  Insurance  Co.,  27  Minn.  193,  6  N.  W.  771,  38 
Am.  Rep.  289 ;  also,  6  Va.  Law  Reg.  366. 

»7  Duvall  V.  Goodson,  79  Ky.  224.  "But  when  considered  with  respect  to 
the  rights  of  those  who  claim  to  be  beneficiaries — especially  when  they  are  the 
natural  objects  of  the  affection  and  bounty  of  the  person  procuring  and  pay- 
ing for  the  insurance—should  be  regarded  in  the  light  of  a  testamentary  pro- 
vision, rather  than  of  a  contract"  Robinson  v.  Duvall,  79  Ky.  83,  42  Am 
Rep.  208. 

2«  See  Robinson  v.  Duvall,  79  Ky.  83,  42  Am.  Rep.  208;  United  States  Tmst 
Co.  V.  Mutual  Ben.  Life  Ins.  Co.,  115  N.  Y.  152,  21  N.  E.  1025;  Walsh  v.  Insur- 
ance Co.,  133  N.  Y.  408,  31  N.  E.  228,  28  Am.  St.  Rep.  651;  Continental  Life 
Ins.  Co.  V.  Webb,  54  Ala.  688.  But  other  courts  hold  that  the  shares  of  de- 
ceased beneficiaries,  dying  before  the  insured,  pass  to  their  personal  repre- 
sentatives. See  In  re  Conrad's  Estate,  89  Iowa,  396,  56  N.  W.  535,  48  Am.  St. 
Rep.  396;  Hooker  v.  Sugg,  102  N.  C.  115,  8  S.  E.  919,  3  L.  R.  A.  217,  11  Am 
St.  Rep.  717;   GLENN  v.  BURNS,  100  Tenn.  295,  45  S.  W.  784;   WoodrufiTe 


« 


Such  a  holding  is  clearly  due  to  the  analogous  rule  obtaining  when  one 
of  several  joint  legatees  or  devisees  dies  before  the  testator.** 

The  Beneficiary s  Right  to  Assign, 

It  is  generally  held  that  the  beneficiary's  right  in  the  policy  is  of  such 
a  character  that  it  may  be  assigned  by  him  with  or  without  the  consent 
of  the  insured.*®  Likewise  such  rights  are  regarded  as  property,  which 
is  liable  to  be  seized  in  satisfaction  of  debts  and  is  subject  to  attach- 
ment, provided  the  policy  has  a  cash  surrender  value,  or  is  matured.*^ 

When  the  Beneficiary  Dies  before  the  Insured. 

There  is  much  conflict  as  to  the  legal  consequence  of  the  death  of  the 
beneficiary  before  the  maturity  of  the  policy.  In  determining  whether 
the  right  to  receive  the  proceeds  shall  pass  to  the  personal  representa- 
tive of  the  beneficiary,  or  shall  revert  to  the  estate  of  the  insured,  so  as 
to  enable  him  to  appoint  another  beneficiary,  there  is  a  conflict  between 
the  theory  that  regards  the  policy  as  a  mere  chose  in  action,  subject  to 
the  same  rules  of  action  which  apply  to  any  other  chose,  and  that  which 
regards  it  as  in  the  nature  of  a  testamentary  provision.  By  the  great 
weight  of  authority,  the  courts,  in  determining  such  cases,  abide  by  the 
rule  that  the  property  in  the  policy,  having  vested  absolutely  in  the  ben- 
eficiary, must  at  his  death  pass  to  his  personal  representative,  to  be  then 
disposed  of  in  accordance  with  the  laws  of  distribution  of  personal 
property.'*  In  other  jurisdictions,  however,  it  is  held  that  the  inten- 
tion of  the  parties  to  the  contract  must  be  carried  out  as  far  as  possi- 

Cases,  372;  Andrus  v.  Association,  168  Mo.  158,  67  S.  W.  582,  in  which  the 
beneficiaries'  interest  was  only  conditionally  vested. 

2»LocIihart  v.  Vandylie,  97  Va.  356,  33  S.  E.  613;  In  re  Moss  [1899]  2 
Ch.  Div.  314. 

»o  New  York  Mut  Life  Ins.  Co.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877, 
29  L.  Ed.  997 ;  Hewlett  v.  Home  for  Incurables,  74  Md.  350,  24  Atl.  324,  17  L. 
R.  A.  445;  Wirgman  v.  Miller,  98  Ky.  620,  33  S.  W.  937.  The  beneficiary's 
agreement  to  release  his  interest  amounts  to  an  equitable  assignment.  CocIj- 
rell  v.  Cockrell,  79  Miss.  569,  31  South.  203.  The  New  York  statute  requires 
the  written  consent  of  the  insured  husband.  Sherman  v.  Allison,  77  App. 
Div.  49,  80  N.  Y.  Supp.  148.  And  see  Ellison  v.  Straw,  116  Wis.  207,  92  N.  W. 
1094. 

81  See  Amberg  v.  Insurance  Co.,  171  N.  Y.  314,  63  N.  B.  1111  (under  New 
York  statute);  Ellison  v.  Straw,  116  Wis.  207,  92  N.  W.  1094.  But  in  some 
states  the  rights  of  a  surviving  widow  in  the  proceeds  of  a  policy  payable  to 
her  are  exempt  by  statute,  as  is  also  property  purchased  with  such  proceeds. 
See  Cook  v.  Allee,  119  Iowa,  226,  93  N.  W.  93. 

82  Block  V.  Insurance  Co.,  52  Ark.  201,  12  S.  W.  477,  20  Am.  St.  Rep.  166; 
Johnson  v.  Hall,  55  Ark.  210, 17  S.  W.  874;  Franklin  Life  Ins.  Co.  ▼.  Galligan, 
71  Ark.  295,  73  S.  W.  102 ;  Drake  v.  Stone,  58  Ala.  133 ;  HARLBY  v.  HEIST,  86 
Ind.  196,  45  Am.  Rep.  285;  Woodruff's  Cases,  362;  Phoenix  Mut.  Life  Ins.  Co. 
V.  Dunham,  46  Conn.  79,  33  Am.  Rep.  14;  Hooker  v.  Sugg,  102  N.  C.  115.  8 
S.  B.  919,  3  L.  R.  A.  217,  11  Am.  St.  Rep.  717;  Swan  v.  Snow,  11  Allen  (Mass.^ 
224;   United  States  Trust  Co.  v.  Mutual  Ben.  Life  Ins.  Co.,  115  N.  Y.  152,  21 


I 


* 


396 


BIGHTS    UNDER   THE    POLICY. 


(Ch.  11 


I 


ble.  Since  the  insured  cannot  have  intended  to  make  a  provision,  at 
the  cost  of  annual  premiums  paid  by  him,  for  the  personal  representa- 
tives or  distributees  of  the  beneficiary,  who  may  have  no  claim  upon  his 
bounty  or  interest  in  his  life,  they  hold  that  the  right  vested  in  the 
beneficiary  reverts  to  the  insured  as  a  lapsed  trust,  thus  enabling  him 
to  select  another  object  for  his  bounty,  or,  in  case  no  such  new  appoint- 
ment be  made,  allowing  the  benefit  of  the  insurance  to  pass  to  the  estate 
of  the  insured.^*  This  latter  view  has  tended  to  interfere  with  the 
operation  of  the  established  rule  as  to  the  nature  of  the  right  of  the 
beneficiary,  thus  needlessly  complicating  the  law  upon  this  already 
complicated  subject,  and  is  not  to  be  commended.  While  it  is  true  that 
the  devolution  of  the  beneficiary's  rights  under  the  policy  to  a  stranger 
usually  defeats  the  purposes  of  the  policy,  this  is  a  result  that  can  al- 
ways be  avoided  by  the  insured  by  taking  the  precaution  to  have  insert- 
ed in  the  contract  a  condition  reserving  to  himself  the  right  to  change 
the  beneficiary.'*  If  he  does  not  do  this,  it  would  seem  reasonable  and 
proper  to  require  that  the  rules  of  law  should  operate  to  carry  the  de- 
ceased beneficiary's  interest  in  the  policy  to  his  personal  representatives. 
Rights  Vested  Conditionally. 

The  beneficiary's  rights  in  the  policy  may  be  vested,  and  yet,  m  ac- 
cordance with  the  terms  of  the  contract,  be  liable  to  be  defeated  by  the 
happening  of  some  condition  subsequent.  Such  rights  are  analogous  to 
vested  future  estates  in  realty  that  are  subject  to  be  divested.^*  It  is 
frequently  difficult  to  determine  whether  the  condition  imposed  upon 
the  beneficiary's  rights  under  any  given  contract  is  precedent,  making 
such  rights  contingent  upon  the  happening  of  the  condition,  or  whether 

N.  E.  1025  (under  New  York  statute);  FOSTER  v.  GILB,  50  Wis.  603.  7  N. 
W.  555,  8  N.  W.  217. 

The  rule  applies  with  especial  force  when  the  policy  Is  payable  to  the  ben- 
eficiary, "his  executors,  administrators,  or  assigns."  See  Glanz  v.  Gloeckler, 
104  111.  573,  44  Am.  Rep.  94;  Preston  v.  Insurance  Co.,  95  Md.  101,  51  Atl.  83S. 

It  is  obvious  that,  where  the  beneficiary  has  paid  value  for  his  appointment, 
his  interest  must  pass.  In  case  of  his  death  before  the  insured,  to  his  personal 
representatives. 

33  RYAN  V.  ROTHWEILER,  50  Ohio  St.  595,  35  N.  E.  679;  Shields  v.  Sharp, 
35  Mo.  App.  178;  Mutual  Ben.  Life  Ins.  Co.  v.  Atwood's  Adm'x,  24  Grat.  (Va.) 
497,  18  Am.  Rep.  652;  Kerman  v.  Howard,  23  Wis.  108.  In  some  cases  it  is 
held  that  the  personal  representatives  of  the  predeceased  beneficiary  may 
claim  the  insurance,  rather  than  those  of  the  insured,  in  case  the  latter  has 
failed  to  make  a  reappointment.  Continental  Life  Ins.  Co.  v.  Palmer,  42 
Conn.  60,  19  Am.  Rep.  530;  Walsh  v.  Insurance  Co.,  61  Hun,  91,  15  N.  Y.  Siipn. 
697. 

»*  See  HARLEY  y.  HEIST,  86  Ind.  196,  45  Am.  Rep.  285;  Woodrurs  Cases. 
362. 

»»  Roquemore  v.  Dent,  135  Ala.  292,  33  South.  178,  93  Am.  St.  Rep.  33. 
And  see  Ellison  v.  Straw,  116  Wis.  207,  92  N.  W.  1094,  under  Wisconsin  stat- 
ute. 


§§  132-134)         TESTED  RIGHTS  OF  THE  BENEFICIARY. 


397 


it  is  subsequent,  merely  divesting  rights  then  vested.*'  Nor  does  it 
seem  that  the  courts  are  inclined  to  favor  the  vesting  of  such  rights,  as 
in  analogous  cases  in  the  law  of  real  estate.  The  tendency  seems  to 
be  to  consider  conditional  rights  contingent  rather  than  vested.*^  This 
tendency  is  doubtless  due  to  the  inclination  of  the  courts  to  consider 
the  appointment  of  the  beneficiary  in  the  light  of  a  testamentary  dispo- 
sition. The  nature  of  conditional  vested  rights,  and  also  the  impor- 
tance of  the  principle  in  practice,  is  well  illustrated  in  the  striking  case 
of  United  States  Casualty  Co.  v.  Kacer,^^  recently  decided  in  the  Su- 
preme Court  of  Missouri.  The  policy  in  question  provided  that  upon 
the  death  of  the  insured  a  large  sum  should  be  paid  to  his  daughter, 
"if  living" ;  if  not,  to  the  personal  representatives  or  assigns  of  the  in- 
sured. The  insured  and  his  daughter,  the  beneficiary,  perished  by 
shipwreck  in  the  Gulf  of  Mexico,  there  being  no  evidence  whatever  as 
to  which  survived  the  other.  Under  these  circumstances  a  contest 
arose  between  the  personal  representative  of  the  beneficiary  and  those 
of  the  insured,  as  to  which  was  entitled  to  the  receipt  of  the  insurance 
moneys.  It  is  manifest  that  if  the  right  of  the  beneficiary  was  to  be  re- 
garded as  vested,  subject  to  be  divested  upon  her  death  before  the  in- 
sured, the  burden  would  rest  upon  the  representatives  of  the  insured  to 
prove  his  survivorship  and  the  consequent  divesting  of  the  beneficiary's 
rights.  On  the  other  hand,  if  the  expression  "if  surviving"  should  be 
regarded  as  a  condition  precedent  to  the  vesting  of  any  rights  in  the 
beneficiary,  the  burden  would  rest  upon  the  representative  of  the  bene- 
ficiary to  prove  the  happening  of  that  condition.  The  court,  in  a  well 
written  and  thoroughly  sound  opinion,  decided  that  the  right  of  the 
beneficiary  under  the  policy  was  vested,  and  could  be  defeated  only  by 
p.-oof  of  the  happening  of  the  divesting  condition  of  death  before  the 

insured. 

The  same  person  who  perished  in  the  disaster  described  above 
also  had  a  benefit  certificate  in  a  mutual  benefit  association,  like- 
wise payable  to  his  daughter.  As  will  be  seen  later,  it  is  with  prac- 
tical unanimity  held  that  the  beneficiary  designated  in  a  certificate  of  a 
mutual  benefit  association  has  not  a  vested  right  in  the  insurance. 
Hence,  when  the  question  arose  between  the  representatives  of  father 
and  daughter  as  to  which  should  be  entitled  to  the  moneys  under  the 
benefit  certificate,  it  was  held  in  a  Missouri  court  that  the  daughter's 
representative  could  take  only  upon  proof  of  her  surviving  the  insured, 


t'.l 


r 


1 

i 


««  Compare  FOSTER  r.  GILB,  50  Wis.  603,  7  N.  W.  655,  8  N.  W.  217.  with 
Fuller  V.  Linzee,  135  Mass.  468. 

87  See  Fuller  v.  Linzee,  135  Mass.  468. 

«8  169  Mo.  301,  69  S.  W.  370,  58  L.  R.  A.  436,  92  Am.  St.  Rep.  Wl. 
also,  Cowman  v.  Rogers,  73  Md.  403,  21  Atl.  64,  10  L.  R.  A.  550. 


398 


RIGHTS   UNDER  THE   POLICY. 


(Ch.  11 


since  that  was  a  condition  precedent  to  the  vesting  of  her  nghtV  So, 
in  the  Massachusetts  case  of  Fuller  v.  Linzee,*^  the  policy  was  made 
payable  to  the  insured's  wife  or  assigns,  but,  if  she  should  die  before 
the  insured,  it  was  to  become  payable  to  their  children.  The  charter 
of  the  association  which  had  issued  the  insurance  stipulated  that  the  in- 
surance should  be  for  the  benefit  of  the  wife  if  she  should  survive ;  oth- 
erwise for  the  children.  Reading  the  provision  of  the  policy  in  connec- 
tion with  that  of  the  charter,  the  court  held  that  the  condition  of  sur- 
vivorship was  precedent,  and  therefore  the  rights  of  the  wife  contingent. 
Hence,  when  the  insured,  his  wife  and  children,  all  perished  in  the  same 
disaster,  the  court  refused  to  allow  the  payment  of  the  insurance  money 
to  the  wife's  personal  representatives.  As  a  general  rule,  however,  it 
would  seem  that,  where  a  policy  is  payable  to  a  beneficiary  "if  surviv- 
ing," such  a  beneficiary's  rights  should  be  reerarded  as  conditionally 
vested. 


i 


CONTINGENT  INTEREST  OP  THE  BENEFICIARY. 

186,  The  terms  of  the  policy  may  designate  some  person  as  contingent 
recipient  of  the  proceeds  of  the  insurance,  his  right  to  take  the 
fund  being  conditioned  upon  the  happening  of  some  prior  event. 
Upon  the  happening  of  the  contingency  specified,  the  contingent 
right  becomes  vested  and  indefeasible;  and,  even  while  the 
right  remains  contingent,  it  is  liable  to  destruction  only  in  ac- 
cordance with  the  terms  of  the  policy. 

In  the  preceding  section,  reference  has  already  been  made  to  the  im- 
portance of  determining  whether  the  rights  of  the  beneficiary  are  con- 
tmgent  or  vested.  It  is  improbable  that  such  contingent  rights  would 
be  so  far  recognized  as  to  permit  their  assignment  prior  to  the  happen- 
mg  of  the  contingency  upon  which  they  vested,  or  that  they  would  be 
regarded  as  estates  liable  to  satisfaction  of  the  beneficiary's  debts,  al- 
though some  courts  hold  them  to  be  transmissible."  The  most  fre- 
quently occurring  and  natural  contingent  provision  in  life  insurance  is 
found  in  those  policies  that  are  made  payable  to  the  insured's  wife,  but 
providing  that,  in  case  of  her  death  before  that  of  the  insured,  the  in- 
surance money  shall  be  payable  to  their  children.     In  those  cases  it  is 

»•  Supreme  Council  Royal  Arcanum  v.  Kacer,  96  Mo.  App.  93,  69  S.  W.  671. 
See,  also,  declaring  the  same  rule,  Males  v.  Sovereign  Camp,  30  Tex.  Civ.  App. 
184,  70  S.  W.  108,  where  both  insured  and  beneficiary  perished  in  the  great 
Galveston  storm;  Screwmen's  Benev.  Ass'n  v.  Whitridge,  95  Tex.  539  68  S 
W.  501;  Hildenbrandt  v.  Ames,  27  Tex.  Civ.  App.  377,  66  S.  W.  131.  But  see,* 
contra.  Cowman  v.  Rogers,  73  Md.  403,  21  Atl.  64,  10  Lu  R.  A.  550. 

*o  135  Mass.  468. 

*i  Hooker  v.  Sugg,  102  N.  0.  116,  8  S.  E.  919,  3  L.  R.  A.  217,  11  Am.  St  Rep 
717;  In  re  Conrad's  Estate,  80  Iowa,  396,  56  N.  W.  535,  48  Am.  St.  Rep.  396. 


gl36) 


MERE   EXPECTANCY  OF  BENEFIT. 


399 


plain  that  during  the  life  of  the  wife  the  children  have  a  mere  con- 
tingent interest  in  the  insurance,  which,  however,  vests  upon  the  death 
of  the  wife  during  the  life  of  the  insured.**  It  seems  that  the  con- 
tingent right  of  the  children  in  such  policies  cannot  be  defeated  without 
their  consent,  and  that,  even  though  both  the  insured  and  vested  bene- 
ficiary should  agree  to  the  surrender  and  cancellation  of  the  policy,*'  it 
would,  nevertheless,  become  payable  to  the  ^contingent  beneficiaries  if 
their  rights  should  become  vested  by  the  death  of  the  wife.** 


MERE  EXPECTANCY  OF  BENEFIT. 

136.  By  the  weight  of  anthority  the  person  designated  as  benefleiary 
in  a  policy,  by  the  terms  of  which  is  reserved  to  the  insured  the 
privilege  of  changing  the  beneficiary  at  will,  takes  no  property 
rights  whatsoever  in  the  policy,  bnt  a  mere  expectancy  of  ben- 
efit. This  rule  applies  to  beneficiaries  named  in  certificates  of 
mutual  benefit  associations,  urho  may  always  be  changed  arbi- 
trarily* 

As  an  original  question,  there  would  be  reason  for  holding  that, 
where  there  is  reserved  to  the  insured,  either  by  the  terms  of  the  pol- 
icy or  by  provisions  of  the  charter  or  by-laws  of  the  benefit  association, 
the  right  to  change  the  beneficiary  at  his  own  pleasure,  the  rights  of 
such  beneficiary  should  be  regarded  as  vested  until  divested  by  the  ap- 
pointment of  another  as  beneficiary.*''  Such,  however,  is  not  the  con- 
clusion reached  by  the  courts.  It  seems  rather  to  have  been  deter- 
mined, with  practically  unanimity  of  decision,  that  the  rights  of  a  bene- 
ficiary under  a  contract  allowing  arbitrary  change  of  the  beneficiary 
have  not  in  any  sense  the  quality  of  property,  but  constitute  in  such 
beneficiary  merely  an  expectancy  of  benefit  to  be  received  under  the  con- 
tract in  case  he  happens  to  occupy  the  position  of  appointee  at  the  time 
of  the  death  of  the  insured.** 


I 


*«  Chapin  v.  Fellowes,  36  Conn.  132,  4  Am.  Rep.  49;  Connecticut  Mnt  Life 
Ins.  Co.  V.  Burroughs,  34  Conn.  305,  91  Am.  Dec.  725;  Ricker  v.  Insurance 
Co.,  27  Minn.  193,  6  N.  W.  771,  38  Am.  Rep.  289. 

Any  otlier  condition  precedent  to  the  beneliciary's  right  to  demand  pay- 
ment will  cause  his  interest  to  be  contingent.  See  Thomas  v.  Insurance  Co., 
158  Ind.  461,  63  N.  B.  295. 

*8  In  New  York  the  statute  requires  a  different  ruling.  See  Anderson  v. 
Goldsmidt,  103  N.  Y.  617.  9  N.  B.  495. 

**  See  Brown's  Appeal,  125  Pa.  303,  17  Atl.  419,  11  Am.  St.  Rep.  900.  See, 
also,  Entwistle  v.  Insurance  Co.,  202  Pa.  141,  51  Atl.  759;  Virgin  v.  Marwlck, 
97  Me.  578,  55  Atl.  520. 

*8  Hopkins  v.  Hopkins,  92  Ky.  327,  17  S.  W.  864. 

*e  Hoeft  V.  Supreme  Lodge,  113  Cal.  91,  45  Pac.  185,  33  L.  R.  A.  174;  Left- 
wich  V.  Wells,  101  Va.  255,  43  S.  E.  364.  But  see  Jarvis  v.  Blnkley  (111.)  69 
N.  E.  582,  in  which  it  is  held  that  the  beneficiaries  under  mutual  benefit  cer- 


400 


BIGHTS    UNDER   THE    POLICY. 


(Ch.  11 


iP 


t 


If  it  be  true  that  the  beneficiary  under  such  a  contract  takes  no  prop- 
erty rights  in  the  insurance,  the  inference  is  natural  that  the  property 
in  the  contract  remains  in  the  insured,  and  would,  therefore,  be  subject 
to  attachment  for  debt  or  assignment  in  bankruptcy,  in  case  it  had  any 
cash  value.  It  is  probable,  however,  that,  when  the  question  arises,  the 
courts  will  decide  that  the  right  of  the  insured  in  such  a  policy  is  rather 
that  of  the  donee  of  a  general  power  of  appointment,  who  may  appoint 
to  his  creditors  if  he  sees  fit,  but  need  not  if  he  desires  otherwise.*^ 

BENEFICIARIES  IN  MUTUAL  BENEFIT  ASSOCIATIONS. 

137.  The  desigTiation  of  the  beneficiary  in  ordinary  benefit  certificates 

is  held  to  have  no  contractual  significance.  Subject  to  the  lim- 
itations set  in  the  association's  charter,  constitution,  and  by- 
laws, the  insured  may  arbitrarily  change  the  beneficiary  named 
in  his  certificate,  even  though  the  right  to  make  snoh  change 
is  not  reserved. 

EXCEPT— (a)  When  the  beneficiary  has  been  designated  in  accord- 
ance  with  the  terms  of  a  binding  contract,  in  which  case  the 
insured  is  estopped  to  exercise  his  right  to  change. 

(b)  When  the  contract  is  of  such  unusual  form  as  to  give  the  bene- 
ficiary a  clearly  vested  right. 

138.  MODE  OF  CHANGE-The  beneficiary  can  be  changed  only  in  the 

mode   prescribed  by   the  rules  of  the   association.      A  clearly 
proved  intention  to  make  the  change  is  not  sufficient,  if  any  of 

tbe  formal  requirements  are  lacking. 

EXCEPT— (a)  When  the  insured  has  done  all  in  his  power  to  comply 
with  such  requirements,  equity  will  protect  the  rights  of  the 
intended  beneficiary. 
When  the  association  has  waived  any  defects  in  an  attempted 
change  of  beneficiaries,  the  original  beneficiary  cannot  set  up 
such  a  defect  to  defeat  the  change. 


(b) 


While  It  is  generally  held  that  mutual  benefit  associations  engaged  in 
making  contracts  of  insurance  with  their  members  are  to  be  regarded 
as  insurance  companies,**  yet  it  is  also  generally  recognized  that  the 
contracts  of  such  associations  diflfer  somewhat  in  nature  from  those  of 

tlflcates  had  such  Interests  as  could  be  validly  assigned  In  equity  to  creditors. 
See,  also,  Pomeroy  v.  Insurance  Co.,  40  111.  398;  Supreme  Council  Royal  Ar- 
canum v.  Tracy,  169  111.  123,  48  N.  E.  401. 

*T  See  Lel^twlch  v.  Wells,  101  Va.  255,  43  S.  E.  364. 

The  same  rule  applies  even  when  the  certificate  on  its  face  is  payable  to 
the  devisee  of  the  insured.  Northwestern  Masonic  Aid  Ass'n  v.  Jones  154 
Pa.  99,  26  Atl.  253.  35  Am.  St.  Rep.  810.  ' 

*•  See  ante,  p.  SS.  But  in  some  cases  wich  societies  have  been  held  not 
to  be  insurance  companies.  Commonwealth  v.  Equitable  Ben.  Ass'n,  137  Pa. 
412,  18  Atl.  1112;  Northwestern  Masonic  Aid  Ass'n  t.  Jones.  154  Pa.  99.  26 
Atl.  253.  35  Am.  SL  Rep.  810. 


§§  137-133)      BENEFICIARIES  IN  MUTUAL  BENEFIT  ASSOCIATIONS.       401 

regular  life  insurance  companies.  Their  purpose  is  benevolent  rather 
than  money-making.  Only  members  have  the  privilege  of  securing  in- 
surance, and  membership  can  be  acquired  only  upon  complying  with 
the  specified  requirements  of  the  association.  As  a  consequence  of 
membership  in  such  an  association  and  the  discharge  of  all  of  the  duties 
assumed  in  reference  to  them,  the  member  is  entitled  to  certain  con- 
tingent benefits.  These  benefits  are  intended  to  afford  relief  either  to 
the  member  himself,  or  to  those  dependent  upon  him  for  support, 
against  disabling  accidents  or  death.  The  charter  and  by-laws  of  the 
associations  usually  set  forth  these  purposes  at  length,  and  specify  the 
classes  of  dependents  who  may  receive  benefits  accruing  from  member- 
ship. While  each  member  receiving  a  benefit  certificate  may  designate 
the  beneficiary  in  such  certificate,  he  is  limited  in  his  choice  to  those 
classes  of  beneficiaries  set  forth  in  the  laws  of  the  association. 

From  this  statement  of  the  relation  between  the  mutual  association 
and  its  members,  it  is  apparent  that  the  contractual  relation  strikingly 
differs  from  that  existing  between  the  regular  insurance  companies  and 
their  policy  holders.  The  contract  of  the  association  is  solely  with  its 
member,  and  cannot  in  any  view  be  regarded  as  being  made  with  the 
beneficiary  designated  in  the  certificate.**  Therefore,  it  is  held  with 
practical  unanimity  that  the  beneficiary  takes  no  contract  rights  under 
the  benefit  certificate,  and  is  subject  to  change  at  the  will  of  the  person 
taking  out  the  certificate,  even  though  the  right  to  make  such  change  is 
not  expressly  reserved  in  the  laws  of  the  association  or  by  the  terms  of 
the  certificate  itself.'''^ 

With  the  exception  of  the  unusual  cases  noted  below,  it  is  well  set- 

<»  See  Sabin  v.  Phinney,  134  N.  Y.  428,  31  N.  E.  1088,  30  Am.  St.  Rep.  681. 
in  which  the  court  said:  "The  statute  under  which  the  corporation  was  or- 
ganized, its  by-laws,  together  with  the  application  for  and  the  certificate  of 
membership,  constituted  the  contract  which  existed  between  the  member  and 
the  society,  which  instruments,  construed  together,  measure  the  rights  of 
these  litigants.  Any  person  who  became  an  appointee  in  such  a  certificate 
took  the  position  subject  to  the  absolute  right  of  the  member  to  substitute 
a  new  one  at  any  moment.  The  rights  acquired  by  the  member  by  virtue 
of  this  relation  did  not  amount  to  a  chose  in  action.  He  had  no  interest  in 
the  society  that  was  assignable  or  transferable  until  some  right  of  action  had 
accrued.  The  appointee  had  no  vested  interest  in  the  sum  which  might,  in 
a  contingency,  become  payable  on  death  of  the  member."  See,  also,  Keefer 
V.  Modern  Woodmen,  203  Pa.  129,  52  Atl.  164;  Brown  v.  Grand  Lodge  (Pa. 
1904)  57  Atl.  176,  the  court  saying:  "Unlike  ordinary  life  insurance,  the  cer- 
tificate or  policy  of  a  beneficial  association  creates  no  vested  interest  in  the 
beneficiary,  but  only  an  expectancy,  which  cannot  become  a  vested  or  abso- 
lute right  to  the  proceeds  of  the  policy  until  the  death  of  the  assured." 

»o  Bacon,  Ben.  Soc.  §  321;    Niblack,  Mut.  Ben.  Soc.  (2d  Eld.)  234a;    Hoeft 

V.  Supreme  Lodge,  113  Cal.  91,  45  Pac.  185,  33  L.  R.  A.  174;    Leftwich  v. 

Wells,  101  Va.  255,  43  S.  E.  364;   Martin  v.  Stubbings,  126  111.  387,  18  N.  B. 

657,  9  Am.  St.  Rep.  620;  Knights  of  Honor  v.  Watson,  64  N.  H.  517,  15  Atl. 

Vance  In^. — 26 


402 


BIGHTS   UNDER   THE   POLICY. 


(Ch.13 


I 


tied  that  a  person  designated  as  beneficiary  in  a  mutual  benefit  certificate 
cannot  complain  of  the  subsequent  substitution  of  another  in  his  place, 
even  though  such  substitution  be  arbitrary  and  unjust,  or  even  fraudu- 
lent.'^ Thus,  where  a  beneficiary  had  for  a  long  time  paid  the  dues 
necessary  to  maintain  the  certificate,  it  was  held  that  sha  had,  notwith- 
standing this,  no  rights  which  the  insured  was  obliged  to  respect  or 
which  would  deprive  him  of  his  right  to  change  the  beneficiary  at 
will.''*  So,  also,  where  the  insured  was  induced  to  change  the  bene- 
ficiary by  a  designing  friend  or  third  person  who  had  not  so  good  a 
claim  to  his  bounty  as  the  original  beneficiary,  it  was  held  that  the 
change,  although  fraudulently  induced,  was  sufficient  to  entitle  the  sub- 
stituted beneficiary  to  the  rights  conferred  by  the  certificate.** 

Exceptions — Contract  Beneficiaries, 

An  important  exception  to  this  general  doctrine  of  the  insured's  right 
to  change  arbitrarily  the  beneficiary  named  in  the  certificate  arises  in 
those  cases  in  which  the  beneficiary  has  been  designated  as  such  in  ac- 
cordance with  the  terms  of  a  binding  contract.  Thus,  where  a  mem- 
ber of  such  an  association  agrees  that  he  will  secure  a  certificate  for  the 
benefit  of  a  person  who  promises  to  pay  all  dues  necessary  to  maintain 
that  certificate,  the  insured  will  not  then  be  allowed  to  ignore  his  con- 
tract obligation  and  change  the  beneficiary  thus  selected.**     Such  a 

125;  Schilllnger  v.  Boes,  85  Ky.  357,  3  S.  W.  427;  Carpenter  v.  Knapp,  101 
Iowa,  712,  70  N.  W.  764,  38  L.  R.  A.  128. 

It  has  been  held,  however,  that  there  is  no  essential  difiference  between 
mutual  benefit  and  regular  insurance  in  this  respect,  and  that  the  beneficiary 
in  a  benefit  certificate  takes  a  vested  interest  unless  the  right  of  change  is 
especially  reserved  by  the  charter  or  by-laws  of  the  association.  See  Weisert 
V.  Muehl,  81  Ky.  336;  Manning  v.  Ancient  Order,  86  Ky.  136,  5  S.  W.  385, 
9  Am.  St.  Rep.  270. 

51  Hoeft  V.  Supreme  Lodge,  113  Cal.  91,  45  Pac.  185,  33  L.  R.  A.  174. 

But  when  the  insured  was  fraudulently  induced  to  make  the  change  at  a 
time  when  he  was  mentally  incapable  of  contracting,  such  change  will  be 
declared  void  and  of  no  effect  as  to  the  former  beneficiaries.  Cason  v.  Owens, 
100  Ga.  142,  28  S.  E.  75. 

B2  Spengler  v.  Spcngler  (N.  J.  CJh.)  55  Atl.  285.  Nor  was  she  allowed  to  re- 
cover the  premiums  paid.  But  see  Tepper  v.  Supreme  Council,  59  N.  J.  E]q. 
322,  45  Atl.  Ill;    National  Trust  Co.  v.  Hughes,  14  Manitoba  Rep.  41. 

8»  Hoeft  V.  Supreme  Lodge,  113  Cal.  91,  45  Pac.  185,  33  L.  R.  A.  174;  Speng 
ler  V.  Spengler,  supra. 

By  the  application  of  the  same  principle,  the  rights  of  such  a  beneficiary 
are  defeated  by  the  suicide  of  the  insured,  even  though  the  policy  should  con- 
tain no  clause  against  suicide.  Shipman  v.  Protected  Circle,  174  N.  Y.  398, 
67  N.  E.  83,  63  L.  R.  A.  347,  overruling  Darrow  v.  Fund  Soc,  116  N.  T.  537, 
22  N.  E.  1093,  6  L.  R.  A.  495,  15  Am.  St.  Rep.  430;  Mooney  v.  Ancient  Order 
(Ky.)  72  S.  W.  288. 

»♦  Smith  V.  Benefit  Soc.,  123  N.  Y.  85,  25  N.  E.  197,  9  L.  R.  A.  616;  Martin 
V.  Stubbings,  126  111.  387,  18  N.  E.  657,  9  Am.  St.  Rep.  620;  Jory  v.  Supreme 
Council,  105  Cal.  20,  38  Pac.  524,  26  L.  B.  A.  733,  45  Am.  St  Rep.  IT;  Adams 


§§  137-138)      BENEFICIARIES  IN  MUTUAL  BENEFIT  ASSOCIATIONS.       403 

contract  beneficiary  has  not  any  vested  right  in  the  certificate,  but  is 
rather  protected  by  the  doctrine  of  estoppel,  for,  even  though  the  in- 
sured may  have  the  legal  right  to  change  the  beneficiary,  equity  will 
hold  him  estopped  to  do  so  in  violation  of  his  contract 
Same— Rights  Expressly  Vested, 

While,  as  explained  above,  the  nature  of  mutual  benefit  insurance  is 
such  as  by  implication  to  give  the  insured  the  right  to  arbitrarily  change 
the  beneficiary,  yet  it  is  always  possible  that  the  form  of  the  contract 
may  be  such  as  clearly  to  give  the  person  designated  in  the  certificate 
the  vested  contractual  rights  possessed  by  the  beneficiaries  in  regular 
life  policies.  If  such  be  clearly  the  intention  of  the  contracting  parties, 
the  courts  will,  of  course,  give  effect  to  that  intention,  and  hold  the 
rights  of  the  beneficiary  vested  and  indefeasible  without  his  consent." 
Mode  of  Changing  Beneficiary, 

The  contract  of  the  association  with  its  members  is  to  pay  the  sum 
specified  in  the  certificate  to  such  person  as  may  be,  at  the  time  of  the 
member's  death,  the  appointee  in  accordance  with  the  regulations  of 
the  association ;  nor  is  it  required  to  look  beyond  its  regulations  in  an 
endeavor  to  carry  out  the  intention  of  the  deceased  member."  There- 
fore the  intention  of  the  deceased  member  to  change  the  appointed  bene- 
ficiary, however  clearly  expressed,  will  not  avail  to  defeat  the  latter's 
claim  to  payment,  unless  the  mode  of  expression  is  that  fixed  by  the 
rules  of  the  society.** 

v^  Grand  Lodge,  105  Cal.  321,  38  Pac.  914,  45  Am.  St.  Rep.  45;  Grimbley  t. 
Harrold,  125  Cal.  24,  57  Pac.  558,  73  Am.  St.  Rep.  19.  So,  if  a  binding  con- 
tract  has  been  made  to  change  the  beneficiary,  equity  will  regard  the  change 
as  made,  as  between  the  nominal  beneficiary  and  the  person  beneficially  en- 
titled. See  Pennsylvania  Ry.  Co.  v.  Wolfe,  203  Pa.  269,  52  Atl.  247;  Spengler 
V.  Spengler  (N.  J.  Ch.)  55  Atl.  285,  in  which  the  beneficiary  was  allowed  to 
take  no  advantage  from  her  contract  because  it  was  made  on  Sunday 

55  Mason  v.  Mason  (Ind.  App.)  63  N.  E.  578,  following  Presbyterian  Mut 
Assur.  Fund  v.  Allen,  106  Ind.  593,  7  N.  E.  317. 

e«  See  Brown  v.  Grand  Lodge  (Pa.  1904)  57  Atl.  176,  in  which  the  wife  of 
a  member  designated  as  beneficiary  was  held  entitled  to  payment,  though  she 
had  been  divorced  eight  years  before  the  member's  death.  The  husband  had 
married  again,  but  had  never  changed  the  beneficiary  named  in  his  certifi- 
cate in  the  manner  required  by  the  regulations  of  the  association. 

57  Masonic  Mut.  Ben.  Soc.  v.  Burkhart,  110  Ind.  189,  10  N.  B.  79   11  N   E 
449;  Berg  v.  Damkoehler,  112  Wis.  587.  88  N.  W.  606;   Canavan  v.  Insurance 
Co.,  39  Misc.  Rep.  782,  81  N.  Y.  Supp.  304. 

A  request  for  change  of  beneficiary,  together  with  the  required  fee  sent 
by  mail  to  the  proper  authority,  but  received  after  the  death  of  the  Insured 
will  not  confer  upon  the  intended  beneficiary  any  rights  under  the  certifl' 
cate.  See  Fink  v.  Fink,  171  N.  Y.  616,  64  N.  E.  506.  Nor  will  a  change  with- 
out the  consent  of  the  association,  when  the  rules  require  such  consent  Na- 
tional Mut.  Aid  Soc.  V.  Lupoid,  101  Pa.  111.  See,  also,  Grace  v.  Relief  Ass'n 
87  Wis.  562,  58  N.  W.  1041,  41  Am.  St.  Rep.  62;  McCarthy  v.  Supreme  Lodge' 
153  Mass.  314,  26  N.  E.  866,  11  L.  R.  A.  144.  25  Am.  St  Rep  637  ' 


404 


RIGHTS    UNDER    THE    POLICY. 


(Ch.  11 


LIFE   POLICY   PAYABLE   TO  INSURED. 


405 


f  I 


But  this  eminently  reasonable  rule  knows  some  seeming  exceptions. 
Thus,  the  law  never  requires  of  any  one  impossible  things.  Therefore, 
when  a  member  has  done  all  in  his  power  to  comply  with  the  require- 
ments of  the  association,  and  there  remains  to  be  done  only  acts  by 
the  association,  or  by  a  third  person  over  whom  the  member  has  no 
control,  equity  will  regard  the  change  as  complete,  and  will  protect  the 
rights  of  the  intended  beneficiary/® 

Again,  since  the  regulations  in  question  are  made  for  the  benefit  and 
protection  of  the  association,  and  not  on  behalf  of  the  beneficiary,  it  is 
only  the  association  that  can  complain  of  a  noncompliance  with  them. 
Hence,  when  the  association  waives  any  irregularity  in  the  mode  of 
change,  and  makes  payment  to  the  intended  beneficiary,  the  original 
beneficiary  cannot  be  heard  to  complain.^' 


58 


THE  RIGHTS  OF  CREDITORS  OF  THE  INSURED— FIRE  POWCIES. 

139.  Tlie  creditors  of  the  insured  have  no  rights  whatsoever  in  the 
latter*s  insurance  on  property  prior  to  the  happening:  of  a  loss. 
After  a  loss  has  occurred,  the  claim  of  the  insured  becomes  a 
mere  chose  in  action,  which  is  t  abject,  like  any  other  chose,  to 
be  seized  for  the  satisfaction  of  his  creditors.  But  by  the 
weight  of  authority,  the  proceeds  of  insurance  upon  exempted 
property  are  also  exempt. 

Since  a  fire  policy  is  peculiarly  personal  to  the  insured,  it  is  mani- 
fest that  such  rights  as  he  may  have  thereunder  before  the  occurrence 
of  a  loss  are  not  such  as  can,  without  the  consent  of  the  insurer,  pass 
to  the  creditors  of  the  insured.  But  immediately  upon  the  happening 
of  a  loss  covered  by  the  policy,  there  arises  under  the  policy  to  the  in- 
sured a  right  to  demand  a  money  payment,  a  free  chose  in  action.  This 
chose,  like  any  other  property  of  the  insured,  can  be  subjected  to  the 
payment  of  his  debts  by  garnishment  or  other  appropriate  legal  process. 
So  far  the  courts  find  no  embarrassment  in  determining  the  rights  of 
the  parties,  but  a  difficult  and  most  perplexing  problem  is  presented 
when  the  insured  property  destroyed  was  exempt  from  levy.    Thus, 

58  Grand  Lodge  A.  O.  U.  W.  v.  Noll,  90  Mich.  37,  51  N.  W.  268,  15  L.  R.  A. 
350,  30  Am.  St.  Rep.  419;  Heydorf  v.  Conrack,  7  Kan.  App.  202,  52  Pac.  700; 
Jinks  V.  Banner  Lodge,  139  Pa.  414,  21  Atl.  4;  State  v.  Tomlinson,  16  Ind. 
App.  662,  45  N.  E.  1116,  59  Am.  St.  Rep.  335;  Grand  Lodge  A.  O.  U.  W.  v. 
Child,  70  Mich.  163,  38  N.  W.  1;  Supreme  Conclave  Royal  Adelphia  v.  Cap- 
pella  (C.  C.)  41  Fed.  1 ;  Rollins  v.  McHatton,  16  Colo.  203,  27  Pac.  254,  25  Am. 

St  Rep.  260. 

89  Schoenau  v.  Grand  Lodge,  85  Minn.  349,  88  N.  W.  999;  Martin  v.  Stub- 
bings,  126  111.  387.  18  N.  E.  657,  9  Am.  St.  Rep.  620;  Manning  v.  Ancient  Or- 
der, 86  Ky.  136,  5  S.  W.  385,  9  Am.  St.  Rep.  270;  Duvall  v.  Goodson,  79  Ky. 
224;   Supreme  CouncU  A.  L.  H.  v.  Perry,  140  Mass.  580,  5  N.  B.  634. 


§140) 

when  an  insured  house  constituted  a  part  of  the  debtor's  homestead, 
will  the  insurance  fund  be  subject  to  attachment  in  the  hands  of  the 
insurer?  This  question  has  been  answered  both  negatively  and  affirm- 
atively by  the  courts.®**  It  is  probable,  however,  that  by  the  weight  of 
authority  the  proceeds  of  insurance  upon  exempt  property  is  also  ex- 
empt. In  some  jurisdictions  it  is  held  that  such  proceeds  are  exempt 
only  for  a  reasonable  time,'^  or  in  those  cases  in  which  the  debtor  in- 
tends to  use  the  insurance  fund  in  replacing  the  property  destroyed." 

Z.IFE  POLICY  PAYABLE  TO  INSURED. 

140.  LIFE  POLICIES  payable  to  the  insnred  or  bis  estate,  wben  ma- 
tured, are  subject  to  tbe  claims  of  creditors  just  as  any  otber 
oboses  mAy  be.  Sucb  policies,  before  maturity,  are  to  be 
deemed  assets  for  tbe  payment  of  debts  only  wben  by  tbeir 
terms  tbey  possess  a  fixed  money  value. 

As  has  already  become  apparent  from  the  preceding  discussions,  the 
doctrine  that  an  insurance  policy  is  a  chose  in  action,  and,  as  such, 
property,  is  not  applied  consistently  to  all  cases.*'  The  decisions  of 
the  courts  are  especially  inconsistent  and  uncertain  when  they  come  to 
construe  the  rights  of  creditors  of  the  insured  in  policies  taken  out  by 
himself  and  for  his  own  benefit.  It  seems,  however,  to  be  settled  with- 
out dispute  that  such  a  policy,  when  matured,  by  the  expiration  of  some 
specified  period  or  by  the  death  of  the  insured,  becomes  assets  subject 
to  the  payment  of  the  insured's  debts,  and  therefore  liable  to  be  at- 
tached in  a  suit  «*  or  to  be  seized  in  satisfaction  of  a  judgment;  but  in 

«o  Insurance  on  homestead  exempt.  Houghton  v.  Lee,  50  Oal.  101;  Cam- 
eron V.  Fay,  55  Tex.  58;  Chase  v.  S\^ayne,  88  Tex.  218,  30  S.  W.  1049,  53  Am. 
St.  Rep.  742;  Bernheim  v.  Davitt,  9  Ky.  Law  Rep.  229,  5  S.  W.  193;  Premo 
V.  Hewitt,  55  Vt.  362. 

Contra:  Smith  v.  Ratclifif,  66  Miss.  683,  6  South.  460,  14  Am.  St  Rep.  606; 
Wooster  v.  Page,  54  N.  H.  125,  20  Am.  Rep.  128  (exempt  chattels).  See,  also, 
Monniea  v.  Insurance  Co.,  12  111.  App.  240;  Fletcher  v.  Staples,  62  Minn.  471, 
04  N.  W.  1150. 

«i  Cooney  v.  Cooney,  65  Barb.  (N.  Y.)  524. 

82  Puget  Sound  Dressed  Beef  &  Packing  Co.  v.  Jeffs,  11  Wash.  466,  39  Pac. 
9G2,  27  L.  R.  A.  808,  48  Am.  St.  Rep.  885.  See,  also,  Cullen  v.  Harris,  111 
Mich.  20,  69  N.  W.  78,  66  Am.  St.  Rep.  380. 

63  See  RYAN  v.  ROTHWEILER,  50  Ohio  St.  595,  35  N.  E.  679,  in  which 
the  court  says:  "The  question  is  not  governed  so  much  by  the  principles  of 
choses  in  action  and  vested  rights  as  by  the  principles,  aims,  and  well-known 
objects  of  life  insurance.  *  ♦  *  The  theory  of  a  failure  of  trust  comes 
with  more  force  and  stronger  reasons  that  the  doctrine  of  choses  in  action, 
so  strongly  urged  by  counsel  for  plaintiff  in  error.  We  regard  the  doctrine 
of  choses  in  action  as  not  fully  applicable,  because  it  conflicts  in  many  cases 
with  the  controlling  doctrine  of  insurable  interest." 

«*  Trepagnier  v.  Rose,  IS  App.  Div.  393,  46  N.  Y.  Supp.  397,  affirmed  155 


406 


RIGHTS   UNDER  THE   POLICY. 


(Ch.  11 


§ui) 


those  cases  where  the  policy  has  not  been  matured,  or  is  still  subject 
to  a  contingency,  such  as  lapse  for  failure  to  pay  premiums,  or  forfei- 
ture for  breach  of  some  other  condition,  it  is  difficult  to  determine  what 
IS  the  accepted  rule.  It  may  be  stated,  however,  on  the  probable  weight 
of  authonty,  that  an  unmatured  policy  is  to  be  regarded  as  assets 
available  to  the  creditors  of  the  insured  only  when,  in  accordance  with 
the  terms  of  the  contract,  the  policy  has,  at  the  time  in  question,  an  ab- 
solute money  value,  as  where  the  insurer  agrees  to  pay  a  cash  surrender 
value  upon  the  cancellation  of  the  policy; ««  and  that  in  all  other  cases 
where  the  liability  of  the  company  is  contingent  the  policy  is  not  to  be 
regarded  as  available  assets.««  And  in  accordance  with  the  better  opin- 
ion, It  seems  that  this  rule  holds  good  even  though,  as  a  matter  of  fact, 
the  insurer  may  be  willing  to  pay  a  considerable  sum  for  the  cancella- 
tion of  the  contract.'^ 

As  has  been  stated  above,  wherever  a  policy  is  of  such  a  character  as 
to  make  it  subject  to  seizure  by  the  creditors  of  the  insured,  it  neces- 
sarily passes  to  an  assignee  in  bankruptcy  when  proceedings  are  insti- 
tuted against  the  insured  under  the  bankruptcy  law." 

N.  Y.  637,  46  N.  E.  1105;  Sexton  v.  Insurance  Co.,  132  N.  C.  1,  43  S.  E  479- 
Phenix  Ins.  Co.  v.  Willis,  70  Tex.  12,  6  S.  W.  825.  8  Am.  St.  Rep.  566;  Girard 
Fire  &  Marine  Ins.  Co.  v.  Field,  45  Pa.  129. 

Such  accrued  claims  may  be  attached,  though  disputed  or  denied  by  the 
Insurer.     See  Crescent  Ins.  Co.  v.  Moore,  63  Miss.  419. 

«6  Kratzenstein  v.  Lehman,  19  App.  Div.  228,  46  N.  Y.  Supp.  71. 

•«  Boisseau  v.  Bass'  Adm'r,  100  Va.  207,  40  S.  E.  647;  Day  v.  Insurance 
Co.,  Ill  Pa.  507,  4  Atl.  748,  56  Am.  Rep.  297;  Barbour's  Adm'r  v.  Larue's 
Assignee,  51  S.  W.  5,  21  Ky.  Law  Rep.  94;  Pace  v.  Pace.  19  Fla.  438;  Bar- 
bour V.  Insurance  Co.,  61  Conn.  240.  23  Atl.  154;  1  Freeman  on  Executions, 
§  164a;  Columbia  Bank  v.  Equitable  Life  Assur.  Soc,  79  App.  Div.  601  80 
N.  Y.  Supp.  428,  reversing  61  App.  Div.  594,  70  N.  Y.  Supp.  767.  But  see 
Rhode  Island  Nat.  Bank  v.  Chase,  16  R.  I.  37,  12  Ati.  233;  Anthracite  Ins. 
Co.  V.  Sears,  109  Mass.  383. 

•7  Long  V.  Britannia  Co.,  94  Va.  594,  27  S.  E.  499. 

•8  So  provided  by  United  States  bankruptcy  act  of  1898,  §  70  (5)  [U.  S. 
Comp.  St.  1901,  p.  3451],  but  allowing  the  bankrupt  to  redeem  his  policy  hav- 
ing a  cash  surrender  value  by  paying  such  cash  amount  to  the  trustee.  It  is 
accordingly  held  that  policies,  having  no  surrender  value,  do  not  pass  to  the 
trustee.  Morris  v.  Dodd,  110  Ga.  606,  36  S.  E.  83,  60  L.  R.  A.  33,  78  Am  St 
Rep.  129;  In  re  Buelow  (D.  0.)  98  Fed.  86;  In  re  Lange  (D.  C.)  91  Fed.  361- 
Holt  V.  Everall,  34  L.  T.  N.  S.  599.  But  otherwise  when  such  surrender  value 
exists.  In  re  Steele  (D.  C.)  98  Fed.  78;  McElroy  v.  Insurance  Co.  88  Md. 
137,  41  Atl.  112,  71  Am.  St  Rep.  400;  Troy  v.  Sargent,  132  Mass.  ^  But 
see  In  re  Murrin,  Fed.  Cas.  No.  9,968. 


POLICY   PAYABLE  TO  A  THIRD  PERSON. 


POLICY  PAYABLE  TO  A  THIRD  PERSON. 


iOT 


141.   The  creditors  of  the  insured  have  no  rights  in  policies  payable  t© 
third  persons  as  beneficiaries,  nnless 

(a)  The  premiums  are  paid  wholly  or  in  part  with  money  embeisled 

f  romi  the  creditors,  or 

(b)  The  beneficiary  became  such  by  voluntary  assignment  after  the 

indebtedness  was  incurred,  or 

(c)  Premiums  have  been  paid  by  an  insolvent  insured  for  the  purpose 

of  defrauding  his  creditors,  when  the  proceeds  of  such  insur- 
ance will  be  subject  to  the  claims  of  creditors  to  the  extent  of 
the  fraudulent  payments.  But  it  seems  the  payment  of  pre- 
miums by  an  insolvent  debtor  in  maintaining  a  reasonable 
amount  of  insurance  is  not  constructively  fraudulent.  Actual 
fraud  n&ust  be  proved. 

It  has  been  heretofore  stated  that  a  policy  payable  to  a  beneficiary 
other  than  the  insured,  where  no  right  of  change  of  such  beneficiary  is 
reserved,  becomes  the  absolute  property  of  the  beneficiary  immediately 
upon  its  valid  issue.  It  necessarily  follows  that  the  insured  himself, 
even  though  he  may  have  procured  the  insurance  and  paid  all  the  pre- 
miums necessary  to  maintain  it,  has  no  title  or  interest  in  the  contract. 
Consequently,  his  creditors  can  find  no  interest  in  such  a  policy  which 
they  can  subject  to  the  payment  of  his  debts.«»  This  general  rule  is 
subject,  however,  to  some  apparent  exceptions,  which  are  strongly  in 
accord  with  analogies  to  be  drawn  from  the  general  rules  of  law. 

Premiums  Paid  Wholly  or  in  Part  with  Embezzled  Money. 

When  a  person  procures  a  policy  of  insurance  for  the  benefit  of  his 
wife  or  some  other  beneficiary,  and  pays  the  first  and  all  subsequent 
premiums  with  money  embezzled  from  his  employers,  it  has  been  held 
that  the  legal  title  vests  in  the  beneficiary,  subject  to  a  trust  in  favor  of 
the  persons  from  whom  the  funds  have  been  embezzled.''®  This  trust 
equity  will  enforce  within  the  amount  of  the  embezzlement,  even  though 
the  sums  paid  as  premiums  are  very  much  less  than  the  amount  paya- 
ble under  the  policy.  On  principle,  this  doctrine  would  seem  to  be 
open  to  grave  question.''^ 

«»  Bntit  is  held  that  where  a  policy  payable  to  the  Insured  has  heen  Issuea 
In  lieu  of  a  former  policy  payable  to  his  wife,  and  surrendered  without  hor 
knowledge,  and  has  been  subsequently  assigned,  the  assignee  is  entitled  to 
recover  the  whole  amount  of  such  policy,  provided  he  had  no  knowledge  of 
The  fraud  upon  the  beneficiary.  The  beneficiary  was  entitled  to  a  paid-up  pol- 
icy as  of  the  time  of  the  surrender  of  the  original  policy.  Weatherbee  y.  In- 
surance Co.,  182  Mass.  342,  65  N.  B.  383. 

7  0  Holmes  v.  Oilman,  138  N.  Y.  383,  34  N.  E.  205,  20  L.  R.  A.  572.  34  Am. 
St.  Rep.  470;    Shaler  v.  Trowbridge,  28  N.  J.  Eq.  595. 

71  It  would  seem  that  the  proceeds  of  the  insurance  should  merely  be  sub- 
jected to  a  lien  for  the  repayment  of  the  premiums.    Note  the  reasoning  in 


408 


RIGHTS    UNDER   THE    POLICY. 


(Ch.  11 


I 


I 


It  seems,  however,  that,  if  a  policy  has  been  once  honestly  procured 
by  the  payment  of  the  first  premium  with  the  money  of  the  insured  or 
of  the  beneficiary,  subsequent  payments  of  premiums  necessary  to  main- 
tain the  pohcy,  with  stolen  money,  will  merely  give  the  creditors  from 
whom  the  money  was  improperly  taken  a  lien  to  the  extent  of  the  dis- 
honest premiums.''* 

Fraudulent  Transfers  of  Policies, 

A  beneficiary  may  be  designated  in  an  insurance  contract  by  subse- 
quent assignment  as  well  as  by  original  appointment,  provided  the  in- 
sured was  solvent  at  the  time  of  the  assignment;  but  it  is  universally 
held,  in  the  absence  of  a  statute  to  the  contrary,  that  a  voluntary  as- 
signment to  a  person  by  the  insured  when  insolvent  is  to  be  conclu- 
sively presumed  as  in  fraud  of  such  creditors,^'  and  will  be  set  aside 
in  any  proper  proceeding  instituted  by  them. 

Rights  of  Creditors  in  Premiums  Paid  by  Insolvent  Debtors. 

Much  conflict  has  arisen  among  the  courts  as  to  whether  the  creditors 
of  an  msolvent  debtor  may  subject  the  proceeds  of  a  policy  of  insur- 
ance on  his  life,  but  payable  to  a  third  person,  to  the  satisfaction  of 
their  daims,  to  the  extent  to  which  he  has  paid  premiums  in  keeping 
up  such  insurance  after  he  became  insolvent.  In  some  states  the  mat- 
ter has  been  regulated  by  statute  to  some  extent.  Thus  by  the  New 
York  statute  a  person  has  the  right,  although  insolvent,  to  appropriate 
the  sum  of  not  more  than  $500  a  year  to  the  maintenance  of  insurance 
for  the  benefit  of  his  wife  and  children.^*  By  implication,  however 
any  sum  in  excess  of  that  statutory  amount  paid  in  premiums  would 

Central  Nat.  Bank  v.  Hume,  128  U.  S.  195,  9  Sup.  Ct  41,  32  L.  Ed.  370:   Har- 

io  M  l*  l''^''^'";.?/-  ^^^^  2  ^'  ^'  '^^^'  Holmes  v.  Oilman,  64  Hun,  227, 
^  T    J*  A   i!S;.^^^  (reversed  138  N.  Y.  383.  34  N.  E.  205,  34  Am.  St  Rep.  470, 

•iU  Li.  JK.  a.  572). 

72  Holmes  v.  Davenport,  27  Abb.  N.  C.  341,  18  N.  Y.  Supp.  56. 

cJ',^?''*^^^  ^^**  ^^""^  ^'  H"""^'  128  U.  S.  195,  9  Sup.  Ct.  41,  32  L.  Ed.  370; 
Stiglers  Ex'x  v.  Stlgler,  77  Va.  163;  Stokes  v.  Coffey,  8  Bush  (Ky.)  533;  El- 
liott sExTs  Appeal,  50  Pa.  75.  88  Am.  Dec.  525 ;  Freeman  v.  Pope,  L.  R.  9 
iuq.  ^^.  Of  course,  such  assignment  is  valid  as  against  subsequent  credit- 
s'* ^  ll^'^'Y.  T;  ^^s^ra'^ce  Co.,  61  Conn.  248,  23  Atl.  156;  In  re  Heilbron,  14 
Wash.  541,  45  Pac.  155,  35  L.  R.  A.  604. 

It  has  been  held  that  a  transfer  of  a  policy  to  one  having  an  interest  in 
the  life  of  the  insured  will  not  be  regarded  as  in  fraud  of  creditors  unless  an 
actual  fraudulent  intent  is  proved.    State  v.  Tomlinson,  16  Ind.  App   662  45 

^*  ^^^}^'  ^^  ^™-  ^*-  ^®P-  ^^'  Johnson  v.  Alexander,  125  Ind.  575  25  N 
E.  706,  9  L.  R.  A.  660.  ' 

^*  ^^J'J^^^  1^^'  ^'  ^'  amended  Laws  1870,  c.  277.  See  Stokes  v.  Amer- 
man,  121  N.  Y.  337,  24  N.  E.  819;  Baron  v.  Brummer,  100  N.  Y.  372  3  N  E 
474.  See,  also,  Wyman  v.  Gay.  90  Me.  36,  37  Atl.  325,  60  Am.  St.  Rep  238* 
And  see  Mahoney  v.  James,  94  Va.  176,  26  S.  B.  385,  as  to  premiums' paid 
from  exempted  wages.  «r  */    « 


POLICY   PAYABLE   TO   A   THIRD   PERSON. 


409 


§  141) 

be  deemed  as  in  fraud  of  creditors."  The  leading  case  on  this  subject 
iS  Central  Nat.  Bank  v.  Hume.''*  In  this  case  the  insured,  both  before 
and  after  he  became  insolvent,  took  out  policies  for  large  amounts,  pay- 
able to  his  wife,  and  on  these  policies  paid  large  sums  in  premiums, 
which  the  creditors  claimed  should  have  been  appropriated  to  the  pay- 
ment of  his  debts.  In  the  lower  court,"  it  was  held  that  such  pay- 
ments, made  after  the  insolvency  of  the  insured,  came  under  the  pro- 
visions of  the  statute  of  13  Eliz.,  and  were  in  fraud  of  the  rights  of  the 
creditors.  Consequently  it  was  decreed  that  such  portion  of  the  pro- 
ceeds of  these  policies  upon  the  death  of  the  insured  as  would  equal 
the  amount  of  premiums  paid  in  keeping  them  up  after  his  insolvency 
should  be  paid  to  the  creditors.  The  case  was  carried  on  appeal  to  the 
Supreme  Court  of  the  United  States,  which  reversed  the  decision  of  the 
lower  court  on  the  ground  that  there  was  no  proof  of  actual  fraud  in 
the  case,  and  that  the  circumstances  did  not  amount  to  constructive 
fraud.'^^  The  reasoning  of  the  court  may  be  best  given  in  the  lan- 
guage of  Chief  Justice  Fuller,  as  follows : 

"This  argument  in  the  interest  of  creditors  concedes  that  the  debtor 
may  rightfully  preserve  his  family  from  suffering  and  want.  It 
seems  to  us  that  the  same  public  policy  which  justifies  this,  and  recog- 
nizes the  support  of  wife  and  children  as  a  positive  obligation  in  law 
as  well  as  morals,  should  be  extended  to  protect  them  from  destitution 
after  the  debtor's  death,  by  permitting  him,  not  to  accumulate  a  fund 
as  a  permanent  provision,  but  to  devote  a  moderate  portion  of  his  earn- 
ings to  keep  on  foot  a  security  for  support  already,  or  which  could 
thereby  be,  lawfully  obtained,  at  least  to  the  extent  of  requiring  that, 
under  such  circumstances,  the  fraudulent  intent  of  both  parties  to  the 
transaction  should  be  made  out." 

This  case  has  been  followed  by  some  of  the  later  cases,  both  in  the 
inferior  federal  courts  and  in  some  of  the  states,^®  but  has  been  sharply 
criticised  in  other  quarters.*®     The  question  is  one  of  great  importance 


w 


7  6  Stokes  V.  Amerman,  supra;  Kittel  v.  Domeyer,  70  App.  Div.  134,  75  N. 
T.  Supp.  150. 

76  128  U.  S.  195,  9  Sup.  Ct.  41,  32  L.  Ed.  370. 

77  See  3  Mackey  (D.  C.)  360,  51  Am.  Rep.  780. 

7  8  It  sliould  be  observed  that  a  large  portion  of  the  money  used  by  Hume 
in  the  payment  of  premiums  was  furnished  by  his  wife's  mother.  Therefore 
the  language  used  by  the  court  is  much  broader  than  the  case  actually  de- 
cided. 

7  9  Masonic  Mut.  Life  Ass'n  v.  Paisley  (C.  C.)  Ill  Fed.  34;  Hendrie  &  Bolt- 
hofif  Mfg.  Co.  V.  Piatt,  13  Colo.  App.  15,  56  Pac.  211;  State  v.  Tomlinson,  16 
Ind.  App.  662,  45  N.  E.  1116,  59  Am.  St.  Rep.  335;  Johnson  v.  Alexander,  125 
Ind.  575,  25  N.  E.  706,  9  L.  R.  A.  660. 

80  See  the  article  of  Prof.  Williston  in  25  American  Law  Review,  185,  in 
which  all  the  authorities  are  reviewed,  and  the  conclusion  reached  by  the 
Supreme  Court  in  the  Hume  Case  is  sharply  criticised.    A  summary  of  Prof. 


410 


BIGHTS    UNDER   THE    POLICY. 


;' 


(Ch.  11 

in  insurance  law,  and  it  is  to  be  regretted  that  the  Supreme  Court  has 
thrown  the  great  weight  of  its  decision  in  opposition  to  that  generally 
accepted  and  thoroughly  sound  principle  of  law  that  no  man  can  be 
generous,  even  to  those  near  to  his  affections,  until  he  has  been  just  in 
the  payment  of  his  debts. 


WHEN  THE  CREDITOB  IS  THE  ASSURED. 

142.  By  the  better  authority,  the  rights  of  a  creditor  taking  out  vaUd 
insurance  upon  the  life  of  his  debtor  are  absolute,  as  far  as  the 
debtor  is  concerned.  He  may  retain  the  whole  proceeds  of  such 
insurance,  even  though  it  much  exceeds  the  amount  of  the  debt, 
or  even  when  the  debt  is  wholly  paid. 

It  frequently  happens  that  a  creditor  finds  it  to  his  interest  to  secure 
a  debt  by  taking  out  insurance,  payable  to  himself,  upon  the  life  of  his 
debtor.     It  has  already  been  shown  that  in  securing  such  insurance  he 

Williston's  views  Is  thus  stated  In  the  concluding  paragraph:  "It  is  not  in- 
tended to  find  fault  with  the  statutory  provisions  allowing  an  insolvent  debt- 
or to  insure  his  life  for  the  benefit  of  those  dependent  upon  him.  It  may 
well  be  that  such  a  policy  is  better  for  society  than  to  require  all  assets  of 
every  kind  to  be  given  up  to  creditors.  What  is  insisted  upon  is  this:  That, 
by  the  common  law,  as  brought  to  this  country,  no  exceptions  were  made  to 
the  sweeping  rule  that  an  insolvent  debtor  could  not  in  any  way  convey  his 
property  to  a  volunteer,  so  as  to  free  it  from  the  claim  of  creditors.  The  stat- 
utes themselves  above  referred  to  are  an  admission  of  this,  for,  if  the  law 
without  the  statutes  were  not  what  is  contended,  why  pass  the  statutes? 
If,  now,  the  sentiment  is  right  and  just  that  a  man  should  make  provision  to 
some  extent,  at  least,  for  those  dependent  upon  him,  before  paying  his  debts, 
and  if  that  sentiment  exists  among  a  majority  of  the  people,  it  should  find 
expression  In  statute,  and  the  extent  of  the  right  should  so  be  properly  de- 
fined. Till  then  the  rule  of  the  common  law  should  prevail,  and  the  courts, 
uninfluenced  by  considerations  of  meritoriousness,  which  are  for  the  Legisla- 
ture to  consider,  should  enforce  the  law."  The  views  so  expressed  were  ex- 
pressly adopted  by  the  New  Jersey  Court  of  Chancery  in  Merchants'  &  Miners' 
Transportation  Co.  v.  Borland,  53  N.  J.  Eq.  282,  31  Atl.  272,  in  which  it  de- 
clined to  follow  the  Hume  Case. 

The  cases  holding  that  the  payment  of  premiums  by  an  insolvent  insured 
is  constructively  fraudulent  differ  with  regard  to  the  extent  to  which  the 
creditors  may  subject  the  proceeds  of  the  insurance  to  their  claims.  Some 
hold  that  the  creditors  are  entitled  to  such  proportion  of  the  insurance  fund 
as  the  amount  of  premiums  paid  after  insolvency  bears  to  the  whole  sum  of 
premiums  paid.  See  Merchants'  &  Miners'  Transportation  Co.  v.  Borland, 
supra;  Fearn  v.  Ward,  80  Ala.  555,  2  South.  114;  Kittel  v.  Domeyer  70 
App.  Div.  134,  75  N.  Y.  Supp.  150;  PULLIS  v.  ROBISON.  73  Mo.  201,  39 
Am.  Rep.  497,  Woodruff,  Ins.  Cas.  375.  Other  cases  hold  that  the  cred- 
itors may  take  from  the  insurance  fund  only  the  amount  of  premiums  fraud- 
ulently paid.  Stigler's  Ex'x  v.  Stigler,  77  Va.  163;  Stokes  v.  Coffey,  8  Bush 
(Ky.)  533;  Pence  v.  Makepeace,  65  Ind.  345.  The  latter  view  seems  clearly 
preferable. 


^142) 


WHEN  THE   CREDITOR  IS  THE  ASSURED. 


411 


is  not  limited  to  the  amount  of  the  debt  he  seeks  to  secure,  but  is  re- 
'quired  only  to  contract  in  good  faith. ®^  It  sometimes  occurs  that  the 
proceeds  of  such  policies,  whether  on  account  of  the  unexpectedly  early 
•death  of  the  insured,  or  because  the  debt  has  been  paid  or  reduced,  con- 
siderably exceed  the  amount  of  the  debt  and  the  charges  to  which  the 
•creditor  has  been  put  on  account  of  the  insurance.  A  dispute  then 
arises  as  to  whether  the  insuring  creditor  is  entitled  to  retain  the  whole 
of  the  proceeds,  thus  taking  profit  by  the  transaction,  or  whether  the 
excess  of  such  proceeds  over  the  debt  and  expenses  of  the  creditor 
should  belong  to  the  personal  representative  of  the  deceased  debtor. 
In  determining  such  contests,  the  decisions  of  "the  courts  have  fallen 
into  two  classes,  in  accordance  with  the  theory  adopted  as  to  the  nature 
of  the  transaction:  (1)  Some  courts  hold  that  the  creditor,  in  insur- 
ing the  life  of  the  debtor,  acts  to  a  certain  extent  as  the  agent  of  the 
debtor,  and  that  the  policy  is  for  the  latter's  benefit,  subject  to  the  lien 
of  the  debt  and  charges.  ^^  As  a  consequence  of  this  theory,  it  natural- 
ly follows  that  these  courts  give  any  excess  of  the  insurance  money  over 
the  debt  and  charges  to  the  personal  representative  of  the  debtor.  (2) 
Other  courts  adopt  the  view  that  the  contract  is  one  purely  between 
the  insuring  creditor  and  the  insurer;  that  the  debt  gives  the  creditor 
an  insurable  interest ;  and  that  the  contract  made  is  one  with  which  the 


r 


•1  See  ante,  p.  138.  The  creditor  insuring  is  entitled  to  have  paid  out  of  the 
proceeds  of  his  policy  debts  that  are  barred  by  the  statute  of  limitations. 
Townsend  v.  Tyndale,  165  Mass.  293,  43  N.  E.  107,  52  Am.  St  Rep.  513; 
RAWLS  V.  INSURANCE  CO.,  27  N.  Y.  282,  84  Am.  Dec.  280. 

82  Goldbaum  v.  Blum,  79  Tex.  038,  15  S.  W.  564;  Exchange  Bank  of  Macon 
V.  Loh,  104  Ga.  446,  31  S.  E.  459,  44  L.  R.  A.  372;  Tate  v.  Commercial  Bldg. 
Ass'n,  97  Va.  74,  33  S.  K  382,  45  L.  R.  A.  243,  75  Am.  St.  Rep.  770  (dictum); 
WARNOCK  V.  DAVIS.  104  U.  S.  775,  26  L.  Ed.  924  (dictum);  Crotty  v.  Insur- 
ance Co.,  144  U.  S.  621,  12  Sup.  Ct.  749,  36  L.  Ed.  566,  in  which  the  policy 
was  payable  to  "Michael  Crotty,  creditor";  Strode  v.  Drug  Co.  (Mo.  App.)  74 
S.  W.  379.  In  this  case,  A.  being  indebted  to  B.  in  the  sum  of  $50,  secured 
life  insurance  to  the  amount  of  $5,000 — $50  payable  to  A.'s  widow,  and  the 
balance  to  B.,  who  was  to  pay  the  first  and  all  subsequent  premiums.  The 
insurance  was  out  of  all  honest  proportion  to  the  debt  (see  Commack  v.  Lew- 
is, 15  Wall.  643,  21  L.  Ed.  244),  and  the  case  clearly  comes  within  the  rule  of 
WARNOCK  V.  DAVIS,  supra.  But  the  court,  in  limiting  B.'s  rights  in  the 
proceeds  of  the  policy  to  his  debt  and  charges,  laid  down  a  broader  rule,  as 
follows:  "The  construction  our  courts  put  on  such  transactions  as  we  have 
here  is  that  the  creditor,  whether  he  be  named  as  payee  of  the  policy  when 
It  is  issued,  or  becomes  the  payee  afterwards  by  assignment,  acquires  the 
status  of  beneficiary  as  far  as  is  necessary  to  make  him  whole,  and  no  fur- 
ther. As  to  the  remainder  of  the  insurance  money,  he  stands  as  trustee  for 
the  estate  of  the  insured,  or  whomsoever  the  insured  may  have  validly  ap- 
pointed to  be  residuary  beneficiary.  •  ♦  •  The  law  views  the  contract  of 
insurance  as  having  been  made  for  the  benefit  of  the  appellant  to  the  extent 
of  its  interest  in  Stokes'  life,  and  for  the  benefit  of  Stokes'  estate  as  to  th^ 
excess  of  the  fund  realized  from  the  policy.' 


n 


412 


RIGHTS    UNDER   THE    POLICY. 


I 


(Ch.  11 


§§143-145) 


THE  RIGHTS  OP  THE  ASSIGNEE. 


413 


debtor  has  absolutely  no  concern,  and  in  which  he  can  take  no  interest, 
since  It  IS  a  well-settled  principle  that  the  decrease  or  termination  of 
the  interest  upon  which  the  life  insurance  contract  is  based  does  not  in 
any  wise  affect  the  right  of  the  assured  to  enforce  that  contract.®* 
These  courts  hold  that  the  insuring  creditor  may  collect  and  retain  the 
entire  amount  payable  under  the  policy,  even  though  the  debt  may  have 
been  wholly  paid  by  the  insured  before  his  death.®* 

The  weight  of  authority  appears  to  be  in  favor  of  the  former  view 
although  many  of  the  courts  that  have  laid  down  this  doctrine  have 
done  so  gratuitously;."  but  it  would  seem  that  the  second  view,  as 
stated  above,  is  more  in  accordance  with  the  fixed  rules  of  insurance 
law,  as  well  as  the  dictates  of  reason.  If  this  view  is  supported  by  the 
fewer  authorities,  it  will  be  found  that  they  are  better  reasoned,  and 
have  been  decided  upon  issues  properly  raised,  rather  than  upon  those 
assumed  for  purposes  of  obiter  dictum. 


143. 


THE  RIGHTS  OP  THE  ASSIGNEE. 

IN  GENERAIi—The  rlghta  of  the  asslgmees  of  the  proceeds  of  Are 
policies  are  not  different  from  those  of  assignees  of  ordinary 
choses  in  action,  and  require  no  special  discussion.  Assign- 
Bients  of  life  policies,  however,  give  rise  to  some  special  rales. 

ASSIGNEES  OP  LIFE  POLICIES  fall  into  three  classest 

The  assignment  may  be  made  xidthont  consideration  to  one  whom 
the  insured  desires  to  make  a  beneficiary  under  the  policy. 

The  assignment  may  be  conditional— made  by  the  insured  as  col- 
lateral security  for  a  debt.  An  assignment  absolute  in  form 
may  be  shown  by  parol  to  be  conditional  in  fact. 

The  assignment  may  be  absolute— intended  to  be  an  outright  sale 
by  the  insured  of  aU  of  his  right  and  interest  in  the  policy. 

EPFECT  OP  SUCH  ASSIGNMENTS-While  there  is  much  con- 
fusion in  the  cases,  the  effect  of  these  several  kinds  of  assign- 
ment may  be  thus  stated: 

A  voluntary  assignee,  intended  to  be  thereby  made  beneficiary, 
whether  possessing  an  insurable  interest  or  not,  takes  the  same 

"  DALBY  y.  ASSURANCE  CO.,  15  C.  B.  365,  Richards,  Ins.  Oas.  271, 
Woodruff,  Ins.  Cas.  7,  overruling  GODSALL  v.  BOLDERO,  9  East.  72- 
AMICK  V.  BUTLER,  111  Ind.  578,  12  N.  E.  518,  60  Am.  Rep.  722;  Ferguson 
V.  Insurance  Co.,  32  Hun  (N.  Y.)  306;  Grant's  Adm'rs  v.  Kline,  115  Pa  018 
9  Atl.  150;  Shaffer  v.  Spangler,  144  Pa.  223,  22  Atl.  865;  Coon  v.  Swan.  30 
Vt  6;  Corson's  Appeal,  113  Pa.  438,  6  Atl.  213,  57  Am.  Rep.  479. 

84  DALBY  V.  ASSURANCE  CO..  supra;  Ferguson  v.  Insurance  Co..  supra; 
Central  Nat.  Bank  v.  Hume.  128  U.  S.  195,  9  Sup.  Ct.  41,  32  L.  Ed.  ^70  (dic- 
tum). ^ 

8  5  It  Will  be  observed  that,  in  all  the  cases  laying  down  the  rule  that  the 
debtor's  personal  representative  may  recover  from  the  insuring  creditor  the 
balance  of  the  insurance  fund  after  the  debt  and  charges  are  satisfied  the 
evidence  showed  either  an  assignment  by  the  debtor  by  way  of  collateral  se- 
curity, or  that  the  creditor  had  procured  the  insurance  under  an  agreement 
with  the  debtor.    Note  Exchange  Bank  of  Macon  v.  Loh,  supra. 


144. 
(a) 

(b) 


(c) 
145. 

(a) 


rights  under  the  policy  as  if  originally  deignated  beneficia^r, 
provided  the  assignment  was  not  in  fraud  of  creditors,  and  also 
provided  it  was  made  in  good  faith.  j^x-  «  i.« 

<b)  IJ^en  the  assignment  is  conditional,  ^^^^^^^^^Y^t^Jl'^ti  in  the 
expressed  or  not,  the  assignee  takes  only  such  interest  in  the 
proceeds  as  will  reimburse  him  for  the  charges  ^^^f^^^^^f  " 
count  of  the  insurance,  and  repay  the  debt  due,  with  l^*f '^»*; 

<c)  When  the  assignment  is  absolute,  and  no  circumstances  of  fraud 
or  imposition  are  shown,  the  assignee  takes  absolutely  the 
whole  proceeds  of  the  policy,  even  though  it  be  in  excess  of  Ws 
expen^tures  on  this  account.  There  is  much  authority,  how- 
ever,  to  the  contrary. 

The  general  question  of  assignability  of  insurance  policies,  whether 
fire  or  life,  will  be  reserved  for  discussion  in  a  future  chapter.  In 
the  present  discussion,  it  will  be  assumed  that  the  assignments  under 
consideration  are  valid,  so  far  as  the  insurer  is  concerned;  the  disputes 
witli  reference  to  them  existing  only  between  the  assignor  and  assignee, 
or  their  representatives. 

Assignees  of  Fire  Policies. 

The  assignment  of  a  fire  policy  before  it  becomes  a  fixed  liability  by 
the  loss  of  the  property  insured  can  be  made  only  with  the  consent  of 
the  insurer,  which  transforms  the  assignment  into  a  novation,  and  elim- 
inates any  question  of  conflicting  rights  of  assignor  and  assignee. 
The  rights  of  the  mortgagee  as  assignee  will  be  considered  m  the  next 

section.  .      ,  ,.  ....  .,  ^ 

After  a  contract  of  fire  insurance  becomes  a  fixed  hability  upon  the 
insurer,  it  may  be  assigned  with  all  the  freedom  of  any  other  chose  in 
action ««  and  the  rules  applicable  to  such  assignments  are  those  of  the 
general  law  of  contracts.  Assignments  of  life  policies,  however,  raise 
many  peculiar  and  difficult  questions,  which  must  now  be  considered. 

Assignment  of  Life  Policies. 

It  is  well  first  to  say  that  when  a  life  policy  has  matured,  and  has 
become  an  absolute  liability  on  the  part  of  the  insurer,  it  is  subject  to 
assignment,  just  as  are  other  claims  for  money.     Such  assignments 

It  of  cour*se!'tht  assignee  takes  only  such  rights  as  were  possessed  by  the 
assignor  at  the  time  of  the  assignment;  that  is.  the  insurer  can  set  up  against 
the  assignee  any  defenses  that  might  have  been  set  up  against  the  assignor 
But  the  consent  of  the  insurer  to  the  assignment  will  operate  as  a  waiver  of 
Tlf  defenseHLVk^^^^^  to  him.  HALL  v.  INSURANCE  CO.,  93  Mich.  184. 
^  N   W.  727.  18  L.  R.  A.  135.  32  Am.  St.  Rep.  497;    Ellis  v.  Insurance  Co.. 

^smPERI^f  Fm^'lN^  V.  DUNHAM.  117  Pa.  460.  12  Atl.  668   2 

Am.  St.  Rep.  686.    When  the  insured  is  bankmpt   his  rights  wiH  pass  to  his 
trustee  in  bankruptcy.    Fuller  v.  Insurance  Co..  184  Mass.  U  67  N.  E.  870. 


<l 


4U 


BIQHTS   UNDER   THB    POLICT. 


(Ch.  11 


I 


i 


7lT  V.  .  '  considered."  When,  however,  the  policy  is  as- 
signed while  It  remains  a  contingent  liability,  many  interesting  ques- 
tions pecuhar  to  insurance  law  call  for  determination. 

In  considering  these  questions,  the  reader  will  bear  in  mind  the  gen- 
eral rules  that  have  been  discussed  in  the  preceding  questions.  Thus 
the  insured  cannot  assign  a  policy  payable  to  a  third  person  as  bene- 

fnTJl  T  "'"'  "^^"^fi^^^y'*  c^n^ent.  Again,  a  benefit  certificate 
in  a  mutual  association,  whose  charter  and  by-laws  limit  the  bene- 
ficiaries to  the  exclus  on  of  creditors,  cannot,  it  is  apparent,  be  regarded 
as  commercially  assignable.-  Likewise  it  will  be  apparent  that  in 
most  jurisdictions,  rights  vesting  in  the  beneficiary  of  the  policy  are  re- 
u^ft  ^^//^'^fWe  choses  in  action,  when  it  is  not  otherwise  stipu- 
lated by  statute."  Therefore  in  the  following  discussion  we  shall  Z- 
.ider  only  those  assignments  rightfully  made  by  the  insured,  eliminatine 
those  of  other  parties  who  may  be  concerned.  m'naiing 

Source  of  Confusion  among  the  Cases. 

The  numerous  cases  to  be  found  in  recent  Reports  discussing  the 
egal  consequences  of  assignments  of  life  policies  made  by  parties  in- 
sured seem  at  first  to  be  hopelessly  in  conflict.    This  conflict,  however 
IS  more  apparent  than  real,  resulting  in  an  unfortunate  accumulation 

ojL7lu\T''  "^T""-  ^^''  ^''"^"^■■°"  '^  d"«  t°  ^  failure  to  rec- 
SZ  A-  I  "^,  •"?''"  °^  assignments  that  come  before  the  courts 
for  adjudicahon.  It  is  as  unwise  to  consider  all  the  assignments  of 
msurance  polices  as  subject  to  the  same  rule,  as  it  wouldTto  sub- 
jec  all  conveyances  of  real  estate  to  a  single  rule;  and  it  is  believed 
that  much  of  the  confusion  to  be  found  among  the  cases  can  be  done 
away  with  by  properly  distinguishing  the  different  kinds  of  assign- 
ments therein  brought  in  question. 

Beneficiary  Designated  by  Assignment. 

The  maxim  that  one  cannot  do  indirectly  what  is  not  allowed  to  be 
done  directly  is  frequently  made  the  basis  of  the  statement  that,  inas- 
much as  one  cannot  procure  insurance  directly  upon  a  life  in  which  he 
IS  not  interested,  he  will  not  be  allowed  to  secure  indirectly  by  assim- 
raent  such  insurance  upon  that  life.    This  observation  is  eminently 

mTskadinr't  '•  "'*"?^'  ""T'  '"P"^'^  "^  ^^"^^^"y-  '*  becomes  most 
misleading.    It  is  very  true  that  one  person  cannot  induce  another,  in 

k/,*  2"^^^  '^^  Insurance  Co.,  90  Cal.  245,  27  Pac.  211,  25  Am.  St.  Rep   114 
^IJ      «°  ^."^'"Pt  to  P'oWbit  such  an  assignment  by  contract  be  y^id  or 
effective.    Bnggs  v.  Earl,  139  Mass.  473,  1  N   E  847 

54  Md.'"':  ^  At'l'S"'""'  '"^  """•  '«'•  ^  ^-  =•  "•'   °*'«  -•  «"-»"y. 

But  see  Jarvis  v.  Binkley  (111.)  69  N.  B.  582. 

•1  See  Dannhauser  v.  Wallenstein,  169  N    Y    199   f?2  Tvr   t?    ipa    *► 
cellent  review  of  the  legislation  in  New  Yo^k  upo^' tSs  suSect'    ""  '"  '^' 


§§  143-145) 


THE  RIGHTS  OP  THE  ASSIGNEE. 


il5 


whose  life  he  has  no  interest,  to  procure  insurance  upon  his  own  life 
with  the  intention  of  assigning  it  at  once  to  the  former  person,  who 
agrees  to  bear  all  the  expense  incident  to  the  procurement  and  mainte- 
nance of  the  policy.  Such  a  transaction  is  plainly  but  a  palpable  eva- 
sion of  the  sound  rule  of  law  prohibiting  wager  policies.  Such  an  as- 
signment, being  in  bad  faith  and  in  fraud  of  the  law,  is  universally  held 
to  be  void.** 

On  the  other  hand,  there  is  no  reason  whatsoever  why  one  who  has  in 
good  faith  procured  a  valid  policy  of  insurance  upon  his  own  life  shall 
not  afterwards  assign  that  policy  to  some  third  person,  whom  he  de- 
sires to  make  the  beneficiary  of  the  insurance,  as  where  a  man  assigns 
to  his  wife  a  policy  of  insurance  procured  upon  his  own  life,  and  pay- 
able to  himself,  before  marriage.  As  we  have  seen  above,  an  insolvent 
debtor  may  not  make  such  a  transfer,  since  it  is  regarded  as  in  fraud 
of  the  rights  of  his  creditors,  but,  barring  insolvency  and  bad  faith, 
such  assignees,  although  purely  voluntary,  take  all  of  the  rights  that 
have  been  heretofore  discussed  as  accruing  to  a  vested  beneficiary.** 

Conditional  Assignments  to  Creditors. 

One  of  the  most  valuable  uses  to  which  unmatured  insurance  poli- 
cies are  put  is  their  assignment  as  collateral  security  for  debts  already 
existing  or  then  incurred.  The  mutual  rights  of  assignors  and  as- 
signees in  such  cases  naturally  vary  in  accordance  with  the  terms  of  the 
assignment,  but  frequently  it  becomes  incumbent  upon  the  assignee  to 
pay  premiums  necessary  to  keep  the  policy  in  force.  Applying  to  as- 
signments of  this  kind  the  general  rule  applicable  to  all  pledges,  we 
easily  derive  the  rule  that  the  assignee's  rights  in  the  proceeds  of  the 
policy  are  limited  to  an  amount  equal  to  the  debt  secured,  the  premiums 
paid,  and  the  interest  thereon.  As  between  the  insured  and  assignee, 
the  latter  is  entitled  to  the  whole  proceeds,  but  he  holds  the  excess  be- 
yond his  interest,  as  above  described,  in  trust  for  the  personal  repre- 
sentatives of  the  deceased  debtor.**  From  this  doctrine  there  is  no 
dissent 

»2  WARNOCK  V.  DAVIS,  104  U.  S.  775,  26  L.  Ed.  924;  Mutual  Life  Ins. 
Co.  V.  Armstrong,  117  V.  S.  591,  6  Sup.  Ct.  877,  29  L.  Ed.  997;  Heusner  v.  In- 
surance Co.,  47  Mo.  App.  343.  See  National  Life  Ass*n  v.  Hopkins*  Adm'r, 
97  Va.  167,  33  S.  E.  539. 

»8  In  re  Steele  (D.  C.)  98  Fed.  78;  Tremblay  v.  Insurance  Co.,  97  Me.  547, 
55  Atl.  509;  Appeal  of  Colbum,  74  Conn.  463,  51  Atl.  139,  92  Am.  St.  Rep. 
231;  PATTERSON  v.  INSURANCE  CO.,  100  Wis.  118,  75  N.  W.  080,  42  L..  R. 
A.  253,  69  Am.  St.  Rep.  899. 

»*  Roller  V.  Moore's  Adm'r,  86  Va.  512,  10  S.  B.  241,  6  L.  R.  A.  136;  Gris- 
wold  V.  Insurance  Co.,  1  Mo.  App.  97;  Id.,  70  Mo.  654;  Mutual  Benefit  Life 
Ins.  Co.  of  Newark  v.  First  Nat  Bank  of  Louisville,  74  S.  W.  1066,  25  Ky. 
Law  Rep.  172;  Oilman  v.  Curtis,  66  Cal.  116,  4  Pac.  1094;  Wells  v.  Archer, 
10  Serg.  &  R.  (Pa.)  412,  13  Am.  Dec.  682;  Page  v.  Bumstine,  102  U.  S.  6&4, 
26  L.  Ed.  268;   Burnam  v.  White  (Ky.)  22  S.  W.  555. 


I 


I 


416 


RIGHTS   UNDER   THE    POLICY. 


(Ch.  11 


i 


Absolute  Assignments  to  Purchasers, 

Pursuing  the  line  of  reasoning  heretofore  adopted  with  reference  to 
the  character  of  the  insurance  poHcy  as  a  chose  in  action,  it  would  seem 
to  follow  that  when  the  chose  belongs  to  the  insured,  free  from  the 
rights  of  any  other  person,  he  should  be  allowed  to  sell  it  at  whatever 
price  he  can  secure,  and  to  transfer  an  absolute  and  complete  title  to 
the  purchaser.  In  fact,  such  a  course  often  becomes  necessary  to  the 
holder  of  a  life  policy.  Such  a  loan  or  surrender  value  as  he  may  ob- 
tain from  the  company  may  be  inadequate  for  his  necessities,  and  he 
may  find  it  expedient  to  convert  his  whole  interest  in  the  policy  into 
cash.  When,  under  such  circumstances,  the  insured  sells  a  valuable 
policy  to  one  who  purchases  it  as  a  chose  in  action  in  good  faith,  it  is 
held  by  the  better-reasoned  cases,  and  by  probably  a  majority  of  the 
cases  in  point,  that  such  a  bona  fide  purchaser  takes  an  absolute  ti- 
tle to  the  policy,  even  though  he  had  no  preceding  insurable  in- 
terest, and  even  though  the  proceeds  of  the  policy  may  greatly  exceed 
the  amount  which  he  paid  for  the  assignment.® **  If  dictum  is  to  be 
taken  as  authority,  undoubtedly  the  weight  of  authority  is  in  favor  of 
applying  to  even  an  absolute  assignment  of  the  kind  described  the  same 
rule  that  has  been  stated  above  as  properly  applicable  to  conditional  as- 
signments.®®    But  a  careful  examination  of  the  cases  will  show  that, 

•8  Metropolitan  Life  Ins.  Co.  v.  Brown,  159  Ind.  644,  65  N.  B.  908;  St.  John 
V.  Insurance  Co.,  13  N.  Y.  31,  64  Am.  Dec.  529;  VALTON  v.  ASSURANCE 
CO.,  20  N.  Y.  32;  Olmsted  v.  Keyes,  85  N.  Y.  593;  WRIGHT  v.  ASSOCIA- 
TION, 118  N.  Y.  237,  23  N.  E.  18(J,  6  L.  R.  A.  731,  16  Am.  St.  Rep.  749;  STEIN- 
BACK  V.  DIEPENBROCK,  158  N.  Y.  24,'  52  N.  E.  662,  44  L.  R.  A.  417,  70  Am. 
St.  Rep.  427;  MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK  v.  ALLEN,  138 
Alass.  24,  52  Am.  Rep.  245;  Eckel  v.  Renner,  41  Ohio  St.  232;  Martin  v.  Stub- 
bings,  126  111.  387,  18  N.  E.  657,  9  Am.  St.  Rep.  620;  Ulrich  v.  Reinoehl,  143 
ra.  238,  22  Atl.  862,  13  L.  R.  A.  433,  24  Am.  St.  Rep.  534;  McHale  v.  McDon- 
nell, 175  Pa.  632,  34  Atl.  966;  Wheeland  v.  Atwood,  192  Pa.  237,  43  Atl.  946, 
73  Am.  St.  Rep.  803;  Crosswel  v.  Association,  51  S.  C.  103,  28  S.  E.  200; 
Bursinger  v.  Bank,  67  Wis.  75,  30  N.  W.  290,  58  Am.  Rep.  848;  Fairchild  v. 
Association,  51  Vt.  613;  Mechanics'  Nat.  Bank  v.  Comins  (N.  H.)  55  Atl.  191; 
Chamberlain  v.  Butler,  61  Neb.  730,  86  N.  W.  481,  54  L.  R.  A.  338,  87  Am.  St. 
Rep.  478;  Fitzgerald  v.  Insurance  Co.  56  Conn.  116,  13  Atl.  673,  17  Atl.  411, 
7  Am.  St.  Rep.  288;  Clark  v.  Allen,  11  R.  I.  439,  23  Am.  Rep.  496;  Murphy 
V.  Red,  64  Miss.  614,  1  South.  761,  60  Am.  Rep.  68;  RITTLBR  v.  SMITH,  70 
Md.  261,  16  Atl.  890,  2  L.  R.  A.  844.  See,  also,  Connecticut  Mut  Life  Ins.  Co. 
V.  Schaefer,  94  U.  S.  457,  24  L.  Ed.  251;  British  Eq.  Ins.  Co.  v.  Great  West- 
em  Ry.  Co.,  38  L.  J.  Ch.  132;  MUTUAL  LIFE  INS.  CO.  v.  ALLEN,  138  Mass. 
24,  52  Am.  Rep.  245.  But  see  Stevens  v.  Warren,  101  Mass.  564,  in  which 
the  policy  prohibited  assignment.  In  New  Jersey  no  insurable  interest  is  re- 
quired to  support  a  contract  of  insurance.  It  necessarily  follows  that  an  as- 
signee without  interest  may  acquire  absolute  rights  in  the  policy  assigned. 
See  VIVAR  v.  KNIGHTS  OF  PYTHIAS,  52  N.  J.  Law,  455,  20  Atl.  36.  In 
California  the  right  of  absolute  assignment  is  aflSrmed  by  express  statutory 
provision.    Cal.  Civ.  Code,  §  2764. 

•«  Alabama  Gold  Life  Ins.  Co.  v.  Mobile  Mut  Ins.  Co.,  81  Ala.  329,  1  South. 


5§  146-14:7)      RIGHTS   OF  MORTGAGOR  AND   MOIITGAGEE. 


417 


in  most  of  those  in  which  this  statement  is  made,  the  case  actually  be- 
fore the  court  was  one  of  conditional  assignment  as  collateral  security 
for  a  debt."' 


( 


RIGHTS  OF  MORTGAGOR  AND  MORTGAGEE. 

146.  The  rights  of  the  mortgagor  and  mortgagee  In  the  proceed*  of 

insurance  npon  the  mortgaged  property  vary  in  accordance  with 
the  terms  of  the  contract. 

(a)  When  the  mortgagor  insures  his  own  interest  for  his  separate 

benefit,  the  mortgagee  takes  no  rights  whatever  in  the  proceeds. 

(b)  When  the  mortgagee  insures  his  interest  on  his  sole  account, 

money  paid  by  the  insurer  will  not  inure  to  the  benefit  of  the 
mortgagor. 

(o)  When  the  mortgagor  insures  for  the  benefit  of  the  mortgagee,  or 
is  under  contract  so  to  do,  the  insurance  money  must  be  applied 
to  the  payment  of  the  mortgage  debt. 

(d)  When  the  mortgagee  insures  under  a  provision  that  the  pre- 
miums paid  shall  be  added  to  the  mortgage  debt,  insurance 
money  received  mrill  reduce  that  debt  pro  tanto.  . 

147.  A  policy  issued  to  the  mortgagor,  payable  to  the  mortgagee  as  his 

interest  may  appear,  will  be  defeated  by  any  default  on  the 
part  of  the  niortgagor,  unless  its  terms  establish  an  inde- 
pendent collateral  contract  between  the  insurer  and  the  mort- 
gagee. 

It  is  well  recognized  that  both  the  mortgagor  and  mortgagee  have 
insurable  interests  in  property  mortgaged,  and  that  these  interests  are 
separate  and  distinct  from  each  other.  It  is  usual  for  the  parties  to  stip- 
ulate in  the  mortgage  deed  for  insurance  on  the  subject  of  the  mortgage 
and  for  payment  of  the  premiums,  but  sometimes  there  is  an  entire 
lack  of  agreement  as  to  insurance.     In  construing  the  rights  of  mort- 

561;  Exchange  Bank  of  Macon  v.  Loh,  104  Ga.  446,  31  S.  B.  459,  44  L.  R.  A. 
372;  Schlamp  v.  Berner's  Adm'r,  51  S.  W.  312,  21  Ky.  Law  Rep.  324;  Missouri 
Valley  Ute  Ins.  Co.  v.  McCrum,  36  Kan.  146,  12  Pac.  517,  59  Am.  Rep.  537; 
Price  V.  Bank,  62  Kan.  743,  64  Pdc.  639;  Heusner  v.  Insurance  Oo.,  47  Mo. 
App.  336;  Mutual  Life  Ins.  C5o.  v.  Richards  (Mo.  App.)  72  S.  W.  487;  Powell 
V.  Dewey,  123  N.  C.  103,  31  S.  E.  381,  68  Am.  St  Rep.  818;  Tate  v.  Associa- 
tion, 97  Va.  74,  33  S.  E.  382,  45  L.  R.  A.  243,  75  Am.  St.  Rep.  770;  WARNOCK 
V.  DAVIS,  104  U.  S.  775,  26  L.  Ed.  924;  New  York  Life  Ins.  Co.  v.  Davis,  96 
Va.  737,  32  S.  K  475,  44  L.  R.  A.  305;  Kessler  v.  Kuhns,  1  Ind.  App.  511,  27 
N.  E.  980;  Thornburg  v.  Insurance  Co.,  30  Ind.  App.  682,  66  N.  B.  922. 

•7  This  will  be  apparent  from  examining  the  Virginia  cases,  which  declare 
that  the  assignee  cannot  take  an  absolute  interest  in  an  insurance  policy,  in 
every  one  of  which  the  assignment  was  conditional.  Roller  v.  Moore's  Adm'r,  86 
Va.  512, 10  S.  E.  241,  6  L.  R.  A.  136 ;  Long  v.  Britannia  Co.,  94  Va.  694,  27  S.  E. 
499;  Beaty  v.  Downing,  96  Va.  451,  31  S.  E.  612;  New  York  Life  Ins.  Co.  v. 
Davis,  96  Va.  737,  32  S.  E.  475,  44  L.  R.  A.  305;  Tate  v.  Association,  97  Va. 
74.  33  S.  E.  382,  45  L.  R.  A.  243,  75  Am.  St  Rep.  770. 
Vance  Ins.— 27 


ii 


I 

I 
I 
I 


m 


418 


RIGHTS    UNDER   THE   POLICY. 


(Ch.  11 


.. 


gagors  and  mortgagees,  respectively,  to  the  proceeds  of  insurance  in 
the  latter  event,  we  shall  first  consider  those  cases  in  which  the  con- 
tracts are  made  separately  and  independently. 

Separate  Insurance  by  the  Mortgagor. 

As  heretofore  shown,  the  contract  of  insurance  is  strictly  a  personal 
contract,  and  never  runs  with  the  property  insured.  Accordingly  it 
follows  that  where  the  mortgagor  independently  insures  his  own  inter- 
est in  the  mortgaged  premises,  without  reference  to  any  contract  with 
the  mortgagee,  the  proceeds  of  such  insurance  in  case  of  destruction 
of  the  property  belong  solely  to  the  mortgagor,  freed  from  any  lien  or 
other  claim  by  the  mortgagee.®*  This  rule  obtains  even  though  there 
may  be  a  stipulation  in  the  mortgage  contract  providing  that  the  mort- 
gagee may  insure  and  charge  the  premiums  to  the  mortgagor,  to  be 
covered  by  the  security  of  the  mortgage.  Thus,  in  a  recent  case  in  the 
Supreme  Court  of  the  United  States,'*  a  corporation  which  had  exe- 
cuted a  mortgage  to  a  trustee  to  secure  an  issue  of  bonds  insured  its 
plant  on  its  own  account.  The  mortgagee  trustee  had  procured  no  in- 
surance, although  authorized  to  do  so  by  the  mortgage  deed.  Upon 
the  destruction  of  the  plant  by  fire,  and  the  serious  impairment  of  the 
security  offered  to  the  bondholders  by  the  mortgage,  the  trustee  claimed 
that  the  proceeds  of  the  insurance  obtained  by  the  mortgagor  should 
be  impressed  with  a  trust  in  favor  of  the  bondholders.  The  court 
held,  however,  that  there  was  no  contract  obligation  upon  the  mort- 
gagor to  insure,  and  that  consequently  the  insurance  money  belonged 
solely  and  absolutely  to  the  mortgagor. 

Separate  Insurance  by  the  Mortgagee. 

In  a  like  manner  the  mortgagee  may  insure  his  interest  in  the  prop- 
erty independently  of  the  mortgagor.^®®  In  that  event,  upon  the  de- 
struction of  the  property  the  payment  of  insurance  money  to  the  mort- 
gagee will  not  inure  to  the  benefit  of  the  mortgagor,  whose  debt  re- 
mains still  wholly,  unpaid.^®*     The  mortgagee,  however,  is  not  in  a 

t8  Shadgett  v.  Phillips,  131  Ala.  478,  31  South.  20,  56  L.  R.  A.  461,  90  Am. 
St.  Rep.  95;  Ryan  v.  Adamson,  57  Iowa,  30,  10  N.  W.  287;  Stamps  v.  Insur- 
ance Co.,  77  N.  C.  209,  24  Am.  Rep.  443;  COLUMBIA  INS.  CO.  v.  LAW- 
RENCE, 10  Pet.  507,  9  L.  Ed.  512;  Wheeler  v.  Insurance  Co.,  101  U.  S.  439, 
25  L.  Ed.  1055. 

»»  Farmers'  Loan  &  Trust  Co.  v.  Penn  Plate  Glass  Co.,  186  U.  S.  434,  22 
Sup.  Ct.  842,  46  L.  Bd.  1234. 

100  The  mortgagee  insures  only  his  debt.  When  his  debt  Is  In  any  way  dis- 
fcjharged,  the  insurance  terminates.  Carpenter  v.  Insurance  Co.,  16  Pet  495, 
10  L.  Ed.  1044;  Phenix  Ins.  Co.  v.  First  Nat.  Bank,  85  Va.  767,  8  S.  B.  720, 
2  L.  R.  A.  667,  17  Am.  St.  Rep.  102.  So,  where  a  mortgagee  has  purchased 
property  at  foreclosure  sale,  even  though  the  redemption  period  is  not  ex- 
pired. Reynolds  v.  Insurance  Co.,  128  CaL  16,  60  Pae.  467,  79  Am.  St  Rep. 
17. 

101  International  Trust  Co.  t.  Boardman,  149  Mass.  158,  21  N.  B.  239;  Ha- 


§§  146-147)      RIGHTS  OF  MORTGAGOR  AND  MORTGAGEE.  419 

position  to  enforce  this  claim  against  the  mortgagor,  but  it  passes  by 
subrogation  to  the  insurer.^®* 

Insurance  by  Mortgagor  for  Benefit  of  Mortgagee. 

It  is  competent  for  the  mortgagor  to  take  out  insurance  for  the  bene- 
fit of  the  mortgagee,  and,  indeed,  this  is  the  usual  practice.  The  mort- 
gagee may  be  made  the  beneficial  payee  in  several  diflFerent  ways.  He 
may  become  the  assignee  of  the  policy  with  the  consent  of  the  insured, 
or  the  mere  pledgee  without  such  consent;  or  the  original  policy  may 
contain  a  mortgage  clause,  or  a  rider  making  the  policy  payable  to 
the  mortgagee  as  his  interest  may  appear  may  be  subsequently  at- 
tached; or,  lastly,  the  policy  itself  may  be  payable  absolutely  to  the 
mortgagor,  but  taken  out  in  pursuance  of  a  contract  to  that  eflFect  with 
the  mortgagee,  in  which  case  the  mortgagee  acquires  an  equitable  lien 
upon  the  proceeds.^®*  In  all  of  these  cases  the  proceeds  of  the  policy 
will  be  subject  to  the  same  claims  by  the  mortgagee  as  could  have  been 
enforced  by  him  against  the  property  insured. 

Insurance  by  Mortgagee  on  Behalf  of  Mortgagor. 

In  the  preceding  paragraph  we  have  spoken  of  the  contracts  to  which 
the  mortgagor  is  a  party,  and  the  mortgagee  beneficially  interested. 
Practically  the  same  rules  obtain  when  the  mortgagee  himself  procures 
the  policy  as  a  contracting  party  in  accordance  with  the  terms  of  an 
agreement  by  which  the  mortgagor  is  to  pay  the  premiums  upon  such 
insurance.  Upon  the  destruction  of  the  property  the  mortgagee  is 
entitled  to  receive  payment  from  the  insurer,  but  such  payment  dis- 
charges the  debt,  if  equal  to  it,  and,  if  greater  than  the  debt,  the  mort- 
gagee holds  the  excess  as  trustee  for  the  mortgagor."*  It  seems, 
however,  that,  if  the  insurer  stipulates  for  subrogation  to  the  rights 
of  the  mortgagee  under  the  mortgage,  the  payment  of  such  a  policy 

ley  V.  Insurance  Co.,  120  Mass.  298,  296;  Foster  v.  Van  Reed,  70  N.  Y.  19,  28 
Am.  Rep.  544.  But  see  Home  Ins.  Co.  v.  Marshall,  48  Kan.  235,  29  Pae.  161; 
Carpenter  v.  Insurance  Co.,  16  Pet.  495,  10  L.  Ed.  1044. 

The  same  rule  has  been  held  to  apply  to  insurance  by  an  attaching  cred- 
itor.   See  Trust  Co.  v.  Boardman,  supra. 

102  EXCELSIOR  FIRE  INS.  CO.  v.  ROYAL  INS.  CO.,  66  N.  Y.  343,  14  Am. 
Rep.  271;  NORWICH  FIRE  INS.  CO.  t.  BOOMER,  52  111.  442,  4  Am.  Rep 
618. 

In  Massachusetts  it  seems  to  be  held  that  the  mortgagee  may  collect  both 
the  insurance  and  the  mortgage  debt  SUFFOLK  FIRE  INS.  CO  v  BOY- 
DEN,  9  Allen  (Mass.)  123;  KING  v.  INSURANCE  00.,  7  Cush.  (Mass.)  1,  54 
Am.  Dec.  683.  It  is  otherwise,  however,  when  the  mortgagee  agrees  that  the 
Insurer  shall  be  subrogated.    Allen  v.  Insurance  Co.,  132  Mass.  480. 

108  Wheeler  v.  Insurance  Co.,  101  U.  S.  439,  25  L.  Ed.  1056. 

10*  Buffalo  Steam  Engine  Works  v.  Sun  Mut.  Ins.  Co.,  17  N.  Y.  408*  War- 
ing V.  Loder,  53  N.  Y.  581;  KING  v.  INSURANCE  CO.,  7  Cush.  (Mass!)  1.  54 
Am.  Dec.  683  (dictum). 


i  i 


420 


RIGHTS   UNDER   THE   POLICY. 


(Ch.  11 


i 


■  I 


will  not  discharge  the  debt,  even  though  the  mortgagee  may  have  pro- 
cured the  policy  by  arrangement  with  the  mortgagor.^®*  • 

Rights  of  Mortgagee  as  Affected  by  Default  of  Mortgagor, 

Some  confusion  will  be  observed  in  the  cases  which  treat  of  the  effect 
wrought  upon  the  rights  of  the  mortgagee  under  a  policy  in  which  he  is 
beneficiary  by  the  default  of  the  mortgagor,  but  by  the  better  authori- 
ties it  seems  to  be  settled  that  where  the  mortgagee  is  made  merely  a 
beneficiary  under  the  contract,  and  recognized  as  such  by  the  insurer, 
but  not  made  a  party  to  the  contract  itself,  any  default  on  the  part  of 
the  mortgagor,  which  will  by  the  terms  of  the  policy  defeat  it,  will  also 
defeat  all  rights  of  the  mortgagee  under  that  contract,  even  though  he 
himself  may  not  have  been  in  any  fault.^**®  This  result  obtains  whether 
the  policy  is  made  payable  to  the  mortgagee  "as  his  interest  may  ap- 
pear" or  by  assignment. 

By  reason  of  the  insufficiency  of  the  security  to  the  mortgagee  under 
policies  taken  out  by  the  mortgagor,  and  made  payable  to  the  mortgagee 
as  his  interest  may  appear,  on  account  of  the  rule  just  stated  above, 
it  has  now  become  customary  to  insert  in  the  mortgagor's  policy  a  clause 
not  only  making  the  policy  payable  to  the  mortgagee  so  far  as  neces- 
sary to  cover  his  interest,  but  also  providing  that  the  default  of  the 
mortgagor  shall  not  defeat  the  rights  of  the  mortgagee.  Such  a  clause 
in  effect  amounts  to  an  independent  collateral  contract  between  the  in- 
surer and  the  mortgagee.  Therefore  we  have  the  general  rule  that, 
wherever  the  terms  of  the  mortgage  clause  are  such  as  to  amount  to  a 
contract  with  the  mortgagee,  his  interest  will  remain  unaffected  by  any 
default  of  the  mortgagor  to  which  the  mortgagee  is  not  a  party.^°* 


105  Springfield  Fire  &  Marine  Ins.  Co.  v.  Allen,  43  N.  Y.  389,  3  Am.  Rep. 
711;  PHENIX  INS.  CO.  v.  FIRST  NAT.  BANL',  85  Va.  765,  8  S.  E.  719,  2 
L.  R.  A.  667,  17  Am.  St  Rep.  101;  Carpenter  v.  Insurance  Co.,  16  Pet  495, 
10  L.  Ed.  1044. 

106  The  New  York  standard  policy  expressly  so  stipulates,  as  follows:  "If, 
with  the  consent  of  this  company,  an  interest  under  this  policy  shall  exist  in 
favor  of  a  mortgagee  or  of  any  person  or  corporation  having  an  interest  in  the 
subject  of  insurance  other  than  the  interest  of  the  insured  as  described  here- 
in, the  conditions  hereinbefore  contained  shall  apply  in  the  manner  expressed 
in  such  provisions  and  conditions  of  insurance  relating  to  such  interest  as 
shall  be  written  upon,  attached,  or  appended  hereto."  Delaware  Ins.  Co.  v. 
Greer,  120  Fed.  916,  57  C.  C.  A.  188,  61  L.  R.  A.  137;  Keith  v.  Insurance  Co., 
117  Wis.  531,  94  N.  W.  295;  Jaskulski  v.  Insurance  Co.,  131  Mich.  603,  92  N. 
W.  98;  Rosenstein  v.  Insurance  Co.,  79  N.  Y.  Supp.  736,  79  App.  Div.  481. 

107  Smith  V.  Insurance  Co.,  25  B.  L  260,  55  AtL  715;  Gleng  Falls  Ins.  Ca 
T.  Porter  (Fla.)  33  South.  473. 


g  148)  RIGHTS  OF  LIFE   TENANT  AND   REMAINDERMAN. 


421 


RIGHTS  OP  UFE  TENANT  AND  REMAINDERMAH. 

148.  The  interests  of  life  tenant  and  remainderman  are  separate,  and 
insurance  procured  independently  by  either  will  not  inure  to 
the  benefit  of  the  other.  But  if  the  life  tenant  insures  the  fee, 
he  will  hold  the  excess  above  his  interest  as  trustee  for  the  re- 
niainderman« 

Somewhat  similar  to  the  relations  discussed  in  the  last  section  are 
those  of  the  life  tenant  and  remainderman  or  reversioner,  who  hold 
entirely  distinct  interests  in  the  property  in  which  their  several  estates 
inhere.  The  life  tenant  may  insure  the  property  for  the  protection  of 
his  own  interest  solely,  and,  if  such  be  the  clear  intent  of  the  contract, 
upon  the  destruction  of  the  property  the  life  tenant  will  take  the  pro- 
ceeds of  the  insurance  absolutely,  and  not  merely  a  life  interest  in 
them.^®®  This  is  true  even  though  the  policy  may  give  the  insurer  the 
option  to  rebuild,  in  which  case,  of  course,  the  benefit  of  the  perform- 
ance of  the  contract  would  inure  to  the  ultimate  benefit  of  the  remain- 
derman. 

It  appears,  however,  that  a  warehouseman,  carrier,  or  other  bailee 
may  take  out  insurance  upon  the  property  in  his  possession  which  will 
inure  to  the  benefit  of  the  owners  of  such  property,  at  the  same  time  as 
it  protects  the  bailee's  interest.^®*  In  like  manner,  if  the  life  tenant 
takes  out  insurance  not  merely  upon  his  life  interest,  but  upon  the  prop- 
erty as  of  fee,  he  will  be  deemed  to  be  acting  for  the  remainderman  or 
reversioner,  even  though  the  contract  is  made  without  the  knowledge  of 
the  latter,  since  it  is  entirely  competent  for  him  to  ratify  the  act  of  his 
unauthorized  agent.  In  such  cases  the  life  tenant  will  receive  the  whole 
of  the  proceeds,  but  will  hold  the  excess  above  his  interest  as  trustee  for 
the  reversioner."®  The  principles  thus  stated  apply  equally  well  to 
all  cases  of  particular  and  expectant  estates,  such  as  those  of  lessor 
and  lessee. 

108  Bennett  v.  Featherstone  (Tenn.)  71  S.  W.  589;  HARRISON  v.  PEPPER, 
166  Mass.  288,  44  N.  E.  222,  33  L.  R.  A.  239,  55  Am.  St.  Rep.  404;  Kearney 
V.  Kearney,  17  N.  J.  Eq.  504.  But  see,  contra,  Green  v.  Green,  50  S.  C.  514, 
27  S.  E.  952,  62  Am.  St.  Rep.  846. 

109  See  Southern  Cold  Storage  &  Produce  Co.  v.  Deehman  (Tex.  Qv.  App.) 

73  S.  W.  545. 

110  Welsh  V.  Assurance  Co.,  151  Pa.  607,  25  Atl.  142,  31  Am.  St.  Rep.  786. 

So,  when  property  insured  for  the  benefit  of  the  owner  or  his  personal  rep- 
resentatives is  burned  after  the  death  of  the  insured,  the  life  tenant  under 
the  will  of  the  decedent  will  take  only  a  life  interest  in  the  insurance  mon- 
ey. See  Brough  v.  Higgins,  2  Grat.  (Va.)  408;  Haxall's  Ex'rs  v.  Shippeu,  10 
Leigh  (Va.)  536,  34  Am.  Dec.  745;  Culbertson  v.  Ctox,  29  Minn.  309,  13  N.  W. 
177,  43  Am.  Rep.  204. 


f 


I 


422 


EIGHTS   UNDER  THE   POLICY. 


(Ch,ll 


SUBROGATION. 

149.  PROPERTY  INSURANCE-An  insurer  indemnifying  the  insured 

for  any  loss  of  property  suffered  is  entitled  to  be  subrogated  to 
any  legal  right  or  claim  belonging  to  the  insured  at  the  time 
of  loss  by  virtue  of  which  he  might  have  compelled  another  to 
make  compensation  for  such  loss. 

150.  LIFE  INSURANCE-The  doctrine  of  subrogation  has  no  appUca- 

tion  to  Ufe  insurance.  It  has  also  been  held  that  it  is  likewise 
ii&applicable  to  accident  insurance. 

The  Equitable  Doctrine  of  Subrogation, 

The  right  of  subrogation,  as  enforced  by  the  courts,  is  defined  as  "an 
auxihary  equity  called  into  being  for  the  purpose  of  enabling  a  party 
secondarily  liable,  but  who  has  paid  the  debt,  to  reap  the  benefit  of  any 
securities  which  the  creditor  may  hold  against  the  principal  debtor, 
and  by  tne  use  of  which  the  party  paying  may  thus  be  made  whole  "  "^ 
Pnmanly,  It  is  the  right  of  the  assured,  paying  his  principal's  debt,  to 
be  placed  in  the  position  of  the  creditor  for  the  purpose  of  enforcing 
payment  by  the  principal."'  As  has  been  heretofore  seen,  the  law  of 
insurance  is  but  a  wide  extension  of  the  general  doctrine  of  suretyship 
and  It  IS  therefore  to  be  expected  that  the  doctrine  of  subrogation 
should  play  a  large  part  in  determining  the  correlative  rights  of  the 
parties  to  insurance  contracts.  The  doctrine  has  easy  application  to 
all  cases  in  which  the  loss  for  which  the  insurer  is  liable  under  the  policy 
was  caused  by  the  tortious  conduct  of  some  third  person.  Thus  where 
property  is  destroyed  by  a  fire  caused  by  the  negligent  emission  of 

"1  Blsp.  Bq.  p.  45.  •'Whenever,  to  protect  his  own  rights,  one  not  a  volun- 
teer pays  or  satisfies  a  debt  for  which  another  is  primarily  liable,  he  Is  sub- 
rogated to  the  rights  of  the  creditor,  and  may  enforce  against  the  person  pri- 
marily liable  all  the  securities,  benefits,  and  advantages  held  by  the  credit- 
or.     Eaton,  Eq.  511. 

1"  The  rule  is  thus  stated  by  Mr.  Justice  Gray  in  St.  Louis,  I.  M.  &  S.  Ry. 
1.S  ^-^Commercial  Union  Ins.  Co.,  139  U.  S.  223,  11  Sup.  Ct.  554,  35  L.  Ed. 
154:  In  fire  insurance,  as  in  marine  insurance,  the  insurer,  upon  paying  to 
the  assured  the  amount  of  a  loss  of  the  property  insured,  is  doubtless  subro- 
gated in  a  corresponding  amount  to  the  assured's  right  of  action  against  any 
other  person  responsible  for  the  loss.  But  the  right  of  the  insurer  against 
such  other  person  does  not  rest  upon  any  relation  of  contract  or  of  privity 
between  them.  It  arises  out  of  the  nature  of  the  contract  of  insurance  as 
a  contract  of  indemnity,  and  is  derived  from  the  assured  alone,  and  can  be 
enforced  in  his  right  only.  By  the  strict  rules  of  the  common  law  It  must 
be  asserted  in  the  name  of  the  assured.  In  a  court  of  equity  or  of  admiralty 
or  under  some  state  codes,  it  may  be  asserted  by  the  insurer  In  his  own  name 
But  in  any  form  of  remedy  the  Insurer  can  take  nothing  by  subrogation  but 
the  rights  of  the  assured,  and.  if  the  assured  has  no  right  of  action  nonp 
passes  to  the  insurer."  ' 


§§149-150) 


SUBROGATION. 


423 


sparks  from  a  railroad  company's  locomotive,  it  is  clear  that  the  insurer, 
upon  indemnifying  the  insured  for  the  loss,  will  be  entitled  to  be 
subrogated  to  the  insured's  right  of  action  against  the  railway  com- 


113 


pany 

The  operation  of  this  equity  also  harmoniously  supports  another  well- 
recognized  rule  in  insurance  law;  that  is,  that  the  insured  shall  not 
receive  by  reason  of  his  contract  of  insurance  anything  more  than  mere 
indemnity  for  his  loss  suffered.  If  he  were  allowed  to  recover  the 
amount  of  his  loss  from  the  tort  feasor  and  also  from  the  insurance 
company,  his  misfortune  would  result  in  profit,  rather  than  loss,  and 
undoubtedly  tend  to  greatly  increase  the  number  of  such  misfortunes. 

When  we  come  to  consider  whether  the  doctrine  of  subrogation  in 
insurance  law  shall  extend  not  only  to  those  cases  in  which  the  insured 
possesses  some  right  or  claim  by  virtue  of  which  he  can  demand  from 
some  other  person  than  the  insured  compensation  for  the  loss  suffered, 
but  also  to  those  in  which  the  insured,  by  reason  of  the  existence  of 
some  independent  contract  not  in  any  wise  related  to  the  insurance  or 
the  cause  of  the  loss,  is  in  a  position  to  escape  injury  by  that  loss,  we 
encounter  much  difficulty.  In  the  leading  English  case  of  Castellain 
v.  Preston,^^*  the  facts  briefly  were  as  follows:  The  owners  of  real 
property  previously  insured  had  executed  a  binding  contract  for  its  sale. 
After  the  execution  of  the  contract,  but  before  the  conveyance,  the 
buildings  were  damaged  by  fire,  and  payment  was  made  by  the  insur- 
ance company  to  the  vendor.  Subsequently  the  vendees  performed 
their  contract,  paying  the  purchase  money,  as  they  were  required  by 
law  to  do,  without  deducting  the  loss  by  fire.  The  vendors  were  thus 
in  possession  of  the  insurance  money,  and  also  of  the  purchase  money, 
which  represented  the  full  value  of  the  uninjured  property;  thus 
having  made  a  handsome  profit  by  reason  of  the  fire.  The  insurance 
company  then  brought  its  suit  to  recover  the  amount  of  the  insurance, 
claiming  to  be  subrogated  to  the  vendors'  rights  under  the  executory 
contract  of  sale.  In  the  lower  court  ^"  it  was  decided  by  Chitty,  J., 
that  the  insurer  was  not  entitled  to  subrogation,  but  in  the  Court  of 

118  Mobile  Ins.  Co.  v.  Columbia  &  G.  R.  Co.,  41  S.  O.  408,  19  S.  B.  858,  44 
Am.  St.  Rep.  725;  HOME  MUT.  INS.  CO.  v.  OREGON  RY.  &  NAV.  CO.,  20 
Or.  569,  26  Pac.  857,  23  Am.  St.  Rep.  151;  CONNECTICUT  FIRE  INS.  CO. 
V.  ERIE  RY.  CO.,  73  N.  Y.  399,  29  Am.  Rep.  171,  Wodrufif,  Ins.  Cas.  550; 
PHCENIX  INS.  CO.  V.  ERIE  &  W.  TRANSPORTATION  CO.,  117  U.  S.  312,  6 
Sup.  Ct  750,  29  L.  Ed.  873,  Woodrufif,  Ins.  Cas.  553. 

In  &  court  of  admiralty,  the  subrogated  insurer  may  proceed  against  the 
carrier  in  his  own  name.  Liverpool  &  G.  W.  S.  Co.  v.  Phenix  Ins.  Co.,  129 
U.  S.  397,  9  Sup.  Ct.  469,  32  L.  Ed.  788. 

114  CASTELLAIN  v.  PRESTON,  11  Q.  B.  DiY.  880,  Richards^  Ins.  Cas.  282. 
Woodruff,  Ins.  Cas.  536. 

118  8  Q.  B.  Div.  613. 


I 


424 


RIGHTS   UNDEK   THE    POLICY. 


(Ch.  11 


SUBROGATION. 


425 


Appeal  this  judgment  was  reversed;  Brett,  L.  J.,  laying  down  the 
principle  of  subrogation  applicable  in  these  broad  terms:  "« 

Now  It  seems  to  me  that,  in  order  to  carry  out  the  fundamental  rule 
of  insurance  law,  this  doctrine  of  subrogation  must  be  carried  to  the 
extent  which  I  am  now  about  to  endeavor  to  express,  namely,  that, 
as  between  the  underwriter  and  the  assured,  the  underwriter  is  en- 
titled  to  the  advantages  of  every  right  of  the  assured,  whether  such 
right  consists  in  contract,  fulfilled  or  unfulfilled,  or  in  remedy  for  tort 
capable  of  being  insisted  on  or  already  insisted  on,  or  in  any  other 
nght  whether  by  way  of  condition  or  otherwise,  legal  or  equitable 
which  can  be  or  has  been  exercised  or  has  accrued,  and  whether  such 
right  could  or  could  not  be  enforced  by  the  insurer  in  the  name  of 
the  assured,  by  the  exercise  or  acquiring  of  which  right  or  condition 
the  loss  against  which  the  assured  is  insured  can  be  or  has  been  dimin- 
ished. That  seems  to  me  to  put  this  doctrine  of  subrogation  in  the 
largest  possible  form,  and,  if  in  that  form,  large  as  it  is,  it  is  short  of 
tulhlling  that  which  is  the  fundamental  condition,  I  must  have  omit- 
ted to  state  something  which  ought  to  have  been  stated." 

Notwithstanding  the  cogent  reasoning  of  the  careful  and  learned 
opinion  of  the  English  court,  one  feels  sorely  discontented  with  the 
result  reached  by  the  court.  It  is  probable,  however,  that  the  mistake 
in  reasomng  was  made  not  in  this  particular  case,  but  in  the  preceding 
case  of  Rayner  v.  Preston,"^  in  which  it  was  decided  that  the  vendor 
could  retain  the  insurance  money  as  against  the  vendee.  In  any  event 
It  may  be  safely  stated  that  the  doctrine  of  Castellain  v.  Preston  has 
never  been  accepted  in  this  country,"*  nor  is  it  likely  to  be  in  future 

f>,"'^^i^*  ^'  ^}^'  ^^'  ^^  Justice  Brett  bases  this  statement  upon  this 
thoroughly  sound  observation:  "The  very  foundation,  In  my  opinion,  of  every 
rule  which  has  been  applied  to  Insurance  law,  is  this,  namely:  That  the  con- 
tract of  insurance  contained  In  a  marine  or  fire  policy  is  a  contract  of  Indem- 
nity, and  of  ndemnlty  only,  and  that  this  contract  means  that  the  assured 
in  case  of  a  loss  against  which  the  policy  has  been  made,  shall  be  fully  in- 
demnified, but  shall  never  be  more  than  fully  Indemnified.  That  Is  the  fun- 
damental principle  of  Insurance,  and,  If  ever  a  proposition  Is  brought  for- 
ward which  is  at  variance  with  It-that  Is  to  say,  which  either  will  prevent 
the  assured  from  obtaining  a  full  Indemnity,  or  which  will  give  to  the  as- 
sured more  than  a  full  indemnlty-that  proposition  must  certainly  be 
wrong.  "^ 

T,/r  ^^^^^rJ'  PRESTON,  L.  R.  18  Ch.  DIv.  1,  Woodruff,  Ins.  Cas.  344 
Richards   Ins.  Cas.  276.    This  case  has  been  repudiated  in  this  country.    See 

!^J''Sf  «J  f°' J^i^  ^""^^°^  *  ^^  ^^^^  ^-  ^-  Houghton,  92  Md.  68,  48 
Atl.  85,  84  Am.  St.  Rep.  485.    But  see  ante,  p.  40  -  ^  '±o 

118  Washington  Fire  Ins.  Co.  v.  Kelly,  32  Md.  421,  3  Am.  Rep.  149. 

In  Michael  v.  Insurance  Co.,  171  N.  Y.  25,  63  N.  E.  810,  It  was  held  that 
an  insurer  payhig  an  indemnity  under  Its  policy  for  loss  of  "use  and  oSu- 
pancy  of  an  elevator  was  not  entitled  to  be  subrogated  to  the  rights  ol  the 
owner  of  the  elevator  under  a  pooling  contract  by  which  each  of  the  partiei 


g§  149-150) 

cases.  Therefore  we  may  say  that  in  the  United  States,  at  least,  the 
insurer's  right  of  subrogation  will  be  limited  to  those  rights  which  the 
insured  may  have  to  recover  compensation  from  some  third  person 
because  of  some  tort  or  contract  liability  arising  out  of  the  loss,  and 
not  merely  collateral  to  it 

Release  of  Tort  Feasor  by  the  Insured. 

As  is  apparent  from  the  above  definition,  the  insurer  can  claim  to  be 
subrogated  only  to  such  rights  as  inhere  in  the  insured  at  the  time  of 
the  loss.  Therefore,  if  for  any  reason  the  insured  at  that  time  has  no 
such  right,  as  where  he  has  agreed  in  a  bill  of  lading  that  the  carrier 
shall  have  the  benefit  of  insurance,  it  is  manifest  that  the  insurer's  right 
of  subrogation  is  cut  off.^^*  But  just  so  soon  as  the  loss  occurs  the 
insurer's  right  to  subrogation  to  any  then  existing  rights  of  the  in- 
sured become  vested,  and  any  act  of  the  insured  in  releasing  such 
rights  will  discharge  the  insurer  pro  tanto.  Thus,  if  the  property  in- 
sured is  destroyed  by  the  negligence  of  some  tort  feasor,  any  release 

was  to  receive  a  percentage  of  the  profits  made  by  the  pooled  concerns,  even 
though  his  elevator  might  become  incapacitated  for  use  by  reason  of  fire. 

So  In  FOLEY  v.  INSURANCE  CO.,  152  N.  Y.  131,  46  N.  E.  318,  43  Lr.  R.  A. 
664,  an  insurer  was  denied  subrogation  under  facts  practically  identical  with 
those  in  CASTELLAIN  v.  PRESTON.  The  owner  insured  some  dwelling 
houses  In  course  of  erection,  although  under  their  agreement  the  contractors 
were  obligated  to  complete  the  buildings  before  receiving  any  pay.  The  un- 
completed houses  were  burned,  and  the  Insurer  held  liable  to  pay,  without 
hope  of  subrogation  to  the  insured's  rights  under  the  building  contract  In 
closing  its  opinion,  the  court  makes  this  broad  statement:  "The  fact  that 
improvements  on  land  may  have  cost  the  owner  nothing,  or  that  if  destroyed 
by  fire,  he  may  compel  another  person  to  replace  them  without  expense  to 
him,  or  that  he  may  recoup  his  loss  by  resort  to  a  contract  liability  of  a  third 
person,  In  no  way  affects  the  liability  of  the  insurer,  in  the  absence  of  any 
exemption  in  the  policy." 

119  Deming  v.  Storage  Co.,  90  Tenn.  306,  17  S.  W.  89,  13  L.  R.  A.  518;  Wa- 
ger V.  Insurance  Co.,  150  U.  S.  99,  14  Sup.  Ct.  55,  37  L.  Ed.  1013;  St  Louis, 
I.  M.  &  S.  R.  Co.  V.  Commercial  Union  Ins.  Co.,  139  U.  S.  223,  11  Sup.  Ot  554, 
35  L.  Ed.  154;  PHCENIX  INS.  CO.  v.  ERIE  &  W.  TRANSPORTATION  CO., 
117  U.  S.  312,  6  Sup.  Ct.  750,  29  L.  Ed.  873. 

The  same  result  follows  when  the  carrier  has  procured  the  insurance,  and 
is  named  as  payee  in  the  policy,  even  though  the  insurance  company  may 
have  made  payment  to  the  shipper  upon  the  order  of  the  carrier.  See  Wager 
V.  Insurance  Co.,  supra;    Delahunt  v.  Insurance  Co.,  97  N.  Y.  537. 

The  insurer  cannot  refuse  payment  because  the  Insured  has  agreed  that 
the  carrier  shall  have  the  benefit  of  the  insurance.  Jackson  Co.  v.  Boylston 
Mut.  Ins.  Co.,  139  Mass.  508,  2  N.  E.  103,  52  Am.  Rep.  728.  But  when  the 
policy  provides  that  it  shall  be  void  "if  the  insured  shall  make  or  have  any 
contract  or  understanding  whereby  any  person  or  corporation  shall  not  be 
liable  for  any  act  or  neglect  in  causing  the  fire,"  so  as  to  defeat  its  right  of 
subrogation,  an  agreement  of  release  made  with  the  tort  feasor  before  the 
fire  will  discharge  the  Insurer.  Kennedy  v.  Insurance  Co.,  119  Iowa,  29,  91 
N.  W.  831. 


i  t 


I 


426 


BIGHTS    UNDER   THE    POLICY. 


(Ch.  11 


§§  149-150) 


SUBROGATION. 


41S7 


given  to  him  by  the  insured  without  the  consent  of  the  insurer  will 
operate  as  a  discharge  of  the  insurer's  liability."*  So,  if  a  mortgagee, 
whose  separate  interest  was  insured,  should,  after  loss,  release  the 
mortgage  to  the  extent  of  the  insurance,  the  insurer  would  be  dis- 
charged.^** 

After  the  insured  is  paid  under  his  policy,  the  tort  feasor  will  not  be 
allowed  to  do  any  act  that  will  defeat  the  insurer's  right  of  subroga- 
tion. If,  with  knowledge  of  the  previous  payment  by  the  insurer,  the 
tort  feasor  does  procure  a  release  by  settlement  with  the  insured,  such 
release  will  be  no  defense  as  against  the  insurer."*  In  the  absence  of 
a  statute  permitting  a  suit  in  his  own  name,  the  insurer  must  sue  in 
the  name  of  the  insured.  The  recovery,  however,  will  be  for  the  benefit 
of  the  insurer.*** 

This  right  of  substitution  exists  irrespective  of  contract,  but  the 
contract  of  insurance  may  expressly  provide  that  the  insurer  shall 
be  entitled  to  subrogation  as  against  any  one  causing  a  loss  for  which 
he  is  liable."*    If  such  a  contract  is  made,  the  insured  cannot  disre- 

"0  FAYERWEATHER  v.  INSURANCE  C50.,  118  N.  Y.  324,  23  N.  E.  192, 
6  L.  R.  A.  805,  Woodruff,  Ins.  Cas.  557;  Newcomb  v.  Insurance  Co.,  22  Ohio 
St.  382,  10  Am.  Rep.  746;  HALL  v.  RAILWAY  CO.,  13  Wall.  367,  20  L.  Ed. 
594.  The  insured,  while  retaining  the  money  received  under  a  settlement 
with  the  tort  feasor,  cannot  repudiate  the  release  given  on  the  ground  that 
it  was  fraudulently  obtained.  Highlands  v.  Insurance  Co..  203  Pa.  134,  52 
Atl.  130.  See  Chickasaw  County  Farmers'  Mut.  Fire  Ins.  Co.  v.  Weller,  98 
Iowa,  731,  68  N.  W.  443.  Here  the  insurer  was  allowed  to  recover  from 
the  insured  money  paid  without  knowledge  of  the  fact  that  the  insured  had 
settled  with  the  tort  feasor. 

But  the  insured  is  under  no  obligation  actively  to  preserve  any  lien  or  other 
security  which  might  inure  to  the  benefit  of  the  paying  insurer.  Thus  it 
was  held  that  the  failure  of  the  insured  to  take  such  steps  after  a  fire  as 
were  necessary  to  perfect  a  mechanic's  lien  upon  the  insured  property  did 
not  discharge  the  insurer.  See  ROYAL  INS.  CO.  v.  STINSON,  103  U.  S.  25.  26 
L.  Ed.  473.  o  -s*'.  -^u 

121  See  Carpenter  v.  Insurance  Co..  16  Pet  495,  10  L.  Ed.  1044.    It  is  evi- 
dent that  a  different  rule  would  prevail  in  Massachusetts.    Foster  v.  Insur- 
ance Co.,  2  Gray  (Mass.)  216;  International  Trust  Co.  v.  Boardman,  149  Mass 
158,  21  N.  E.  239,  and  cases  there  cited. 

122  CONNECTICUT  FIRE  INS.  CO.  v.  ERIE  RY.  CO.,  73  N.  Y.  399   29  Am 
Rep.  171 ;  HART  v.  RAILROAD  CORP..  13  Mete.  (Mass.)  99,  46  Am.  Dec  719 

123  Monmouth  County  Mut.  Fire  Ins.  Co.  v.  Hutchinson,  21  N.  J.  Eq  107* 
HART  v.  RAILROAD  CORP.,  13  Mete.  (Mass.)  99,  46  Am.  Dec.  719;  Rock- 
ingham Mut.  Fire  Ins.  Co.  v.  Bosher.  39  Me.  253,  63  Am.  Dec.  618;  St.  Louis, 
I.  M.  &  S.  Ry.  Co.  V.  Commercial  Union  Ins.  Co..  139  U.  S.  223,  11  Sup  Ct 
554,  35  L.  Ed.  154. 

124  The  New  York  standard  fire  policy  so  provides  In  these  terms:  -If 
this  company  shall  claim  that  the  fire  was  caused  by  the  act  or  neglect  of 
any  person  or  corporation,  private  or  municipal,  this  company  shall,  on  pay- 
ment of  the  loss,  be  subrogated  to  the  extent  of  such  payment  to  all  right  of 
recovery  by  the  insured  for  the  loss  resulting  therefrom,  and  such  right  shall 
be  assigned  to  this  company  by  the  insured  on  receiving  such  payment" 


gard  it,  and  release  before  loss  a  right  of  action  which  he  might  other- 
wise have  had.  Thus,  when  the  insured  had  previously  agreed  that 
the  insurer  should  be  subrogated  to  any  claims  which  the  insured 
might  have  against  the  carriers  who  were  to  transport  the  property, 
and  then  accepted  a  bill  of  lading  from  the  carriers,  in  which  it  was 
stipulated  that  they  should  have  the  benefit  of  any  insurance  procured 
by  the  shipper,  the  unfortunate  insured  was  held  to  have  cut  off  his 
rights  against  both  insurer  and  carriers.^*''  Of  course,  however,  where 
the  tort  feasor  has  contracted  for  the  benefit  of  the  insurance,  he  will 
be  liable  for  the  excess  of  the  loss  actually  caused  above  the  amount 
of  insurance. 

No  Subrogation  until  Indemnity  Complete. 

As  stated  above,  one  of  the  reasons  for  enforcing  the  doctrine  of 
subrogation  is  to  prevent  the  insured  from  ever  receiving  more  than 
an  actual  indemnity  for  his  loss.  But  the  owner  of  the  destroyed  prop- 
erty is  entitled  to  full  indemnity,  and  the  doctrine  of  subrogation 
will  not  be  applied  in  any  case  so  as  to  deprive  him  of  this  right.  Thus, 
where  the  insurer  has  paid  under  a  policy  of  insurance  upon  the  mort- 
gagee's separate  interest,  he  is  not  entitled  to  be  subrogated  to  the 
mortgagee's  rights  in  the  mortgage  so  long  as  any  of  the  mortgage 
debt  remains  unpaid.  The  insurer  must  either  pay  the  unsatisfied 
balance  of  the  mortgage  debt,  and  then  require  the  assignment  of  the 
mortgage,  or  else  must  be  content  to  take  the  remainder  of  the  pro- 
ceeds upon  the  foreclosure  of  the  mortgage  after  the  mortgagee's  debt 
has  been  completely  satisfied.^*' 

The  equity  of  subrogation  is  not  enforced  in  favor  of  a  mere  volun- 
teer. The  insurer  claiming  subrogation  must  have  paid  under  legal 
necessity.  Therefore  it  was  held  that,  where  one  of  several  insurers 
paid  more  than  his  share  of  a  loss  suffered,  he  was  not  entitled  to  be 

128  FAYERWEATHBR  V.  INSURANCE  CO.,  118  N.  Y.  324.  23  N.  E.  192, 
6  L.  R.  A.  805.  Woodruff,  Ins.  Cas.  557;  Carstairs  v.  Insurance  Co.  (C.  C.) 
18  Fed.  473.  But  if  the  acceptance  of  bills  of  lading  from  the  carrier  giving 
him  the  benefit  of  insurance  violates  a  term  of  the  policy  and  avoids  the 
insurance,  so  that  at  the  time  of  loss  there  is  no  valid  insurance,  the  carrier 
cannot  set  up  in  successful  defense  the  agreement  of  the  shipper  that  he 
shall  have  the  benefit  of  any  insurance  procured.  Inman  v.  Railway  Co.,  129 
U.  S.  128,  9  Sup.  Ct.  249.  32  L.  Ed.  612.  The  same  rule  has  been  applied  even 
when  the  insurer  paid  the  avoided  policy  upon  condition  of  being  allowed 
to  enforce  the  insured's  right  of  recovery  against  the  carrier.  Southard  v. 
Railway  Co.,  60  Minn.  382.  62  N.  W.  442. 

126  PHENIX  INS.  CO.  V.  FIRST  NAT.  BANK,  85  Va.  767.  8  S.  B.  720,  2 
L.  R.  A.  667,  17  Am.  St.  Rep.  102,  Woodruff,  Ins.  Cas.  578;  ROYAL  INS.  CO. 
V.  STINSON,  103  U.  S.  25,  26  L.  Ed.  473;  Carpenter  v.  Insurance  Co.,  16 
Pet  501,  10  L.  Ed.  1044. 


♦  i 


li 


428 


RIGHTS    UNDEIl    THE    POLICY. 


(Ch.  11 


I 


subrogated  to  the  rights  of  the  insured  in  order  to  secure  contribution 
from  the  other  insurers  as  to  such  excess.^*' 

No  Subrogation  in  Life  Insurance, 

It  is  well  settled  that  the  insurer  making  pa)mient  under  a  life  policy 
is  not  entitled  to  be  subrogated  to  any  rights  as  against  a  tort  feasor 
who  may  have  wrongfully  brought  about  the  death  of  the  insured. "« 
The  reason  given  for  this  holding  is  the  familiar  rule  that  at  common 
law  a  personal  action  dies  with  the  person,  and  that  there  can  be  no 
right  of  action  in  the  insured  at  the  time  of  his  death  to  which  the 
insurer  could  claim  subrogation.  Lord  Campbell's  act,  giving  a  right  of 
action  for  death  by  wrongful  act,  bestowed  that  right  upon  the  ad- 
ministrator or  other  personal  representative  of  the  deceased  as  a  sep- 
arate and  distinct  cause  of  action,  usually  stipulated  to  be  for  the  bene- 
fit of  certain  specified  persons.  The  right  given  by  such  act  is  not  one 
belonging  to  the  insured,  which  could  pass  to  the  insurer. 

Another  reason  doubtless  existing  for  such  holding,  although  not 
brought  out  by  the  courts,  is  that  the  doctrine  of  subrogation  and 
indemnity  are  indissolubly  connected,  and  that,  since  a  life  insurance 
contract  is  more  truly  a  contract  of  investment  than  of  indemnity,  the 
right  of  subrogation  does  not  accompany  it 

Accident  Insurance, 

It  is  manifest  that  the  two  reasons  assigned  above  as  prohibiting  the 
application  of  subrogation  to  life  insurance  contracts  do  not  so  fully 
apply  to  accident  insurance.  A  contract  of  accident  insurance  is  more 
truly  a  contract  of  indemnity,  and,  save  in  those  cases  where  death 
results  from  the  accident,  the  insured  has  a  right  of  action  against 
third  persons  tortiously  causing  the  accident,  which  could  be  assigned 
by  him  to  the  insurer,  and  which,  it  seems,  by  all  the  principles  of 
equity,  should  be  so  assigned.  It  has,  however,  been  held  that  subro- 
gation shall  not  be  allowed  to  the  accident  insurer  on  the  slender 
ground  that  accident  insurance  is  more  like  life  insurance  than  fire  or 
marine  insurance.^** 

127  Hanover  Fire  Ins.  Co.  v.  Brown,  77  Md.  64,  25  Atl.  989,  27  Atl.  314,  39 
Am.  St.  Rep.  386. 

128  Mobile  Life  Ins.  Co.  v.  Brame,  95  U.  S.  754,  24  L.  Ed.  580;  CON- 
NECTICUT MUT.  LIFE  INS.  CO.  v.  NEW  YORK  &  N.  H.  R.  CO.,  25  Conn. 
2G5,  G5  Am.  Dec.  571. 

129  .^tna  Life  Ins.  Co.  v.  J.  B.  Parker  &  Co.,  96  Tex.  287,  72  S.  W.  168, 
580.  The  only  reason  given  for  the  decision  is:  "We  think  It  is  to  be  ob- 
served that,  so  far  as  the  right  of  subrogation  is  concerned,  accident  insur- 
ance is  more  analogous  to  life  insurance  than  it  is  either  to  marine  or  fire  in- 
surance, and  it  has  been  held  that  it  does  not  apply  in  case  of  life  insurance.'* 
See,  further,  same  case,  30  Tex.  Civ.  App.  521,  72  S.  W.  621 ;  also  Bradburn  v. 
Railway  Co.,  L.  R.  10  Exch.  1.  But  note  the  implication  that  the  accident  in- 
surer might  be  subrogated  in  Harding  v.  Townshend,  43  Vt  536, 5  Am.  Rep.  304. 


§§  161-162) 


THE   STANDARD   FIRE   POLICY. 


m 


CHAPTER  Xn. 

THE  STANDARD  FIRE  POLICY. 

151-152.  The  General  Rule  of  Construction. 

153.  The  Effect  of  Temporary  Breach  of  Conditloa 

154.  The  Term  of  Insurance. 

155-156.  The  Subject  of  Insurance— Description. 

157.  The  Subject  of  Insurance— Location. 

158^160.  The  Interest  of  the  Insured. 

161.  Change  of  Interest,  Title,  or  Possession. 

I62!  Fraud  and  False  Swearing. 

163.  Other  Insurance. 

164.  Operation  of  Factories. 

165.  Increase  of  Risk. 

166.  Making  Repairs. 


•  , 


THE  GENERAL  RULE  OF  CONSTRUCTION. 

151.  The  general  rule  of  con.tmetlon  applied  by  the  conrt.  to  all  con- 
tracts  of  insurance  is  that  while,  like  other  eontraets,  they  are 
to  be  so  construed  as  to  give  effect  to  the  intention  of  the  par- 
ties,  yet  where  there  exists  any  doubt  as  to  that  intention  it  is 
alwkys  to  be  resolved  strictly  against  the  insurer  and  in  favor 
of  the  insured. 

152  AS  APPLIED  TO  THE  STANDARD  POLICY-Despite  the  fact 
that  in  some  states  insurance  contracts  are  required  by  1»^  *® 
be  made  in  accordance  with  a  statutory  form,  it  is  now  »«*««* 
that  the  same  rules  of  construction  are  to  be  appUed  to  tHe 
terms  of  the  statutory  poUcy  as  to  other  forms  of  poUoies. 

It  must  be  confessed  that  many  decisions  justify  the  assertion, 
s9mipuios  made,  that  a  different  rule  of  construction  is  apphed  by 
the  courts  to  msurance  contracts  from  that  which  apphes  to  contract 
of  other  kinds.^  But,  as  a  matter  of  law,  an  insurance  contract  should 
be  construed  as  any  other  contract,*  the  real  purpose  of  the  construc- 
tion being  to  give  full  effect  to  the  intention  of  the  parties  so  far  as 
that  intv»,ntion  is  legal.  But  the  peculiar  circumstances  under  which 
the  insurance  contract  is  made,  and  the  fact  that  its  terms  are  invari- 
ably chosen  by  the  insurer  without  consultation  with  the  other  party 

1  On  this  point  read  Welch  v.  Fire  Ass'n  (Wis.  1904)  98  N.  W.  227. 

.  Crane  v  Insurance  Co.  (C.  C.)  3  Fed.  558;  Fireman's  Ins^ Co.  v.  Ce<^  ^ 
Ky.  Law  Rep.  48.  259;  American  Accident  Co.  v.  Reigart,  94  Ky.  547  23  S. 
W  191.  SI  L  R.  A.  651,  42  Am.  St.  Rep.  374;  Stettiner  v.  Insurance  Co  12 
N.  Y.  Super.  Ct.  594;  Savage  v.  Insurance  Co.,  44  How.  Prac  (N.  X.)  40, 
Farmem*  Mut  Fire  Ins.  Co.  v.  Marsliall,  29  Vt  23. 


(i 


430 


THE    STANDARD    FIRE    POLICY. 


. 


i 


(Ch.  12 


to  the  contract,  together  with  the  necessarily  complicated  and  diffi- 
cult conditions  that  are  always  inserted  in  these  particular  contracts, 
have  caused  that  rule  of  construction  which  provides  that  words  shall 
be  taken  most  strongly  against  the  one  using  them,  to  have  peculiar, 
and  sometimes  rather  startling,  significance.  The  tendency  of  the 
courts  to  emphasize  this  rule  was  greatly  strengthened  by  the  one-time 
practice  of  insurance  companies  of  placing  such  numerous  and  lengthy 
conditions  in  such  very  small  type  in  their  policies  as  practically  to 
prohibit  their  being  read  or  understood  by  the  insured.  The  courts 
naturally  went  to  the  extreme  limit  of  the  law,  and  sometimes  even 
beyond  that  limit,  in  order  to  prevent  the  insurer  from  trapping  the 
insured  by  any  such  inequitable  method  of  doing  business.  The  natural 
result  has  been  that  in  many  cases  the  insurance  companies  have  thus 
overreached  themselves,  and  induced  the  courts  to  allow  dishonest 
claims  that  would  scarcely  have  been  considered  if  made  under  con- 
tracts less  unfair  on  their  face. 

The  Construction  of  Standard  Policies.* 

While  many  of  the  unfair  features  of  the  earlier  policies  have  been 
eliminated  from  the  modem  standard  policy,  the  courts  still  apply  to 
this  instrument  the  same  rule  of  construction  as  the  considerations  just 
mentioned  led  them  to  apply  to  the  old  forms.  Any  doubtful  terms 
are  always  construed  in  favor  of  the  insured.  It  has  been  contended 
that  inasmuch  as  the  law  compels  the  use  of  the  standard  policy,  and 
will  not  allow  any  variance  from  it,  excepting  in  certain  limited  par- 
ticulars, the  insurer  cannot  be  regarded  as  selecting  the  terms  of  the 
contract,  and  subjected  to  an  unfavorable  rule  of  construction  on  that 
account.  This  contention,  however,  has  been  held  to  be  without  merit, 
for  the  terms  of  these  statutory  policies  were  chosen  with  reference 
to  the  construction  given  by  the  precedent  cases  to  similar  terms  in 
other  policies,  and  therefore  ought  to  be  regarded  as  being  used  in 
the  sense  of  their  previous  construction.*    It  is  also  apparent  from  an 

•  In  discussing  the  rules  of  construction  that  have  been  applied  by  the 
courts  to  the  provisions  of  the  standard  policy,  no  effort  will  be  made  to 
collect  and  classify  all  the  cases,  or  even  give  numerous  illustrations  of  the 
applications  of  the  rules  stated.  The  purpose  of  this  chapter  is  merely  to 
indicate  the  principles  which  guide  the  courts  in  the  construction  of  each 
clause  of  the  policy,  and  to  give  such  illustrations  from  the  enormous  body  of 
case-law  on  this  subject  as  will  insure  a  ready  understanding  of  the  princi- 
ple by  the  reader.  A  statement  of  all  the  cases  construing  the  various 
clauses,  though  useful  to  the  practitioner,  would  be  out  of  place  in  such  a 
work  as  this.    They  are  properly  to  be  sought  in  the  digests. 

*  See  John  Davis  &  Co.  v.  Insurance  Co.  of  North  America,  115  Mich.  382, 
73  N.  W.  393.  In  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  31  N.  B.  31,  28 
Am.  St.  Rep.  646,  the  following  language  was  used  by  Andrews,  J.:  "The 
act  (chapter  488,  Laws  1886)  providing  for  a  uniform  policy  known  as  the 
'standard  poUcy,*  and  which  makes  its  use  compulsory  upon  insurance  com 


§§  151-152)        THE  GENERAL  RULE   OF  CONSTRUCTION. 


431 


examination  of  the  instruments  themselves,  as  well  as  the  history  of 
their  adoption,  that  their  terms  were  really  chosen  by  the  underwriters 
with  particular  reference  to  their  own  interests.' 

The  New  York  standard  policy,  which  is  in  more  general  use  than 
any  other  standard  form,  and  is  therefore  selected  as  the  text  for  this 
chapter,  although  carefully  drawn,  is  not  in  such  literary  form  as  to 
excite  the  admiration  of  the  reader.  It  does  not  admit  of  any  con- 
structive analysis  which  would  serve  as  an  outline  for  a  treatise  upon 
its  construction.  Its  conditions  are  roughly  divided  into  those  (1)  that 
make  the  contract  void  in  its  inception,  (2)  those  that  may  render 
it  void  during  its  currency,  and  (3)  those  that  must  be  complied  with 
as  precedent  to  a  valid  claim  for  payment  after  loss  has  occurred. 
But  even  such  a  meager  analysis  cannot  be  followed  in  its  treatment, 
as  it  is  not  consistently  maintained  in  the  body  of  the  instrument 
Therefore,  in  the  following  pages,  for  the  purpose  of  economizing 
space,  as  well  as  to  give  a  greater  unity  to  the  treatment  of  the  sub- 
ject, it  has  been  necessary  to  vary  somewhat  the  order  in  which  the 


1 1 

H 


panies,  marks  a  most  Important  and  useful  advance  in  legislation  relating 
to  contracts  of  insurance.  The  practice  ^which  prevailed  before  this  enact- 
ment, whereby  each  company  prescribed  the  form  of  its  contract,  led  to 
great  diversity  in  the  provisions  and  conditions  of  insurance  policies,  and 
frequently  to  great  abuse.  Parties  taking  insurance  were  often  misled  by 
unusual  clauses  or  obscure  phrases  concealed  in  a  mass  of  verbiage,  and 
often  so  printed  as  to  elude  discovery.  Unconscionable  defenses,  based  upon 
such  conditions,  were  not  infrequent,  and  courts  seem  sometimes  to  have 
been  embarrassed  In  the  attempt  to  reconcile  the  claims  of  justice  with  the 
law  of  contracts.  Under  the  law  of  1886,  companies  are  not  permitted  to 
insert  conditions  in  policies  at  their  will.  The  policies  that  they  now  issue 
must  be  uniform  in  their  provisions,  arrangement,  and  type.  Persons  seek- 
ing insurance  will  come  to  understand  to  a  greater  extent  than  heretofore 
the  contract  into  which  they  enter.  Now,  as  heretofore,  it  is  competent  for 
the  parties  to  a  contract  of  insurance,  by  an  agreement  in  writing  or  by 
parol,  to  modify  the  contract  after  the  policy  has  been  issued,  or  to  waive 
conditions  or  forfeitures.  The  power  of  agents,  as  expressed  in  the  policy, 
may  be  enlarged  by  usage  of  the  company,  its  course  of  business,  or  by  its 
consent,  express  or  implied.  The  principle  that  courts  lean  against  forfei- 
tures is  unimpaired,  and  in  weighing  evidence  tending  to  show  a  waiver  of 
conditions  or  forfeitures  the  courts  may  take  into  consideration  the  nature 
of  the  particular  condition  in  question,  whether  a  condition  precedent  to  any 
liability  or  one  relating  to  the  remedy  merely,  after  a  loss  has  been  in- 
curred. But  where  the  restrictions  upon  an  agent's  authority  appear  in  the 
policy,  and  there  is  no  evidence  tending  to  show  that  his  powers  have  been 
enlarged,  there  seems  to  be  no  good  reason  why  the  authority  expressed 
should  not  be  regarded  as  the  measure  of  his  power;  nor  is  there  any  reason 
why  courts  should  refuse  to  enforce  forfeitures  plainly  incurred,  which  have 
not  been  expressly  or  impliedly  waived  by  the  company."  See,  also,  Fidelity 
&  Casualty  Co.  v.  Waterman,  161  III.  632,  44  N.  E.  283,  32  L.  R.  A.  654. 

cFor  the  history  of  the  adoption  of  the  New  York  standard  policy,  see 
ante,  p.  29. 


I.. 

I 


432 


THE   STANDARD    FIRE    POLICY. 


! 


\ . 


(Ch.  12 

several  terms  of  the  policy  are  set  forth.  In  the  appendix,  however, 
the  standard  policy  is  printed  in  full,  with  such  reference  to  the  treat- 
ment of  its  provisions  in  the  text  as  will  avoid  any  confusion. 

The  Extent  to  Which  the  Standard  Policy  may  be  Varied. 

In  New  York  and  in  most  of  the  states  in  which  the  New  York 
standard  policy  has,  with  minor  variations,  been  adopted,  the  parties 
are  forbidden  by  law  to  depart  from  or  vary  the  terms  of  the  standard 
policy,  save  in  certain  specified  particulars,  by  the  use  of  prescribed 
special  "clauses"  or  riders.  In  Massachusetts,  New  Hampshire,  and 
some  other  states,  however,  the  parties  may  add  to  or  change  the 
terms  of  the  standard  form  within  certain  limits,  as  their  various 
purposes  may  render  expedient.  In  all  of  the  states  that  have  adopted 
the  standard  form  of  policy,  with  the  exception  of  North  Carolina,  its 
use  is  enforced  by  certain  penalties.  In  those  states  contracts  made 
in  any  other  than  the  prescribed  form  are  held  to  be  wholly  unen- 
forceable as  against  the  insured,  but  in  most  of  the  states  are  expressly 
made  binding  upon  the  insurer.'  In  fact,  while  the  purpose  of  the 
standard  form  is  to  insure  the  making  of  a  contract  that  shall  be  fair 
for  both  parties,  it  is  primarily  intended  for  the  benefit  of  the  insured, 
and  he  will  not  be  deprived  by  the  operation  of  such  laws  of  any 
rights  which  he  might  otherwise  have  taken  under  a  contract^  There- 
fore it  has  been  held  that  the  doctrine  of  waiver  and  estoppel  applies 
against  the  insurer  and  in  favor  of  the  insured  in  the  case  of  con- 
tracts in  the  standard  form  as  well  as  when  the  form  of  the  contract 
is  left  wholly  to  the  discretion  of  the  parties.^  So,  the  subsequent 
conduct  of  the  insurer  may  operate  to  enlarge  the  authority  given  in 
the  policy,  although  it  is  necessarily  held  that  the  insured  has  knowl- 
edge of  any  limitations  upon  the  agent's  authority  that  may  be  found 
in  the  policy.  The  standard  form  being  a  public  act,  the  terms  of  the 
policy  are  deemed  to  be  known  to  all.'  Neither  do  the  standard  policy 
acts  preclude  the  making  of  a  valid  oral  contract  of  insurance.** 

•  See  Armstrong  v.  Insurance  Co.,  95  Mich.  137,  54  N.  W.  637. 

T  Forward  v.  Insurance  Co.,  142  N.  Y.  382,  37  N.  E.  615,  25  L.  R.  A.  637; 
THEBAUD  V.  INSURANCE  CO.,  155  N.  Y.  516,  50  N.  E.  284;  Stemaman  v. 
Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St.  Rep.  625. 

8  WOOD  V.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St.  Rep. 
733;  THEBAUD  v.  INSURANCE  CO.,  155  N.  Y.  516,  50  N.  B.  284;  Stema- 
man V.  Insurance  Co.,  170  N.  Y.  13,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St 
Rep.  625;  Stage  v.  Insurance  Co.,  76  App.  Div.  509,  78  N.  Y.  Supp.  555.  And 
see  Welch  v.  Fire  Ass'n  (Wis.  1904)  98  N.  W.  227,  In  which  the  previous 
cases  In  that  state  are  reviewed. 

•  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  31  N.  H.  31,  28  Am.  St  Rep.  645. 
10  HICKS  v.  ASSURANCE  CO.,  162  N.  Y.  284.  56  N.  B.  743,  48  L.  R.  A.  424. 


g  153)      THE  EFFECT  OF  TEMPORARY  BREACH  OF  CONDITION.  433 


THE  EFFECT  OP  TEMPORARY  BREACH  OP  CONDITION. 

153.  In  many  jnrisdictions  it  is  held  that  a  temporary  breach  of  a  con- 
dition snbseqnent,  not  contributing  to  a  subsequent  loss,  merely 
suspends  the  policy.  The  better  opinion  is,  however,  that  any 
breach  of  condition,  which  by  the  terms  of  the  policy  avoids  it, 
absolutely  defeats  all  rights  of  the  insured  under  the  policy, 
which  can  be  re-established  only  by  a  waiver  of  the  breach  by 
the  insurer. 

The  language  of  the  standard  policy  provides  that  "this  entire  policy 
shall  be  void"  in  case  any  of  the  conditions  thereof  are  broken.  No  lit- 
tle conflict  exists  among  the  decisions  as  to  the  significance  of  the 
phrase.  In  the  first  place,  we  may  note  that  it  eliminates  the  discussion, 
heretofore  considered,  as  to  whether  the  contract  is  divisible  or  indi- 
visible. By  express  statement  the  contract  is  entire.^ ^  Likewise  all 
of  the  authorities  are  agreed  that  the  term  "void"  is  not  to  be  con- 
strued in  accordance  with  its  real  meaning,  but  as  "voidable."  The 
insurer  can,  and  frequently  does,  waive  his  right  to  avoid  the  contract 
on  the  ground  of  breach  of  condition,  and,  as  we  have  already  seen, 
such  a  waiver,  whether  express  or  implied,  always  reinstates  the  policy. 
Further,  it  is  agreed  that  if  the  breach  of  condition  exists  at  the  time 
of  the  fire,  or  if,  previously  existing,  it  contributed  to  bring  about  the 
loss,  the  insurer  is  not  bound  under  the  contract  unless  a  waiver  of  the 
breach  can  be  shown. ^^ 

But  suppose  the  breach  of  condition  has  been  merely  temporary; 
that  it  has  long  ceased  to  exist  before  the  occurrence  of  the  loss  to 
which  it  in  no  wise  contributed ;  as  if,  to  use  an  illustration  given  by 
the  Illinois  court,"  a  gallon  of  gasoline  had  been  kept  for  a  day  in 
a  house  subsequently  destroyed  in  the  Chicago  fire?  In  such  cases  it 
seems  a  great  hardship  upon  the  insured  to  declare  his  insurance  de- 
feated by  what  proved  to  be  a  wholly  immaterial  breach  of  condition. 
Moved  by  a  most  commendable  desire  to  escape  working  such  a  hard- 
ship, many  of  the  American  courts  have  laid  down  the  doctrine  that  the 
clause  above  quoted,  declaring  that  the  policy  shall  be  void  upon  breach 
of  condition,  means  that  the  policy  shall  be  merely  suspended  during 

11  See  ante,  p.  69;  Smith  v.  Insurance  Co.,  118  N.  Y.  518,  23  N.  E.  883. 
But  see  Trabue  v.  Insurance  Co.,  121  Mo.  75,  25  S.  W.  848,  23  U  R.  A.  719, 
42  Am.  St  Rep.  523. 

12  Continental  Int.  Co.  v.  Browning,  24  Ky.  Law  Rep.  992,  70  S.  W.  660; 
Hunt  V.  Insurance  Co.  (Neb.)  92  N.  W.  921;  Cassimus  v.  Insurance  Co.,  135 
Ala  256,  33  South.  163;  Mississippi  Fire  Ass'n  v.  Dobbins,  81  Miss.  630,  33 
South.  506;  German  Ins.  Co.  v.  Shader  (Neb.)  93  N.  W.  972,  60  L.  R.  A.  918. 

18  Traders'  Ins.  Oo.  v.  Catlin,  163  lU.  266,  46  N.  B.  265,  85  L.  B.  A.  6W, 
Yancs  Ins.— 28 


]  ■ 


i 


434 


THB  STANDARD   FIBB   POLICY. 


(Ch.l2 


a  temporary  breach  of  condition,  provided  that  the  breach  did  not 
contribute  to  the  loss.^* 

It  would  seem  clear,  however,  that  such  a  construction  ignores  the 
familiar  principle  that,  when  the  terms  of  a  contract  are  clearly  stated, 
the  court  should  enforce  them  as  made,  however  harshly  they  may 
bear  upon  one  of  the  parties.**  It  seems  difficult  to  escape  the  con- 
clusion that,  if  the  insurer  once  has  the  right  to  avoid  a  policy  for 
breach  of  condition,  that  right  must  remain  his  until  he  relinquishes 
it  by  a  waiver,  or  estops  himself  to  set  it  up.  On  this  ground  it  has 
been  held  by  the  better  authorities  in  this  country  that  a  breach  of 
condition  may  always  be  set  up  as  a  defense  by  the  insurer,  even  if 
it  may  have  been  temporary,  and  in  no  wise  have  affected  the  insurer 
injuriously.**  But  the  courts  are  zealous  to  discover  that  the  acts 
complained  of  do  not  amount  to  a  breach  of  condition,  in  order,  if 
possible,  to  save  the  insured  the  benefit  of  his  contract.*'' 

i*Pntnum  v.  Insurance  Co.  (C.  C.)  4  Fed.  753;  Phoenix  Ins.  Co.  v.  Law- 
rence, 4  Mete.  (Ky.)  9,  81  Am.  Dec.  521;  Mutual  Fire  Ins.  Oo.  v.  Coatesvllle 
Shoe  Factory,  80  Pa.  407;  New  England  Fire  &  Marine  Ins.  Co.  v.  Wet- 
more,  32  111.  245;  Schmidt  v.  Insurance  Co.,  41  111.  295;  Insurance  Oo.  of 
North  America  v.  McDowell,  50  111.  120,  99  Am.  Dec.  497;  Traders'  Ins.  Co. 
V.  Catlln,  163  111.  256,  45  N.  E.  255,  35  L.  R.  A.  505;  Hinckley  v.  Insurance 
Co.,  140  Mass.  38,  1  N.  E.  737,  54  Am.  Rep.  445;  WORTHINGTON  v. 
BEARSE,  12  Allen  (Mass.)  382,  90  Am.  Dec.  152;  LANE  v.  INSURANCE 
CO.,  12  Me.  44,  28  Am.  Dec.  150;  Power  v.  Insurance  Co.,  19  La.  28,  36  Am. 
Dec  665;   Obermeyer  v.  Insurance  Co.,  43  Mo.  573. 

IB  Imperial  Fire  Ins.  Co.  v.  Coos  County,  151  U.  S.  452,  14  Sup.  Ct  379,  38 
L.  Ed.  231. 

i«  Imperial  Fire  Ins.  Co.  v.  Coos  County,  151  U.  S.  452,  14  Sup.  Ct  379,  38 
L.  Bd.  231;  Lyman  v.  Insurance  Co.,  14  Allen  (Mass.)  329;  Germania  Fire 
Ins.  Co.  V.  Deckard,  3  Ind.  App.  361,  28  N.  E.  868;  Howell  v.  Equitable  Soc, 
16  Md.  377;  MEAD  v.  INSURANCE  CO.,  7  N.  Y.  530;  Merriam  v.  Insurance 
Co..  21  Pick.  (Mass.)  162,  32  Am.  Dec.  252;  KYTB  v.  ASSURANCE  CO.,  149 
Mass.  116,  21  N.  E.  361,  3  L.  R.  A.  508,  Richards,  Ins.  Cas.  457;  Turnbull  y. 
Insurance  CJo.,  83  Md.  312,  34  Atl.  875;  Newport  Imp.  Co.  v.  Home  Ins.  Co., 
163  N,  Y.  237,  57  N.  E.  475;  First  Congregational  Church  v.  Holyoke  Fire 
Ins.  Co.,  158  Mass.  475,  33  N.  E.  572,  19  L.  R.  A.  587,  35  Am.  St  Rep.  508. 
In  Albion  Lead  Works  v.  Williamsburg  City  Fire  Ins.  Co.  (O.  O.)  2  Fed.  479, 
the  court  said  if  there  were  two  or  more  changes,  one  of  which  increased 
the  risk,  it  is  no  answer  to  the  plea  of  forfeiture  to  say  that  another  dimin- 
ished it 

17  McGannon  v.  Insurance  Co.,  171  Mo.  143,  17  S.  W.  160,  94  Am.  St  Rep. 
778.  In  this  case  the  plaintiff  agreed  to  keep  a  watchman  on  the  premises 
at  all  times  when  the  machinery  was  not  in  operation.  Two  competent 
men  were  employed  as  watchmen.  One  of  them  about  10  o'clock  one  night  left 
his  post,  without  the  knowledge  or  consent  of  the  insured,  and  the  fire 
occurred  before  the  other  man,  whose  watch  began  at  12,  came  on  duty. 
The  court  held  that  the  most  that  could  be  claimed  by  the  insurer  was  that 
the  clause  was  a  condition  subsequent,  breach  of  which  would  defeat  the 
insurance;  and  that  the  condition  was  satisfied  by  the  employment  of  two 
competent  men  for  that  purpose. 

In  Springfield  Fire  &  Marine  Ins.  Co.  v.  Wade,  95  Tex.  598,  68  S.  W.  977, 


§154) 


THE  TEBM  OF  INSURANOB. 


A35 


THE  TERM  OF  INSUBANCB. 

154.  The  langnage  describing  the  term  dnring  which  the  policy  affords 
protection  will  be  so  construed  as  to  secure  for  the  insured  the 
benefit  of  the  insurance,  if  it  is  reasonably  possible  to  do  so. 

In  construing  the  language  used  to  designate  the  term  during  which 
the  policy  is  in  force,  the  general  rule  of  construction  as  to  including 
and  excluding  terminal  days  is  as  follows:  If  the  policy  is  said  to 
run  from  one  day  to  another,  the  first  day  is  held  to  be  excluded  and 
the  latter  day  included.^*  Where  no  provision  to  the  contrary  is  found, 
the  insurance  does  not  expire  until  midnight  of  the  last  day  of  the 
term."  Frequently,  however,  it  is  specified  that  the  insurance  shall 
be  in  force  from  12  o'clock  noon  on  one  day  until  the  same  hour  on 
another  day,  in  which  case  there  can  exist  no  doubt  as  to  the  dura- 
tion of  the  term,  excepting  where  there  are  different  methods  of  com- 
puting time.  In  Jones  v.  Insurance  Co.,*°  a  building  that  was  insured 
until  12  o'clock,  at  noon,  of  September  18, 1897,  caught  on  fire  at  11 :45 
a.  m.  of  that  date  by  sun  time,  and  12:02  p.  m.  by  standard  time. 
The  court,  in  holding  the  insurance  company  liable,  decided  that  the 
expression  "12  o'clock  at  noon"  was  to  be  construed  as  applying  to 
sun  time,  unless  it  could  be  clearly  shown  that  the  parties,  at  the  time 
of  the  contract,  had  in  mind  the  standard  time.  If  the  fire  originates 
within  the  time  of  the  insurance,  the  insurer  will  be  liable  for  the 
whole  amount  of  loss  within  the  limits  of  the  insurance,  though  it  may 

58  L.  R.  A.  714,  93  Am.  St.  Rep.  870,  the  policy  sued  on  contained  a  war- 
ranty that  gasoline  should  not  be  "kept,  used,  or  allowed"  on  the  premises. 
The  wife  of  the  insured  got  a  gallon  for  use  on  the  premises  without 
his  consent  The  part  unused  was  left  by  her  In  a  basin  on  the  prem- 
ises. The  insured,  thinking  the  basin  contained  water,  threw  a  burning 
match  into  it,  which  resulted  in  the  destruction  of  the  property.  The  court 
allowed  the  insured  to  recover,  on  the  ground  that  he  neither  "kept,  used,  or 
allowed"  gasoline  on  the  premises,  within  the  meaning  of  the  policy. 

Plinsky  v.  Insurance  Co.  (C.  0.)  32  Fed.  47;  Summerfield  y.  Assurance 
Co.  (C.  C.)  65  Fed.  292;  HOSFORD  v.  INSURANCE  CO.,  127  U.  S.  399,  8 
Sup.  Ct.  1199,  32  L.  Ed.  196;  Bryant  v.  Insurance  Co.,  17  N.  Y.  200;  HAR- 
PER V.  INSURANCE  CO.,  17  N.  Y.  194;  London  &  L.  Fire  Ins.  Oo.  v.  Crunk, 
91  Tenn.  376,  23  S.  W.  140;  Hall  v.  Insurance  Co.,  58  N.  Y.  292,  17  Am.  Rep. 
255;  Lancaster  Silver  Plate  Oo.  v.  National  Fire  Ins.  Co.,  170  Pa.  151,  32 
Atl.  613;  Same  v.  Manchester  Fire  Assur.  Co.,  170  Pa.  166,  32  Atl.  616;  Al- 
bion Lead  Works  v.  Williamsburg  City  Fire  Ins.  Co.,  supra. 

18  McCrea  v.  Insurance  Co.,  26  U.  C.  C.  P.  431 ;  Isaacs  v.  Insurance  Co., 
L.  R.  5  Exch.  296;  Atkins  v.  Insurance  Co.,  5  Mete.  (Mass.)  439,  39  Am.  Dec. 
692. 

i»  Penn  Plate  Glass  Co.  t.  Spring  Garden  Ins.  Co.,  189  Pa.  255,  42  Atl.  138, 
69  Am.  St.  Rep.  810. 

20  110  Iowa,  75,  81  N.  W.  188,  46  L.  R.  A.  860.  See,  alio,  Henderson  t. 
Reynolds,  84  Ga.  159,  10  S.  B.  734,  7  L.  B.  A.  327. 


!♦  . 


ji 


436 


THE   STANDARD   FIBB   POLICY. 


(Ch.l2 


ODntinue  to  rage  some  time  after  the  expiration  of  the  policy.**  This 
is  but  an  application  of  the  general  and  reasonable  principle  that  the 
insurer  shall  be  liable  for  all  direct  loss  by  fire  during  the  term  of 
insurance.  If  the  destructive  force  is  set  in  operation  before  the  ex- 
piration of  the  policy,  the  mere  fact  that  part  of  the  actual  destruc- 
tion takes  place  afterwards  does  not  make  it  any  less  the  approximate 
result  of  that  force. 

When  the  policy  provides  that  it  shall  expire  at  12  o'clock  noon,  this 
midday  limit  will  not  apply  to  other  designations  of  time  that  may 
be  made  in  the  policy.  Thus,  where  the  insurer  is  allowed  to  ter- 
minate the  insurance  on  giving  five  days'  notice,  the  policy  remains 
in  force  until  midnight  of  the  fifth  day  after  the  notice  is  given."  A 
policy  which,  by  its  terms,  is  to  be  operative  between  certain  dates 
therein  specified,  is  in  effect  only  for  a  term  excluding  both  dates.** 

THE  SUBJECT  OF  INSURANCE— DESCRIPTION. 

155.  The  conrts  liberally  coxLstrne  words  of  description,  in  order  to 

include  witMn  them,  all  articles  wliioli,  by  reasonable  inference, 
tbe  parties  intended  to  be  covered  by  tbe  insurance.  Parol  tes- 
timony niay  be  adniitted  to  explain  tbe  nieanins  of  doubtful 
expressions. 

156.  Tbe  expressions  "beld  in  trust"  or  "on  commission,"  etc.,  as  ap- 

plied to  chattels  insured,  will  be  construed  not  technically,  but 
liberally,  to  mean  any  goods  of  others  in  the  possession  of  the 
insured. 

In  General. 

The  construction  of  the  expressions  used  in  describing  the  property 
covered  by  insurance  is  often  difficult,  and  has  given  rise  to  much 
litigation.  The  description  is  necessarily  written  in  the  policy  by  the 
parties,  the  terms  being  usually  chosen  by  the  insurer's  agent,**  and 
usually  is  made  very  brief  and  indefinite,  leaving  much  to  be  under- 
stood, as  it  would  be  scarcely  possible  under  the  circumstances  to  de- 
scribe every  article  intended  to  be  covered  by  the  insurance  with 
that  degree  of  particularity  which  is  ordinarily  required  in  legal  in- 
struments. On  account  of  these  conditions  attending  the  writing  of  the 
aescnption,  the  courts  are  often  more  liberal  in  applying  the  rules  of 

«i  See  Jones  v.  Insurance  Co.,  supra. 

3»  Penn  Plate  Glass  Co.  v.  Spring  Garden  Ins.  Co.,  189  Pa.  255,  42  Atl.  138, 
09  Am.  St.  Rep.  810. 

«•  Atkins  y.  Insurance  Co.,  5  Mete.  (Mass.)  439,  39  Am.  Dec.  692. 

«*  In  Susquehanna  Mut  Fire  Ins.  Co.  y.  Cusick,  109  Pa.  157,  the  insurer's 
agent  erroneously  described  the  property  in  an  insurance  policy,  which  was 
signed  by  him  and  the  insured.  The  court  held  that  the  company  could  not 
set  up  the  misdescription  as  a  defense  in  case  of  loss. 


§§  155-156)      THE  SUBJECT  OP  INSURANCE — ^DESCRIPTION.  437 

construction  to  the  written  terms  used  for  such  purpose  than  to  the 
other  parts  of  the  policy.  Every  effort  is  made  to  discover  what  was 
the  real  intention  of  the  parties  as  to  the  property  to  be  covered  by 
the  insurance."  Where  there  is  ambiguity  in  the  terms  of  the  de- 
scription, parol  testimony  may  be  introduced  to  resolve  it.  And  the 
insured  is  allowed  to  show  by  parol  a  custom  or  usage  of  busmess 
which  both  parties  had  in  mind  at  the  time  of  making  the  contract, 
when  its  effect  is  to  render  clear  some  doubtful  term  of  the  descrip- 
tion.2«  Thus  in  Harper  v.  Insurance  Co.,"  insurance  was  placed  upon 
a  printing  office  and  bookbindery.  The  policy  contained  a  printed  con- 
dition exempting  the  insurer  from  liabiUty  for  any  loss  or  damage 
by  fire  occasioned  by  camphene  or  other  inflammable  liquids.  In  the 
description  of  the  property  insured  was  found  the  phrase  "privileged 
for  a  printing  office,  bindery,  etc."  The  property  was  destroyed  by 
a  fire  occasioned  by  the  ignition  of  camphene  kept  by  the  insured  for 
the  purpose  of  cleaning  their  presses.  It  was  held  that  a  general  usage 
could  be  shown  as  existing  among  printers  to  keep  camphene  in  their 
shops,  and  that  such  usage  was  necessary  to  the  conduct  of  the  busi- 
ness. It  was  therefore  held  that  the  words  quoted  from  the  descrip- 
tion, when  explained  by  the  usage,  negatived  the  provision  exempting 
the  insurer  from  loss  by  reason  of  the  camphene. 

The  words  of  description  are  ordinarily  intended  merely  to  desig- 
nate the  subject  of  the  insurance,  and  not  intended  as  warranties." 
Therefore,  as  we  have  already  seen,  the  mere  description  of  a  building 
insured  as  a  dwelling  house  or  as  a  bam  does  not  amount  to  a  war- 
ranty that  the  building  shall  continue  to  be  used  as  a  dwelling  house 
or  bam.** 

Description  of  Real  Property. 

In  construing  the  words  used  descriptive  of  a  building  insured,  the 
greatest  liberality  is  shown  by  the  courts  in  giving  effect  to  the  insur- 
ance. In  view  of  the  custom  of  insurance  agents  to  examine  buildings 
before  writing  policies  upon  them,  and  since  a  mistake  as  to  the  identity 

28  Maisel  v.  Fire  Ass'n,  59  App.  Div.  461,  69  N.  Y.  Supp.  181. 

2«  In  Ackley  v.  Insurance  Co.,  25  Mont  272,  64  Pac.  665,  the  Insured  was 
allowed  to  show  by  parol  a  custom  or  usage  of  druggists  to  keep  benzine, 
ether,  and  gasoline,  notwithstanding  a  clause  in  the  policy  which  said:  "This 
entire  policy,  unless  otherwise  provided  by  agreement  indorsed  hereon  or 
added  hereto,  shall  be  void  •  •  *  If  (any  usage  or  custom  of  trade  or 
manufacture  to  the  contrary  notwithstanding)  there  be  kept,  used,  or  al- 
lowed on  the  ♦  •  *  premises,  benzine,  ♦  •  ♦  ether,  •  ♦  •  or  gaso- 
line." 

2T  22  N.  Y.  441,  Richards,  Ins.  Cas.  308. 

«8  Albion  Lead  Works  v.  Williamsburg  City  Fire  Ins.  Co.  (C.  O.)  2  Fed.  479. 

28  Cumberland  Valley  Mut  Protection  Co.  v.  Douglas,  68  Pa.  419,  98  Am. 
Dec  298. 


i 


\'r 


i38 


THB   STANDARD   FIBB   POLICY. 


(Ch.l2 

and  character  of  the  building  is  extremely  unlikely,  the  courts  are  in- 
clined to  consider  that  the  policy  of  insurance  covers  any  building 
which  the  parties  manifestly  intended  to  insure,  however  inaccurate 
the  description  may  be.  Thus  a  policy  insuring  a  "two-story  brick 
building"  was  held  to  cover  a  building  owned  by  the  insured  which 
was  two  stories  in  front,  though  only  one  in  the  rear,  it  being  ap- 
parent such  building  was  intended  to  be  covered  by  the  policy.®®  So 
a  policy  upon  a  "schoolhouse"  was  held  sufficiently  to  identify  the 
building  insured  in  which  a  school  was  kept,  although  it  was  not  an 
ordinary  schoolhouse."  Likewise  the  term  "store"  was  held  to  be  a 
sufficient  description  of  a  building  used  as  a  restaurant  and  bakery.*'' 

If,  however,  the  description  is  so  ambiguous  in  its  terms  as  to  make 
it  uncertain  whether  it  covers  one  or  several  buildings,  the  court  will 
not  go  beyond  a  reasonable  construction  of  the  language  used  in  order 
to  fix  a  liability  upon  the  insurer.  Thus  a  policy  insuring  a  "pottery 
building"  was  held  not  to  cover  a  building  adjacent  to  the  pottery  fac- 
tory, which  was  used  for  the  storage  of  pottery,  as  well  as  for  other 
purposes  distinct  from  pottery  making."  Parol  testimony  cannot  be 
introduced  to  substitute  another  buildmg  for  the  one  described,  on  the 
ground  that  the  substituted  building  was  the  one  intended  to  be  in- 
sured.** The  written  description  in  the  contract  can  be  explained, 
but  not  ignored. 

The  description  of  a  building  always  includes  by  implication  all  such 
fixtures  and  appurtenances  as  would  pass  with  it  under  a  deed  of  con- 
veyance. Thus  insurance  upon  a  dwelling  house  also  covers  the  fur- 
nace and  boiler  used  for  heating  it.»*  Likewise  insurance  upon  a 
storehouse  was  held  to  include  the  counters  and  shelves  that  were 
fixed  to  the  building  so  as  not  to  be  easily  removed.** 

Goods  Held  in  Trust. 

The  property  intended  to  be  covered  by  insurance  is  often  described 
as  "held  in  trust"  or  "on  commission,"  or  "sold  but  not  delivered,"  or 
by  words  of  similar  import.  The  courts  are  well  agreed  that  these 
terms  are  not  to  be  given  their  technical  significance,  but  arc  to  be 

••  Carr  v.  Insnrance  Co.,  2  Mo.  App.  466. 

•1  Garretson  v.  Insurance  Co.,  81  Iowa,  727,  45  N.  W.  1047, 

•a  Richards  v.  Insurance  Co.,  60  Mich.  420,  27  N.  W.  586. 

»»  Forbes  t.  Insurance  Co.,  164  Mass.  402,  41  N.  B.  656. 

»*  Sanders  v.  Cooper,  115  N.  Y.  279,  22  N.  E.  212,  5  L.  R.  A.  638,  12  Am.  St 
Rep.  801,  Richards,  Ins.  Cas.  386. 

••West  V.  Insurance  Co.,  117  Iowa,  147,  90  N.  W.  523. 

••  Capital  City  Ins.  Co.  v.  Caldwell,  95  Ala.  77,  10  South.  355. 

It  was  held  in  Tanenbaum  v.  Simon,  40  Misc.  Rep.  174,  81  N.  Y.  Supp.  655, 
and  Id.,  84  App.  Div.  642,  82  N.  Y.  Supp.  1116,  that  insurance  on  the  "use 
and  occupancy"  of  a  building  did  not  cover  salesmen's  wages  or  the  profits 
of  the  business. 


§157) 


THE  SUBJECT  OF  INSURANCE — LOCATION. 


439 


construed  merely  as  meaning  that  the  insured  holds  the  goods  as  bailee, 
and  not  in  his  own  right,  and  insures  them  as  such.»^  Thus  a  earner 
or  warehouseman  is  deemed  to  hold  goods  in  his  possession  in  trust,  and 
bis  insurance  of  the  goods  to  their  full  value  will  inure  to  the  benefit 
of  the  owners.'*  The  description  of  goods  as  "not  delivered  will 
also  be  construed  liberally,  in  accordance  with  intention  of  parties. 
Thus  lumber  that  had  been  sold  and  put  in  a  separate  place,  under 
such  circumstances  as  to  constitute  a  technical  delivery  as  between  the 
parties,  was  held  not  to  be  "delivered"  within  the  meaning  of  an  in- 
surance policy  upon  which  the  insurer  was  held  liable." 

A  later  provision  of  the  standard  policy  expressly  excluded  from 
the  operation  of  the  contract  property  held  in  storage  or  for  repairs. 
It  is  probable  that  this  express  limitation  will  go  far  to  qualify  the 
meaning  of  such  general  terms  as  "held  in  trust,"  etc,  used  in  de- 
scribing the  property,  but  even  this  express  limitation  will  yield  to 
the  manifest  intention  of  the  parties  as  derived  from  the  written  de- 
scription to  insure  property  held  on  storage  or  for  repairs. 

THE  SUBJECT  OP  INSURANCE— LOCATION, 

167.  If  the  location  of  tlie  property  insnred  is  given  merely  for  pnr- 
posea  of  description  and  identification,  tlie  insurance  accom- 
panies it  when  removed  to  other  localities.  Bnt  if  the  location 
is  given  as  defining  the  risk  assumed,  the  policy  does  not  cover 
the  property  when  removed  elsewhere.  The  statement  of  loca- 
tion is,  in  most  cases,  construed  as  defining  the  risk. 

In  connection  with  the  description  of  goods  insured,  most  policies 
contain  the  statement  that  such  goods  are  "contained  in"  some  desig- 
nated place.  The  standard  policy  uses  the  expression,  "while  located 
and  contained  as  described  herein,  and  not  elsewhere."  Much  diffi- 
culty has  been  encountered  by  the  courts  in  determining  whether  the 
statement  of  location  of  goods  insured  is  intended  by  the  parties  as 
merely  an  additional  item  of  description,  for  the  purpose  of  securing 

«T  California  Ins.  Co.  v.  Union  Compress  Co.,  133  U.  S.  387,  10  Sup.  Ct 
365,  33  L.  Ea.  730;  Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.,  95  U.  S.  527, 
23  L.  Ed.  868 ;  Southern  Cold  Storage  &  Produce  Co.  v.  A.  F.  Dechman  (Tex. 
Civ.  App.)  73  S.  W.  545;  Home  Ins.  Co.  v.  Favorite,  46  111.  263;  Siter  v. 
Morrs,  13  Pa.  218;  Hough  v.  Insurance  Co.,  36  Md.  398. 

»«  California  Ins.  Co.  v.  Union  Compress  Co.,  supra;  Southern  Cold  Stc^ge 
&  Produce  Co.  v.  Dechman,  supra;  Smith  v.  Carmack  (Tenn.)  64  S.  W.  372. 
In  this  case  it  was  also  held  that  the  insurance  policy  covered  goods  taken 
In  storage  subsequent  to  the  issuance  of  the  policy. 

8 »  Michigan  Pipe  Co.  v.  Michigan  Fire  &  Marine  Ins.  Co.,  92  Mich.  482, 
52  N.  W.  1070,  20  L.  B.  A.  277.  But  see  Lockhart  T.  Cooper,  87  N.  U  149,  42 
Am.  Bep.  514. 


440 


THE   STANDARD   FIRE    POLICY. 


(Ch.  12 


more  perfect  identification,  or  whether  it  is  given  as  defining  the  risk 
that  is  to  be  assumed  by  the  insurer.    It  is  plain  that,  if  the  statement 
of  location  of  the  goods  is  merely  descriptive  in  character,  a  change 
of  location  will  not  affect  the  insurance;  but  that,  if  the  location  is 
given  for  the  purpose  of  defining  the  risk,  the  insurance  will  not  ac- 
company the  goods  upon  removal  from  the  place  stated.    It  is  for  the 
court  to  determine  what  was  the  intention  of  the  parties  in  this  re- 
spect, in  case  the  words  used  do  not  make  it  clear.    The  language  of 
the  standard  policy,  however,  excludes  any  question  of  construction 
by  the  use  of  the  expression  "and  not  elsewhere,"  the  language  clearly 
indicating  that  the  goods  will  not  be  protected  if  removed.*® 
^  The  cases  construing  those  policies  that  do  not  contain  the  definite 
limitation  of  the  standard  form  show  much  confusion.    All  are  agreed 
that  a  removal  of  goods  insured  from  the  location  described  in  the 
policy  does  not  work  a  forfeiture  of  the  policy,  but  merely  suspends 
lit  until  the  goods  are  returned  to  the  original  location.     Therefore 
Jthe  rule  of  construction  that  favors  such  interpretation  of  the  words 
of  the  contract  as  will  avoid  a  forfeiture  does  not  apply  in  these  in- 
stances.    So  that,  when  the  goods  are  destroyed  in  a  place  different 
from  that  described  in  the  policy,  it  is  difficult  to  state  what  is  the 
weight  of  authority  as  to  the  insurer's  liability.    While  the  cases  are 
confused,  there  is  yet  found  running  through  them  the  principle  in- 
dicated in  the  black-letter  text  above,  viz.,  that  the  insurer  will  not  be 
liable  for  the  goods  as  removed,  if  such  removal  would  impose  upon 
the  insurer  a  risk  he  had  not  intended  to  assume.     In  determining 
whether  the  parties  intended  that  the  insurance  should  cover  the  prop- 
erty only  in  the  location  described,  all  the  circumstances  attending  the 
making  of  the  contract,  the  knowledge  of  the  parties  as  to  the  use  to 
which  such  property  was  customarily  put,  and  the  known  intention  of 
the  insured  as  to  that  use,  must  all  be  considered.    Thus  in  Niagara 
Fire  Ins.  Co.  v.  Elliott,"  where  the  property  insured  included,  among 
other  things,  carriages  and  other  vehicles  described  as  contained  in 
"the  frame  metal  building    *     *    ♦    occupied  as  a  livery  and  sales 
stable,"  it  was  held  that  the  insurer  was  liable  for  the  loss  of  three 
of  the  carriages  so  described,  which,  at  the  time  of  their  destruction 
by  fire,  were  in  a  repair  shop  some  distance  from  the  livery  stable. 
This  decision,  which  is  manifestly  correct,  rested  upon  the  theory  that 
the  insurer,  knowing  the  use  to  which  livery  carriages  are  put,  and 
that  such  use  must  necessarily  cause  them  to  be  frequently  removed 


*o  British  America  Assur.  Co.  v.  Miller,  91  Tex.  414,  44  S.  W.  60,  39  L.  R. 
A.  545,  66  Am.  St  Rep.  901;  Village  of  L'Anse  v.  Fire  Ass'n  of  Philadelphia, 
119  Mich.  427,  78  N.  W.  465,  43  L.  R.  A.  838,  75  Am.  St.  Rep.  410.  But  see 
De  Graff  v.  Insurance  Co.,  38  Minn.  501,  38  N.  W.  696,  8  Am.  St  Rep.  685. 

*i  85  Va.  962,  9  S.  E.  694,  17  Am.  St  Rep.  115. 


r 


§157) 


THE   SUBJECT  OF  INSURANCE — LOCATION. 


441 


from  the  livery  stable,  must  have  intended  to  insure  them  wherever 
they  might  happen  to  be  in  connection  with  the  business  of  the  in- 
sured." So,  where  an  oil  tank  was  insured  as  being  located  in  a 
certain  place,  it  was  held  to  be  still  covered  by  the  policy,  although 
at  the  time  of  the  fire  it  was  in  a  different  place,  whither  it  had  been 
carried  by  a  flood.*'  Insurance  upon  a  horse  described  in  the  policy 
as  being  in  a  certain  barn  will  reasonably  be  construed  to  protect  the 
owner  while  the  horse  is  in  use  outside  of  the  barn  as  well  as  when 
he  is  in  the  location  described  in  the  policy.** 

But  when  the  property  is  of  such  a  character  that  its  use  does  not 
necessitate  its  removal  from  the  place  described  as  its  location,  the 
court  will  infer  that  the  intention  of  the  parties  was  that  the  statement 
of  location  should  be  a  characterization  of  the  risk.*''  Thus,  where 
a  stock  of  goods  is  insured  as  contained  in  a  certain  building,  it  will 
not  be  covered  by  the  policy  when  removed  to  another  place.*'  Like- 
wise the  insured  cannot  be  allowed  to  recover  upon  a  policy  insurinji. 
certain  furniture  as  being  in  a  specified  dwelling,  when  the  loss  ha? » 
been  suffered  when  the  furniture  was  in  another  building:.*^ 

Loss  During  and  After  Removal 

It  is  held  that,  when  consent  has  been  obtained  for  the  removal  of 
goods,  they  are  not  protected  while  in  transit;  *•  but  they  are  protected 
in  the  former  location,  if  they  are  destroyed  before  removal,  evev 
though  consent  has  been  given  for  their  removal.    The  standard  fo-; 

48  To  the  sam**  effect,  see  McCluer  v.  Insurance  Co.,  43  Iowa,  349,  22  Am. 
Rep.  249;  Longueville  v.  Assmnnce  Co.,  51  Iowa,  553,  2  N.  W.  394,  33  Am. 
Rep.  146;  McKeesport  Mach.  Co.  v.  Ben  Franklin  Ins.  Co.,  173  Pa.  53,  34  Atl. 
16.  And  see  Kratzenstein  v.  Assurance  Co.,  116  N.  Y.  54,  22  N.  B.  221,  5  L. 
R.  A.  799,  construing  a  policy  on  a  commercial  traveler's  clothes  and  outfit. 
London  &  L.  Fire  Ins.  Co.  v.  Graves.  4  Ky.  Law  Rep.  706.  But  see  BRAD- 
BURY v.  INSURANCE  SOa,  80  Me.  396,  15  Atl.  34,  6  Am.  St  Rep.  219; 
Green  v.  Insurance  Co.,  91  Iowa,  616,  60  N.  W.  189. 

48  WESTERN  &  A.  PIPE  LINES  v.  HOME  INS.  CO.  (1891)  145  Pa.  346,  22 
Atl.  665,  27  Am.  St  Rep.  703.    Also,  see  Farrell  v.  Insurance  Co.,  66  Mo.  App. 

153. 

44  Haws  V.  Fire  Ass'n,  114  Pa.  431,  7  Atl.  159.  Compare  Haws  v.  Insur- 
ance Co.,  130  Pa.  113,  15  Atl.  915,  18  Atl.  621,  2  L.  R.  A.  52;  De  Graflf  v. 
Insurance  Co.,  38  Minn.  501,  38  N.  W.  696,  8  Am.  St  Rep.  685;  American 
Cent.  Ins.  Co.  v.  Haws,  20  Wkly.  Notes  Cas.  370.  But  see  Farmers'  Mut. 
Fire  Ins.  Ass'n  v.  Kryder,  5  Ind.  App.  430,  31  N.  E.  851,  51  Am.  St.  Rep.  284. 

45  Lakings  v.  Insurance  Co.,  94  Iowa,  476,  62  N.  W.  783,  28  L.  R.  A.  70; 
Annapolis  &  E.  R.  Co.  v.  Baltimore  Fire  Ins.  Co.,  32  Md.  37,  3  Am.  Rep.  112; 
English  V.  Insurance  Co.,  55  Mich.  273,  21  N.  W.  340,  54  Am.  Rep.  377. 

48  English  V.  Insurance  Co.,  55  Mich.  273,  21  N.  W.  340,  54  Am.  Rep.  377. 

47  Lyons  v.  Insurance  Co.,  14  R.  I.  109,  51  Am.  Rep.  364,  Richards.  Ins. 
Cas.  447;  Towne  v.  Fire  Ass'n,  27  111.  App.  433;  Green  v.  Insurance  Co^  »1 
Iowa,  615,  60  N.  W.  189. 

48  Goodhue  v.  Insurance  Co.,  184  Mass.  41,  67  N.  B.  645. 


I 


I 


442 


THE   STANDARD   FIRE   POLICY. 


(Ch.l2 


also  contains  this  clause  with  reference  to  the  right  of  removal:  "If 
property  covered  by  this  policy  is  so  endangered  by  fire  as  to  require 
removal  to  a  place  of  safety,  and  is  so  removed,  that  part  of  this  policy 
in  excess  of  its  proportion  of  any  loss  and  of  the  value  of  property 
remaining  in  the  original  location,  shall,  for  the  ensuing  five  days 
only,  cover  the  property  so  removed  in  the  new  location;  if  removed 
to  more  than  one  location,  such  excess  of  this  policy  shall  cover  therein 
for  such  five  days  in  the  proportion  that  the  value  in  any  one  such 
new  location  bears  to  the  value  in  all  such  new  locations ;  but  this  com- 
pany shall  not,  in  any  case  of  removal,  whether  to  one  or  more  loca- 
tions, be  liable  beyond  the  proportion  that  the  amount  hereby  insured 
shall  bear  to  the  total  insurance  on  the  whole  property  at  the  time  of 
fire,  whether  the  same  cover  in  new  location  or  not."  Such  a  provi- 
sion is  manifestly  wise  and  fair,  and  removes  much  difficulty  in  adjust- 
ing losses  under  such  circumstances. 


THE  INTEREST  OF  THE  INSUBED. 

158.  STATEMENT— The  requirement  tHat  the  interest  of  tlie  Insnred 

in  the  property  shall  be  truly  stated  is  satisfied  by  a  statement 
of  the  qnality  of  that  interest.  The  quantity  need  not  be 
stated,  nor  need  the  title  be  given. 

159.  UNCONDITIONAIi  AND  SOLE   OWNERSHIP  ejdsts  in  the  in- 

sured ^^hen  his  interest  in  the  property  is  vested  in  fee,  not  sub- 
ject to  condition  or  contingency,  and  not  held  jointly  ivith 
others.  Such  ownership  may  exist  in  merely  equitable  inter- 
ests, and  is  not  negatived  by  incumbrances. 

160.  The  condition  invalidating  the  insurance,  if  the  building  insured 

is  on  ground  not  oxmaed  by  the  insured  in  fee  simple,  urill  be 
satisfied  if  the  interest  of  the  insured  in  the  land  is  equal  in 
extent  to  a  fee,  even  though  it  be  only  equitable  or  subject  to 
an  incun&brance. 

The  value  of  the  interest  of  the  insured,  as  a  general  rule,  meas- 
ures the  degree  of  care  which  he  will  bestow  upon  the  property,  and 
also  the  effort  which  he  will  make  for  its  preservation  in  case  it  be- 
comes endangered.  The  relation  between  the  amount  of  insurance 
and  the  value  of  the  interest  insured  has  also  a  most  important  bear- 
ing upon  the  good  faith  of  the  insured  in  applying  for  the  policy.  The 
insurer  is  therefore  justified  in  desiring  full  information  as  to  the 
nature,  extent,  and  value  of  the  insured's  interest  in  the  property  to  be 
covered  by  the  policy  at  the  time  of  the  application,  and  also  in  stipu- 
lating for  information  with  reference  to  any  changes  that  may  take 
place  in  that  interest  during  the  currency  of  the  policy.  Accordingly 
the  courts  hold  that  conditions  of  the  policy  making  its  validity  de- 
pendent upon  giving  correct  information  concerning  such  interest  are 
reasonable  and  enforceable. 


f  §  168-160) 


THE  INTEREST  OF  THE  INSURED. 


44a 


The  courts  do  not,  however,  require  that  a  person  shall  be  skilled 
in  the  science  of  conveyancing  in  order  to  be  able  to  make  a  valid  con- 
tract of  insurance  upon  his  property.  Therefore  the  language  both  of 
the  description  of  the  interest  insured  and  of  the  conditions  of  the 
policy  with  reference  to  such  interest  is  construed,  not  technically, 
but  with  the  consistent  purpose  of  giving  the  expressions  used  such 
meaning  as  was  intended  by  the  parties  at  the  time  the  contract  was 
made.  The  court  will  put  itself  in  the  position  of  an  unskilled  person 
required  to  describe  his  interest,  and  will  regard  that  description  as 
sufficient  if  it  substantially  describes  the  interest  which  the  insured  in 
good  faith  believed  that  he  possessed,  even  though  the  language  used 
was  technically  inaccurate.  Before  the  adoption  of  the  standard  form 
of  policy  the  conditions  with  reference  to  the  statement  of  the  in- 
sured's interest  varied  greatly  in  different  policies,  both  in  regard  to 
language  used  and  the  apparent  purpose  in  view.  The  draftsman  of 
the  standard  policy,  in  formulating  tiie  conditions  of  that  instrument, 
had  in  mind  the  experience  of  underwriters  under  the  numerous  pre- 
ceding forms  of  policies,  and  also  the  decisions  of  the  court  construing 
them.  Consequently  the  interest  conditions  of  the  standard  policy  are 
apparently  as  just  to  both  parties  and  as  accurately  expressed  as  any 
that  could  be  devised.  The  conditions  intended  to  secure  a  true  state- 
ment of  the  insured's  interest  at  the  time  of  the  issuance  of  the  policy 
are :  "This  entire  policy  shall  be  void  *  ♦  *  if  the  interest  of  the 
insured  in  the  property  be  not  truly  stated  herein;  *  *  *  or  un- 
less otherwise  provided  by  agreement  indorsed  hereon  or  added  here- 
to; *  *  *  or  if  the  interest  of  the  insured  be  other  than  tmcon- 
ditional  and  sole  ownership ;  or  if  the  subject  of  insurance  be  a  build- 
ing on  ground  not  owned  by  the  insured  in  fee  simple;  or  if  the  subject 
of  insurance  be  personal  property,  and  be  or  become  incumbered  by 
a  chattel  mortgage."  Other  conditions  requiring  notice  of  a  change  in 
this  interest  will  be  construed  later. 

Statement  of  the  Insured's  Interest. 

Without  this  requirement  there  would  be  no  duty  incumbent  on  the 
insured  to  state  the  character  of  his  interest,  provided  he  had  an  in- 
terest that  was  insurable.  The  condition  above  quoted,  however,  re- 
quires a  description  of  that  interest,  and  it  seems  that  the  condition 
applies  even  to  those  policies  that  are  issued  without  a  previous  ap- 
plication; for,  if  the  policy  does  not  elsewhere  contain  a  statement  of 
the  character  of  the  interest,  it  will  be  implied,  by  reference  to  the 
later  condition,  that  the  interest  is  represented  as  being  sole  and  un- 
conditional.**   But  the  condition  that  the  interest  of  the  insured  should 

*•  Wilcox  V.  Insurance  Co.,  85  Wis.  193,  55  N.  W.  188;  Crikelalr  v.  Insur- 
ance CJo.,  168  111.  309,  48  N.  E.  167,  61  Am.  St.  Rep.  119;  Fitchburg  Sav. 
Bank  Y.  Amazon  Ins.  Co.,  125  Mass.  431;    Wierengo  v.  Insurance  Co.,  US 


I. 


444 


THE   STANDARD   FIRE    POLICY, 


(Ch.  12 

be  truly  stated  does  not  require  anything  more  than  a  statement  of  the 
quality  of  that  interest ;  as,  for  instance,  whether  the  property  is  held 
as  owner,  bailee,  mortgagee,  or  trustee. '^'^  It  does  not  require  that  the 
quantity  of  the  interest  shall  be  given  or  its  value.  Therefore  a  true 
statement  of  the  insured*s  interest  need  not  include  a  discovery  of  any 
incumbrances  or  liens  that  exist  upon  the  land."^  Neither  is  the  in- 
sured under  this  condition  required  to  state  whether  his  interest  is  legal 
or  equitable,  for  it  is  well  recognized  that  "interest"  is  a  far  broader 
term  than  "title."  " 

Sole  and  Unconditional  Ownership, 

The  purpose  of  the  insurer  in  requiring  information  as  to  whether 
the  interest  of  the  insured  be  other  than  unconditional  and  sole 
ownership  is  merely  to  enable  him  to  determine  whether,  in  case  of 
destruction  of  the  property,  the  whole  loss  would  fall  upon  the  in- 
sured, or  whether  it  would  be  borne  partly  by  the  owners  of  other  in- 
terests. Therefore,  in  the  midst  of  the  numerous  confusing  decisions, 
we  may  discover  the  consistent  purpose,  not  always  avowed,  to  hold 
that  if  the  interest  of  the  insured  at  the  time  the  policy  was  procured 
was  of  such  a  character  as  would  impose  upon  him,  directly  or  in- 
directly, the  whole  burden  of  loss  consequent  upon  the  destruction  of 
the  insured  premises,  that  interest  will  satisfy  the  condition  of  sole 
and  unconditional  ownership."    Thus,  it  has  been  held  that  a  merely 

Mich.  621,  57  N.  W.  833;  Smith  y.  Insurance  Co.,  17  Pa.  253,  55  Am.  Dec. 
546 ;  Pennsylvania  Ins.  Co.  v.  Gottsman's  Adm'rs,  48  Pa.  151 ;  Brown  v.  In- 
surance Co.,  86  Ala.  189,  6  South.  500.  But  see  contra,  Morotock  Ins.  Co.  v. 
Rodefer,  92  Va.  747,  24  S.  B.  393,  53  Am.  St  Rep.  846,  Wood,  Ins.  S  162. 

80  Clay  Fire  &  Marine  Stock  Ins.  Co.  v.  Beck,  43  Md.  358 ;  DOLLIVBR  ▼. 
INSURANCE  CO.,  128  Mass.  315,  35  Am.  Rep.  378;  Wooddy  v.  Insurance  Co., 
31  Grat.  (Va.)  362,  31  Am.  Rep.  732;  De  Armand  v.  Insurance  Co.  (C.  C.)  28 
Fed.  603;  Ellis  v.  Insurance  Co.  (O.  C.)  32  Fed.  646. 

51  De  Armand  v.  Insurance  Co.  (C.  a)  28  Fed.  603;  Friezen  T.  Insurance 
Co.  (C.  C.)  30  Fed.  352;  Ellis  v.  Insurance  Co  (C.  C.)  32  Fed.  646;  Carrigan 
V.  Insurance  Co.,  53  Vt  418,  38  Am.  Rep.  687;  Alamo  Fire  Ins.  Co.  v.  Lan- 
caster, 7  Tex.  Civ.  App.  677,  28  S.  W.  126;  Manhattan  Fire  Ins.  Co.  t.  WeilU 
28  Grat.  (Va.)  389,  26  Am.  Rep.  364. 

"  WALRADT  V.  INSURANCE  CO.,  136  N.  Y.  375,  32  N.  B.  1063,  32  Am. 
St  Rep.  752;  GIBB  v.  INSURANCE  CO.,  59  Minn.  267,  61  N.  W.  137,  50  Am. 
St.  Rep.  405;  Morotock  Int.  Co.  t.  Rodefer,  92  Va.  747,  24  S.  E.  393,  63  Am. 
St  Rep.  846. 

58  '^The  object  of  the  stipulation  in  the  policy  was  to  protect  the  defend- 
ant against  taking  risks  beyond  the  value  of  the  interest  insured,  so  that  the 
insured  would  use  all  reasonable  precautions  to  avoid  the  destruction  of  the 
property.*'  Security  Ins.  Co.  v.  Kuhn,  207  111.  166,  69  N.  E.  822.  IMPERIAL 
FIRE  INS.  CO.  V.  DUNHAM,  117  Pa.  460,  12  Atl.  668,  2  Am.  St  Rep.  686 ; 
DUPREAU  V.  INSURANCE  CO.,  76  Mich.  615,  43  N.  W.  585,  5  L.  R.  A.  671; 
Pennsylvania  Fire  Ins.  Co.  v.  Dougherty,  102  Pa.  568;  Hartford  Fire  Ins. 
Co.  V.  Keating,  86  Md.  130,  38  Atl.  29,  63  Am.  St.  Rep.  499;  ^TNA  FIRE 
INS.  CO.  V.  TYLER,  16  Wend.  (N.  Y.)  396,  30  Am.  Dec  90;  Lebanon  Mut 
Ins.  Co.  V.  Erb,  112  Pa.  149,  4  Atl.  a 


\%  158-160) 


THE  INTEREST  OP  THE  INSURED. 


445 


equitable  interest  may  satisfy  this  condition  as  well  as  if  it  were 
legal ;  "  that  a  vendee,  whether  in  possession  or  not,  under  a  binding 
contract  for  the  purchase  of  land,  owns  it  unconditionally."  It  is 
even  held  that  possession  with  claim  of  ownership  under  a  parol  con- 
tract is  sufficient  to  constitute  unconditional  ownership,"  although 
it  would  seem  to  be  otherwise  if  the  possession  was  held  under  a 
voluntary  parol  agreement  to  convey."  It  is  not  necessary  that  the 
title  claimed  shall  be  valid,  provided  the  claim  of  interest  is  bona  fide." 
The  insured,  in  stating  that  his  ownership  is  unconditional,  should 
not  be  held  to  make  a  warranty  of  title.  It  seems,  however,  that  if 
the  title  under  which  the  insured  claims  ownership  is  void  on  its  face 
the  condition  is  broken."  This  certainly  is  true  if  the  insured  has 
reason  to  know  that  it  is  void.*® 

The  expression  "unconditional  ownership"  means  ownership  in  fee, 
and  any  less  interest,  such  as  an  estate  by  the  curtesy,  or  other  life 
estate,  or  a  term  of  years,  does  not  satisfy  the  condition."    The  own- 

M  Matthews  v.  Insurance  Co.,  115  Wis.  272,  91  N.  W.  675;  Loventhal  v. 
Insurance  Co.,  112  Ala.  108.  20  South.  419,  33  L.  R.  A.  258  57^^  ^^  ^^f 
17,  DUPREAU  V.  INSURANCE  CO.,  76  Mich.  615,  43  N.  W.  o85,  5  L.  R.  A. 
671,  Ben  Franklin  Fire  Ins.  Co.  v.  Wilsus,  88  Pa.  107;  North  British  & 
Mercantile  Ins.  Co.  v.  Estes,  106  Tenn.  472.  62  S.  W.  149,  52  L.  R.  A.  915.  82 

Am.  St.  Rep.  892.  ^^^^   ,^  ».  ,j  *u  * 

In  Security  Ins.  Co.  v.  Kuhn,  207  111.  106,  69  N.  B.  822,  It  was  held  that 
where  the  interest  of  the  insured  was  a  life  estate  in  the  property  or  its  pro- 
ceeds united  with  the  absolute  right  as  an  active  testamentary  trustee  to 
dispose  of  the  same  as  she  saw  fit  for  the  pui-poses  of  the  trust,  the  insured 
was  the  sole  and  unconditional  owner  in  fee  simple  within  the  meaning  of 
this  clause  of  the  standard  policy.    Lebanon  Mut.  Ins.  Co.  v.  Erb,  112  Pa.  149. 

4  Atl  8 

55  katthews  V.  Insurance  Co.,  115  Wis.  272,  91  N.  W.  676;    Pennsylvania 

Fire  Ins.  Co.  v.  Hughes,  108  Fed.  497,  47  C.  C.  A.  459.  ^„  ^  ,   ^  ^^  ^  ^ 

56  Milwaukee  Mechanics'  Ins.  Co.  v.  B.  S.  Rhea  &  Son,  123  Fed.  9,  60  C.  C. 
A  103.  See,  also,  Pelton  v.  Insurance  Co.,  77  N.  Y.  606;  Wainer  v.  Insurance 
Co.,  153  Mass.  335,  26  N.  E.  877,  11  L.  R.  A.  598.  ,^,e.TT«  .  ^.r.^  ^r. 

57  Wineland  v.  Insurance  Co.,  53  Md.  276;   MILLER  ▼.  INSURANCE  CO.. 

46  Mich.  463,  9  N.  W.  493. 

58  Haider  v.  Insurance  Co.,  67  Minn.  514,  70  N.  W.  805.  „  «  „^  ^     ^^ 
69  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Cochran,  77  Miss.  348,  26  South. 

932,  78  Am.  St.  Rep.  524. 

«o  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Cochran,  77  Miss.  348,  26  South. 

932,  78  Am.  St  Rep.  524.  ««    .  ^,    „^    ^«    *        o* 

ei  Hartford  Fire  Ins.  Co.  v.  Keating,  86  Md.  130,  38  Atl.  29,  63  Am.  St, 
Rep  499  The  court  thus  stated  the  law:  "To  be  *unconditional  and  sole 
the  interest  must  be  completely  vested  in  the  assured,  not  contingent  or 
conditional,  nor  for  life  or  years  only,  nor  in  common,  but  of  such  a  nature 
that  the  insured  must  stand  the  entire  loss  if  the  property  is  destroyed.  And 
this  is  so  whether  the  title  was  legal  or  equitable."  See,  also.  Garver  v. 
Insurance  Co.,  69  Iowa,  202,  28  N.  W.  555;  Security  J^s- Co.  v  Mette  27  HI. 
App  324-  IMPERIAL  FIRE  INS.  CO.  v.  DUNHAM,  117  Pa.  460.  12  AtL  668. 


446 


THE   STANDARD   FIRE   TOLICT. 


(Ch.  12 


THE  INTEREST  OP  THE   INSURED. 


447 


ership  is  not  unconditional  when  the  insured's  title  contains  within 
itself  a  contingency  or  condition  of  defeasance;  •*  but,  as  shown  above, 
an  outstanding  adverse  claim  is  not  such  a  condition  upon  the  insured's 
interest  as  makes  his  ownership  conditional.  But  where  a  mortgagee 
took  an  absolute  conveyance  from  the  mortgagor,  making  at  the  same 
time  a  secret  agreement  to  reconvey  upon  payment  of  the  debt  in- 
tended to  be  secured,  it  was  held  that  insurance  procured  by  the  pre- 
tended owner  was  void  by  reason  of  the  breach  of  this  condition.*' 
In  Stowell  y.  Clark,**  however,  the  New  York  court  held  that,  where 
the  vendee  of  certain  personalty  had  agreed  to  resell  to  the  vendor  in 
case  of  failure  to  pay  any  of  the  purchase  notes  outstanding,  the  in- 
terest of  such  vendee  was  nevertheless  properly  described  as  uncondi- 
tional ownership.  So,  in  Kentucky  it  has  recently  been  held  that  a 
condition  in  purchase  bonds  given  by  the  vendee  of  realty,  securing 
to  the  vendor  the  right  of  re-entry  in  case  of  nonpayment,  did  not 
render  insurance  procured  by  the  vendee  invalid  as  a  breach  of  this 
clause  requiring  sole  and  unconditional  ownership.* • 

Incumbrances  not  Considered  as  Conditions. 

It  has  long  been  settled  that  the  existence  of  a  mortgage  or  other 
incumbrance,  voluntary  or  involuntary,  does  not  constitute  a  breach 
of  the  condition  of  unconditional  and  sole  ownership,**  inasmuch  as 

2  Am.  St.  Rep.  686,  Woodruff,  Ins.  Cas.  152 ;  Brown  v.  Insurance  Co.,  86  Ala. 
189,  5  South.  500;  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Cochran,  77 
Miss.  348,  26  South.  932,  78  Am.  St.  Rep.  524 ;  Southwick  v  Insurance  Co., 
133  Mass.  457;  Messelback  v.  Norman,  46  Hun,  414;  Dwelling  House  Ins.  Co. 
V.  Dowdall,  49  111.  App.  33;  Collins  v.  Insurance  Co.,  44  Minn.  440,  46  N.  W. 
906. 

«2  Hartford  Fire  Ins.  Co.  r.  Keating,  86  Md.  130,  38  Atl.  29,  63  Am.  St 
Rep.  499.  See,  also,  Dwelling  House  Ins.  Co.  v.  Dowdall,  49  111.  App.  33. 
ROHRBACH  v.  INSURANCE  CO.,  62  N.  Y.  47,  20  Am.  Rep.  451;  Southwick 
v.  Insurance  Co.,  133  Mass.  457. 

«3  Farmers'  &  Merchants'  Ins.  Co.  v.  Hahn  (Neb.)  96  N.  W.  255  (upon  re- 
hearing). But  it  has  been  held  otherwise  as  to  a  creditor  vendee  of  per- 
sonalty in  possession.    Carey  v.  Insurance  Co.,  92  Wis.  538,  66  N.  W.  693. 

«*  171  N.  Y.  673,  64  N.  E.  1125,  affirming  47  App.  Div.  626,  62  N.  Y.  Supp. 
155. 

«5  Scottish  Union  &  Nat  Ins.  Co.  v.  Strain,  70  S.  W.  274,  24  Ky.  Law  Rep. 
958. 

6«  "Indeed,  the  authorities  are  practically  unanimous  to  the  effect  that 
an  incumbrance  is  not  an  estate  in  or  title  to  property,  within  the  meaning 
of  the  provision  that,  if  the  interest  of  the  insured  be  other  than  an  uncon- 
ditional or  sole  ownership,  the  policy  shall  be  void.  To  the  contrary,  an 
incumbrance  constitutes  a  mere  lien  upon  property,  v^hich  may  be  discharged 
at  any  time  by  payment  of  the  sum  for  which  the  lien  attaches."  Union 
Assur.  Soc.  V.  Nails,  101  Va.  613,  44  S.  K  896. 

**Thi8  condition  did  not  have  reference  to  the  legal  title,  but  to  the  inter- 
est of  the  insured  in  the  property,  and  was  not  a  warranty  against  liens  and 
incambrances.    The  interest  of  the  insured  in  the  property  was,  and  con- 


§§  158-160) 

the  destruction  of  the  property  would  not  in  any  wise  discharge  the 
debt  secured  by  the  lien  upon  it  The  whole  loss,  in  case  of  destruc- 
tion of  the  mortgaged  property,  would  fall  upon  the  mortgagor,  which 
would  bring  the  case  within  the  general  rule  of  construction  first 
stated  above.  But  since  the  incumbrance  upon  the  property  insured 
does  not  fasten  any  lien  upon  the  proceeds  of  insurance  upon  that 
property,  the  owner  of  heavily  mortgaged  property  is  tempted  to 
transform  his  burdened  property  into  unincumbered  insurance  money. 
On  this  account  insurance  policies  frequently  require  that  the  exist- 
ence of  any  sort  of  lien  or  incumbrance  upon  the  insured  property 
shall  be  disclosed. 

By  requiring  that  the  interest  shall  be  sole,  the  insurer  intends  to 
prevent  a  co-tenant  from  insuring,  without  his  consent,  property  held 
jointly  with  others.  Consequently  any  sort  of  joint  ownership,  what- 
ever be  its  legal  characteristics,  will  defeat  a  policy  issued  to  any  one 
of  the  joint  tenants,  unless  this  condition  is  waived.*^ 

Chattel  Mortgages, 

The  standard  policy  requires  incumbrances  to  be  disclosed  only  in 
case  the  property  insured  is  personalty,  it  being  probably  considered 
that  the  perishable  nature  of  personalty  renders  the  existence  of  a  se- 
cret mortgage  peculiarly  hazardous. 

Following  the  same  rule  of  liberal  construction  ••  that  obtains  in  all 
cases  affecting  the  provisions  of  insurance  policies,  the  courts  will  not 
hold  that  the  condition  against  chattel  mortgages  is  violated  unless 
the  transaction  complained  of  is  technically  a  mortgage.  A  lien  of 
some  other  character  is  not  sufficient.** 

tinned  to  be,  unconditional  and  sole  ownership,  notwithstanding  the  mort- 
gage they  had  given  upon  It"  Morotock  Ins.  Oo.  v.  Rodefer,  92  Va.  747,  24 
S.  E.  393,  53  Am.  St.  Rep.  846.  So,  a  tax  lien  does  not  render  the  ownership 
conditional.  McClelland  v.  Insurance  Co.,  107  La.  124,  31  South.  691;  Clay 
Fire  &  Marine  Stock  Ins.  Co.  v.  Beck.  43  Md.  358 ;  Friezen  v.  Insurance  Co. 
(C.  C.)  30  Fed.  352;  Ellis  v.  Insurance  Co.  (C.  C.)  32  Fed.  646;  Carrington 
V.  Insurance  Co..  53  Vt  418.  38  Am.  Rep.  687;  Alamo  Fire  Ins.  Co.  v.  Lan- 
caster, 7  Tex.  Civ.  App.  677,  28  S.  W.  126;  Burlington  Fire  Ins.  Oo.  t.  Coflf- 
man,  13  Tex.  dv.  App.  439,  35  S.  W.  406. 

67  MILLER  V.  INSURANCE  CO.,  46  Mich.  463,  9  N.  W.  493. 

But  Joint  ownership  under  such  circumstances  as  to  make  this  condition 
Inapplicable  v^rlU  not  avoid  the  policy;  as.  where  oil  in  a  tank,  owned  jointly 
by  several  persons,  was  insured  by  the  plaintiff  as  his  own  and  "held  in 
trust,"  the  condition  was  held  not  to  apply  to  such  insurance.  Grandin  ▼. 
Insurance  Co.,  107  Pa.  26. 

••A  mortgage  upon  a  part  of  the  personalty  insured  is  not  BufBcIent  to 
violate  the  condition.  It  must  cover  the  whole.  North  British  &  Mercantile 
Ins.  Co.  V.  Freeman  (Tex.  Civ.  App.)  33  S.  W.  1091;  Bills  v.  Insurance  Co.. 
87  Tex.  647,  29  S.  W.  1063,  29  L.  R.  A.  706,  47  Am.  St  Rep.  121;  Phcenix  Ins. 
Co.  V.  Lorenz  (Ind.  App.)  29  N.  E.  604. 

•»  Caplia  V.  Insurance  Co.,  60  Minn.  376,  62  N.  W.  440,  61  Am.  St  Rep. 


1 


448 


THE   STANDARD   FIRE    POLICY. 


(Ch.  12 


§ie>i) 


CHANGE   OF  INTEREST,  TITLE,  OR  POSSESSION. 


449 


^|i 


It  has  been  recently  held  in  Virginia  that  the  existence  of  a  chattel 
mortgage  at  the  time  of  the  issue  of  the  policy  does  not  constitute 
a  breach  of  this  condition  when  the  policy  was  issued  without  re- 
quiring previous  application,  and  without  making  inquiries  of  the  in- 
sured as  to  the  existence  of  incumbrances.''®  Although  the  court  says 
that  this  doctrine  commends  itself  to  the  judicial  mind,  it  would  seem 
that  both  the  weight  of  authority  and  sound  reason  are  opposed  to  it^* 

Insured  Building  on  Ground  not  Owned  in  Fee. 

The  condition  invalidating  insurance  upon  a  building  on  ground  not 
owned  in  fee  by  the  insured  is  construed  in  the  same  spirit  as  the  other 
conditions  affecting  the  insured's  interest,  discussed  above.  The  in- 
sured will  be  deemed  to  be  the  owner  in  fee  simple  if  his  interest  in 
the  land  is  without  condition  or  limitation,  even  though  he  may  not 
have  the  legal  title.''*  The  condition  is  not  violated  if  the  estate  of 
the  insured  is  subject  to  an  outstanding  lease,'*  since  a  leasehold  is 
but  a  chattel  interest,  and  does  not  negative  the  existence  of  the  fee 
simple  in  the  lessor.  The  Kentucky  court  has  even  gone  so  far  as  to 
hold  that  where  the  building  was  situated  upon  land  in  which  the  in- 
sured had  only  a  one-fourth  undivided  interest,  it  could  be  said  truth- 
fully to  be  on  land  owned  by  the  insured  in  fee,  since  in  a  partition 
suit  that  portion  of  the  land  improved  by  him  would  be  set  off  to  the 
insured.''* 

535;  Laird  r.  Littlefield,  164  N.  T.  597,  58  N.  B.  1089.  In  the  last  case  the 
mortgage  debt  had  been  paid,  but  the  mortgage  not  released.  The  condition 
was  held  not  to  be  broken,  but  a  deed  of  trust  on  insured  personalty  is  held 
to  violate  the  condition  against  chattel  mortgages.     Hunt  v.  Insurance  Co., 

20  App.  D.  a  4a 

70  Morotock  Ins.  Co.  v.  Rodefer,  92  Va.  747,  24  S.  B.  393,  53  Am.  St.  Rep. 
846;  Union  Assur.  Soc.  v.  Nails,  101  Va.  613,  44  S.  E.  896. 

71  Wilcox  V.  Insurance  Co.,  85  Wis.  193,  55  N.  W.  188;  Crikelair  v.  Insur- 
ance Co.,  168  111.  309,  48  N.  B.  167,  61  Am.  St.  Rep.  119;  Fritchburg  Sav. 
Bank  v.  Amazon  Ins.  Co.,  125  Mass.  431;  Wierengo  v.  Insurance  Co.,  98 
Mich.  621,  57  N.  W.  833;  Smith  v.  Insurance  Co.,  17  Pa.  253,  55  Am.  Dec. 
546;  Pennsylvania  Ins.  Co.  v.  Gottsman's  Adm'rs,  48  Pa.  151;  Brown  v. 
Insurance  Co.,  86  Ala.  189,  5  South.  500. 

7  2  Swift  v.  Insurance  Co.,  18  Vt  305;  Elliott  t.  Insurance  Co.,  117  Pa. 
548,  12  Atl.  676,  2  Am.  St  Rep.  703;  Lewis  v.  Insurance  Co.  (C.  C.)  29  Fed. 
196.  Nor  is  this  condition  of  the  policy  broken  if  the  building  stands  partly 
on  a  public  street  or  partly  on  an  adjoining  lot  in  which  insured  has  no  in- 
terest   Haider  y.  Insurance  Co.,  67  Minn.  514,  70  N.  W.  805. 

7»  DOLLIVBR  v.  INSURANCE  CO.,  128  Mass.  315,  35  Am.  Rep.  378. 

T«  Kenton  Ins.  Co.  t.  Wigginton,  89  Ey.  330,  12  S.  W.  668,  7  L.  Bi.  A.  8L 
See,  also,  Secnilty  Ins.  Co.  y.  Knhn.  207  111.  166,  69  N.  R  822. 


I 


i 

I 


CHANGE  OP  INTEREST,  TITLE,  OR  POSSESSION. 

161*  Tliis  condition  is  intended  to  protect  tlie  insurer  from  any  con- 
tingency that  miglit  increase  tl&e  risk  assniued  by  the  insurer 
by  decreasing  the  interest  of  the  insured.  Hence  it  is  construed 
to  include  only  such  acts  or  events  affecting  the  title  of  the  in- 
sured as  substantially  change  the  quantity  of  his  beneficial  in-  \ 
terest,  immaterial  modifications  of  interest,  title,  or  possession  \ 
being  ignored. 

<c«  *  ♦  If  any  change,  other  than  by  the  death  of  an  insured,  take 
place  in  the  interest,  title,  or  possession  of  the  subject  of  insurance  (ex- 
cept change  of  occupants  without  increase  of  hazard),  whether  by  legal 
process  or  judgment  or  by  voluntary  act  of  the  insured,  or  other- 
wise.'" '^ 

Purpose  of  this  Condition, 

Underwriters  realize  that  any  decrease  in  the  value  or  extent  of  the 
interest  insured  after  the  issue  of  the  policy  will  tend  directly  to  in- 
crease the  moral  element  in  the  risk,  which  is  known  to  be  a  most 
important  one.  If  by  a  subsequent  decrease  in  the  value  of  his  inter- 
est covered  by  the  policy  the  insured  could,  upon  loss  of  his  dimin- 
ished interest,  recover  the  value  of  his  original  interest,  the  proba 
bility  of  fire  would  undoubtedly  be  greater.  Hence  the  aim  of  the 
underwriters  has  been  to  frame  such  a  condition  as  will  give  them  an 
opportunity  to  cancel  any  outstanding  policy  when  the  risk  has  been 
increased  by  reason  of  a  change  in  the  insured's  interest'* 

Progressive  Attempts  to  Carry  Out  This  Purpose. 

The  first  condition  inserted  in  fire  policies  in  the  effort  to  accom- 
plish this  aim-  was  one  prohibiting  the  sale  or  alienation  of  the  prop- 
erty. This  condition  was,  however,  construed  to  mean  only  a  com- 
plete sale  or  alienation,  and  not  to  be  broken  so  long  as  any  interest 
whatever  remained  in  the  insured.'*    The  underwriters  then  added  to 

▼•  Thli  condition  Is  valid,  and  not  opposed  to  public  policy  as  in  restraint 
of  alienation.  Findlay  v.  Insurance  Co.,  74  Vt  211,  62  Atl.  429,  93  Am.  St 
Rep.  885. 

T«  See  an  excellent  statement  of  the  rationale  of  this  condition  In  Cotting- 
ham  V.  Insurance  Co.,  90  Ky.  439,  14  S.  W.  417.  9  L.  R.  A.  627. 

The  object  of  the  provision  is  that  the  insured  shall  have  no  greater  motive 
to  destroy,  or  less  interest  in  watching  and  guarding,  the  property  insured. 
German  Ins.  Co.  v.  Gibe,  59  111.  App.  614.  The  spirit  and  intention  of  the 
clause  is  to  guard  against  any  moral  hazard  involved  in  changed  relations 
to  the  insured  property.  Rosenstein  v.  Insurance  Co.,  79  App.  Div.  481,  79 
N.  Y.  Supp.  736.  FARMERS'  &  MERCHANTS'  INS.  CO.  v.  JENSEN,  56  Neb. 
284,  76  N.  W.  677,  44  L.  R.  A.  861;  Ayres  v.  Insurance  Co.,  17  Iowa,  176,  86 
Am.  Dec.  553. 

ft  Cowan  V.  Insurance  Co.,  40  Iowa,  551,  20  Am.  Rep.  583 ;    Hitchcock  v. 

Vanoe  Ins.— 29 


!'  ti 


450 


THE   STANDARD   FIRE   POLICY. 


(Ch.  12 


i 


this  expression,  which  had  been  found  insufficient,  a  prohibition  of  any 
"change  of  title."  This,  however,  was  construed  to  mean  only  a  vol- 
untary change  of  title,  and  to  remain  unbroken  so  long  as  the  title  of 
the  insured  remained  unchanged,  irrespective  of  any  changes  that 
might  have  taken  place  in  his  interest."  In  order  to  escape  the  jeal- 
ousy which  the  courts  showed  in  applying  the  rule  of  strict  construc- 
tion against  the  insurer,  many  other  expressions  were  devised  and  made 
use  of  in  policies.  One  writer  has  collected  a  list  of  some  two  hundred 
varying  conditions  against  alienation. 

The  Broad  Language  of  Alienation  Clause  in  the  Standard  Policy, 

In  the  effort  to  compel  the  discovery  of  any  change  whatever  in 
the  interest  of  the  insured  which  would  tend  to  increase  the  risk,  the 
draftsman  of  the  standard  policy  broadened  the  language  of  the  con- 
dition so  as  to  make  it  include  not  only  a  change  in  title  and  posses- 
sion, but  also  a  change  in  "interest,"  the  broadest  property  term  that 
can  be  used,  and  expressly  included  involuntary  changes  in  interest 
as  well  as  those  that  are  voluntary,  while  expressly  excepting  changes 
due  to  the  death  of  the  insured."  Some  courts  have  taken  the  view 
that  the  comprehensive  terms  of  this  condition  necessarily  include  any 
changes  whatever  in  the  insured's  interest,***  but  the  majority  of  the 
courts,  induced  either  by  precedents  construing  older,  less  compre- 
hensive forms,  or  moved  by  a  determination  not  to  permit  a  merely  tech- 
nical defeat  of  a  contract  entered  into  in  good  faith  by  the  insured, 
have  shown  a  strong  inclination  to  except  from  the  operation  of  this 
condition  such  immaterial  changes  of  interest  as  do  not  diminish  the 
value  of  that  interest  or  increase  the  moral  hazard  of  the  risk.  Thus 
it  has  been  held  that  the  appointment  of  a  receiver  '^  does  not  con- 
stitute such  a  change  of  interest  as  violates  this  condition,  nor  does 

Insurance  Co.,  26  N.  T.  68;  HOFFMAN  T.  INSURANCE  CO.,  32  N.  Y.  4^5, 
88  Am.  Dec  337 :  Stetson  v.  Insurance  Co.,  4  Mass.  330,  3  Am.  Dec.  217  (1808) ; 
Clinton  v.  Insurance  Co.,  176  Mass.  486.  57  N.  E.  998,  50  L.  R.  A.  833,  79  Am. 
St  Rep.  325,  and  cases  cited. 

T8  Thompson  v.  Insurance  Co.,  136  U.  S.  287,  10  Sup.  Ct  1019,  84  L.  Bd,  408. 
Rhode  Island  Underwriters*  Asg*n  v.  Monarch.  98  Ky.  305,  32  8.  W.  959; 
\ew  Orleans  Ins.  Co.  v.  Gordon,  68  Tex.  144.  3  S.  W.  718;  Georgia  Home  Ins. 
Co.  v.  Bartlett.  91  Va.  305,  21  S.  B.  476,  50  Am.  St.  Rep.  832. 

19  Lappin  V.  Insurance  Co.,  58  Barb.  (N.  Y.)  325;  Hine  v.  Woolworth,  93 
N  Y.  75,  45  Am.  Rep.  176;  Sherwood  v.  Insurance  Co..  73  N.  Y.  447,  29  Am. 
Rep  180-  Virginia  Fire  &  Marine  Ins.  Co.  v.  Thomas,  90  Va.  658,  19  S.  B.  454. 

80  Lappin  V.  Insurance  Co.,  58  Barb.  (N.  Y.)  325;  Hine  v.  Woolworth,  93 
N.  Y.  75,  45  Am.  Rep.  176;  Sherwood  v.  Insurance  Co.,  73  N.  Y.  447,  29  Am. 

RcD  180 

81  Georgia  Home  Ins.  Co.  t.  Bartlett,  91  Va.  305,  21  S.  B.  476,  50  Am.  St 
Rep.  832.  So  where  a  receiver  is  appointed  in  bankruptcy  proceedings 
Fuller  T.  Infiurance  Co.,  184  Mass.  12,  67  N.  K.  879. 


§  161)  CHANGE  OP  INTEREST.  TITLE,  OR  POSSESSION.  451 

a  change  "  of  receivers,  when  the  policy  was  procured  by  a  former 
receiver. 

So  other  clauses  of  the  policy,  especially  the  description  of  the  risk, 
may,  when  read  in  connection  with  the  condition  against  alienation,  ex- 
clude from  its  operation  a  case  apparently  falling  within  its  terms. 
Thus  when  insurance  is  granted  upon  a  fluctuating  stock  of  goods,  it 
is  plain  that  the  parties  contemplate  buying  and  selling  of  the  property 
insured,  and  the  consequent  changes  of  interest."  Likewise  insur- 
ance taken  "for  the  account  of  whom  it  may  concern"  was  held  by 
the  Supreme  Court  of  the  United  States  "  not  to  be  avoided  by  a  sub- 
sequent change  of  interest  in  the  insured  despite  the  presence  of  the 
standard  alienation  clause.  The  written  terms  quoted  cleariy  showed 
an  intention  that  the  subject  of  insurance  should  be  afterwards  trans- 
ferred, and,  being  in  writing,  prevailed  over  the  repugnant  printed 
alienation  clause. 

Incumbrances, 

Much  conflict  exists  among  the  decided  cases  as  to  whether  the 
giving  of  a  mortgage  amounts  to  a  change  of  interest.  It  clearly  does 
not  amount  to  a  change  of  title  or  possession  under  the  older  forms," 
but  some  of  the  cases  have  held  that  it  does  amount  to  a  change  of 
interest,  and  therefore  avoids  the  standard  policy  unless  consented  to 
by  the  insurer."  By  the  clear  weight  of  authority,  however,  it  is  held 
that  the  giving  of  a  deed  of  trust  or  mortgage  does  not  make  such  a 
substantial  change  in  the  interest  of  the  insured  as  to  constitute  a 
breach  of  the  alienation  clause.*^  In  a  recent  Wisconsin  case  it  was  even 
held  that  the  condition  was  not  violated  by  an  absolute  conveyance 
made  by  the  insured,  when  he  received  from  the  grantee  a  separate 

82  Thompson  v.  Insurance  Co..  136  U.  S.  287,  10  Sup.  Ct  1019.  34  L.  Ed. 
408. 

8»  Wolfe  V.  Insurance  Co.,  89  N.  Y.  49;    LANE  v.  INSURANCE  CO .  12 
Me.  44,  28  Am.  Dec.  150. 

8*  Hagan  v.  Insurance  Co.,  186  U.  S.  423,  22  Sup.  Ct.  862,  46  L.  Ed.  1229 
86  Aurora  Fire  Ins.  Co.  v.  Eddy,  55  111.  213;    Hoose  v.  Insurance  Co..  84 

Mich.  309.  47  N.  W.  587,  11  L.  R.  A.  340;    Morotock  Ins.  Co.  v.  Rodefer.  92 

Va.  747,  24  S.  B.  393,  53  Am.  St  Rep.  846. 
8«  East  Texas  Fire  Ins.  Co.  y.  Clarke,  79  Tex.  23,  16  S.  W.  166,  11  L  R   A 

293;  Fireman's  Fund  Ins.  Co.  v.  Barker,  6  Colo.  App.  535,  41  Pac.  513-  Olnev 

V.  Insurance  Co.,  88  Mich.  94,  50  N.  W.  100.  13  L.  R.  A.  684.  26  Am.  St  Rep. 

^81. 

•T  Wolf  T.  Insurance  Co.,  115  Wis.  402,  91  N.  W.  1014.     See.  also   to  the 
same  effect  Sun  Fire  Office  v.  Clark,  53  Ohio  St  414,  42  N.  E.  248  38  I*  R 
A.  562;   LAMPASAS  HOTEL  &  PARK  CO.  v.  PHCENIX  INS.  CO.  (Tex  Civ' 
App.)  38  S.  W.  361;  Same  v.  Home  Ins.  Co.,  17  Tex.  Civ.  App.  615   43  S   W 
1081;  Peck  v.  Insurance  Co.,  16  Utah,  121,  51  Pac  255,  67  Am.  St  Ren   600- 
^tua  Ins.  Co.  v.  Jacobson,  105  IlL  App.  283. 


452 


THE   STANDARD    FIRE    POLICY. 


(Ch.  12 


/ 


O 


written  agreement  to  reconvey  upon  repayment  of  the  debt,  and  only 
the  deed  of  conveyance  was  recorded.®' 

Although  it  can  scarcely  be  denied  that  the  giving  of  a  mortgage 
or  deed  of  trust,  even  in  those  states  where  such  an  incumbrance  is 
regarded  merely  as  a  lien,  and  not  as  an  interest  in  the  land,  docs 
work  a  substantial  change  in  the  equitable  interest  of  the  insured,  yet 
it  would  seem  that  in  view  of  all  the  circumstances  usually  surrounding 
such  cases,  and  from  a  reading  of  all  the  conditions  of  the  standard 
policy,  these  latter  cases  are  probably  correct.  The  policy  nowhere 
expressly  stipulates  that  mortgages  on  realty  shall  be  disclosed,  al- 
though such  a  requirement  is  made  with  reference  to  chattel  mort- 
gages, and  to  the  commencement  of  proceedings  to  foreclose  a  mort- 
gage on  realty.  Further,  a  later  provision  in  the  policy  expressly 
recognizes  the  rights  of  the  mortgagee  in  the  property  insured.  These 
^  considerations  would  seem  to  indicate  that  the  underwriters  do  not 
expect  notice  of  incumbrances  upon  realty. 

Executory  Contracts  of  Sale. 

On  principle  it  would  seem  that  when  a  binding  contract  has  been 
mdde  for  the  sale  of  insured  real  estate,  so  that  any  loss  on  account  of 
destruction  of  the  premises  by  fire  would  fall  upon  the  vendee,  such 
.sale  should  be  regarded  as  a  substantial  change  of  interest,  avoiding  a 
policy  containing  the  alienation  clause;  and  many  of  the  cases  so 
hold,  especially  when  the  purchase  money  has  been  paid  and  the  ven- 
dee has  gone  into  possession.**  But  it  seems  that  the  weight  of  au- 
thority holds  that,  so  long  as  there  is  no  change  of  possession,  a 
mere  executory  sale,  without  conveyance  of  title,  does  not  amount  to 
such  a  change  of  interest  as  defeats  the  insurance.*®  Invalid  con- 
veyances which  do  not  transfer  title,  as  when  possession  of  an  unde- 
livered deed  has  been  fraudulently  obtained,  are  held  not  to  constitute 
a  change  of  interest** 

•8  Wolf  T.  Insurance  Co.,  115  Wi8.  402,  91  N.  W.  1014.  So  a  conveyance 
absolute  in  form,  bnt  intended  as  security  for  a  contingent  liability  that 
never  became  fixed,  was  held  not  to  be  a  change  of  interest  such  as  to  de- 
feat insurance  under  this  condition.  Henton  v.  Insurance  Co.  (Neb.)  95  N.  W. 
670. 

8»  Cotttingham  v.  Insurance  Co.,  90  Ky.  439,  14  S.  W.  417,  9  L.  R.  A.  627; 
Skinner  &  Sons*  Ship-Building  &  Dry-Dock  Co.  v.  Houghton,  92  Md.  68,  48 
Atl.  85,  84  Am.  St  Rep.  485;  GIBB  v.  INSURANCE  CO.,  59  Minn.  267,  61 
N.  W.  137,  50  Am.  St  Rep.  405;  GermomI  v.  Insurance  Co.,  2  Hun,  540. 

»o  ERB  V.  INSURANCE  CO.,  98  Iowa,  606,  67  N.  W.  583,  40  L.  B.  A.  845; 
Home  Mut  Ins.  Co.  v.  Tomkies  &  Co.,  30  Tex.  Civ.  App.  404,  71  S.  W.  812; 
Tiemann  v.  Insurance  Co,  76  App  Div.  5,  78  N.  Y.  Supp.  620;  Boston  &  S.  Ice 
Co.  v.  Royal  Ins.  Co.,  12  Allen  (Mass.)  381,  90  Am.  Dec.  151;  Trumbull  v. 
Insurance  Co.,  12  Ohio,  305. 

•1  Hartford  Fire  Ins.  Co.  v.  Warbritton,  66  Kan.  93,  71  Pac.  278;  nor  is 
policy  avoided  by  a  deed  which  is  invalid  because  of  grantor's  mental  in- 


§161) 


CHANGE  or  INTEREST,  TITLE,  OR  POSSESSION. 


453 


Transfers  between  Partners. 

Much  conflict  is  also  found  as  to  the  effect  of  a  transfer  of  interest 
between  partners  who  are  jointly  insured.  The  general  result 
of  the  decisions  may,  however,  be  stated  to  be  this:  When  the' 
transfer  of  interest  is  between  the  partners  themselves,  under  such 
circumstances  as  not  to  increase  the  moral  hazard  by  lessening  the 
amount  of  possible  loss  to  the  insured,  or  by  introducing  a  new  per- 
sonality into  the  contract,  there  is  no  violation  of  the  alienation  condi- 
tion; but  such  a  transferj)y  the  partners  as  to  decrease  the  value  of 
the  interest,  or  to  bring  another  person  into  the  partnership,  is  fatal 
to  the  insurance.  Thus,  where  one  partner  sells  out  to  another  and 
retires  from  the  firm,  the  insurer  can  scarcely  complain  of  any  in- 
crease in  the  risk.**  He  has  already  accepted  the  remaining  partner 
as  a  proper  person  to  be  insured,  and  the  amount  of  interest  still  liable 
to  destruction  is  exactly  the  same ;  therefore  such  a  transfer  is  held  not 
to  avoid  the  policy.  So  it  has  been  held  that,  where  one  of  several 
partners  assigns  his  interest  in  the  firm  to  a  stranger,  no  change  of 
interest  as  to  the  partnership  property  results,  because  the  title  to  the 
property,  and  also  the  beneficial  ownership,  is  still  in  the  firm,  the  as- 
signee of  the  partner  taking  only  a  right  to  an  accounting.**  But  when 
a  new  partner  is  taken  into  the  firm,  not  only  is  the  interest  of  the 
original  members  thereby  diminished,  but  there  is  brought  into  the 
contract  a  person  whom  the  insurer  did  not  expect  as  a  party  to  the 
contract.  Hence  it  is  held  that  such  an  enlargement  of  the  member- 
ship of  the  firm  defeats  the  insurance  under  the  standard  form  of 
poHcy.** 


'i*? 


capacity.  Gerling  y.  Insurance  Co.,  39  W.  Va.  689,  20  S.  B.  691.  Nor  by  a 
deed  to  a  homestead,  void  because  signed  by  husband  alone.  German  Fire 
Ins.  Co.  of  Freeport  v.  York,  48  Kan.  488,  29  Pac.  586,  30  Am.  St.  Rep.  313. 

»2  WOOD  V.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  B.  80,  62  Am.  St  Rep. 
733;  Virginia  Fire  &  Marine  Ins.  Co.  v.  Thomas,  90  Va.  658,  19  S.  ^  454; 
Vhrginia  Fire  &  Marine  Ins.  Co.  v.  Vaughan,  88  Va.  835,  14  S.  B.  754;  Loeb 
V.  Insurance  Co.,  88  Misc.  Rep.  107,  77  N.  Y.  Supp.  106;  Burnett  v.  Insurance 
Co.,  46  Ala.  11,  7  Am.  Rep.  581;  Wilson  v.  Insurance  Co.,  16  Barb.  (N.  Y.)  511; 
Roby  V.  Insurance  Co.,  11  N.  Y.  St.  Rep.  93;  Texas  Banking  &  Ins.  Co.  v. 
Cohen,  47  Tex.  406,  26  Am.  Rep.  298.  But,  contra,  see  Shuggart  v.  Insurance 
Co.,  55  Cal.  408;  Hartford  Fire  Ins.  Co.  v.  Ross,  23  Ind.  179,  85  Am.  Dec.  452; 
HATHAWAY  v.  INSURANCE  CO.,  64  Iowa,  229,  20  N.  W.  164,  52  Am.  Rep. 
438 ;  WALTON  v.  INSURANCE  CO.,  116  N.  Y.  326,  22  N.  E.  443,  5  L.  R.  A.  677. 
Richards,  Ins.  Cas.  462.  For  an  interesting  case  discussing  this  question,  see 
Royal  Ins.  Co.  v.  Martin,  192  U.  S.  149,  24  Sup.  Ct.  247,  48  L.  Ed.  385,  recently 
decided  on  appeal  from  the  Supreme  Court  of  Porto  Rico. 

»3  WOOD  V.  INSURANCE  CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St  Rep. 
733;  Hanover  Fire  Ins.  Co.  v.  Lewis.  28  Fla.  209,  10  South.  297.  Also,  see 
Virginia  Fire  &  Marine  Ins.  Co.  v.  Thomas,  90  Va.  658,  19  S.  E.  454. 
■  »*  Malley  r.  Insurance  Co.,  51  Conn.  222 ;  Drennen  v.  Assurance  Corp.  (C.  C.) 
20  Fed.  657,  reversed  on  other  grounds  in  113  U.  S.  51,  5  Sup.  Ot  341,  28  L. 
Bd.  919. 


454 


THE   STANDARD   FIRE    POLICY. 


(Ch.l2 


Legal  Process  or  Judgment 

A  change  of  interest,  title,  or  possession  "by  legal  process  or  judg- 
ment" does  not  take  place  upon  the  mere  institution  of  legal  proceed- 
ings to  subject  the  property  insured  to  the  satisfaction  of  some  legal 
claim.  Even  levy  of  execution  upon  the  property  is  not  sufficient 
unless  the  officer  takes  actual  possession.®*  The  interest  is  not  re- 
garded as  changed,  when  personalty  is  the  subject  of  insurance,  until 
there  has  been  an  actual  sale  and  the  passage  of  title  to  the  purchaser.*' 
Even  the  sale  under  judicial  decree  of  realty  does  not  constitute  a 
change  of  interest,  so  long  as  the  insured  remains  in  possession  and 
retains  a  right  of  redemption.®^  The  mere  rendering  of  a  judgment, 
even  when  by  statute  it  constitutes  a  lien  upon  realty,  does  not  amount 
to  a  change  of  interest,  which  would  result  only  upon  judicial  sale, 
properly  confirmed,  and  the  vesting  of  the  perfected  title  in  the  pur- 
chaser.** 


FRAUD  AND  FALSE  SWEARIlf O. 

162.  The  condition  against  frand  or  false  swearing  extends  the  mle 
applicable  to  statements  made  in  procuring  the  contract  to  all 
matters  concerning  the  insurance,  whether  before  or  after  loss. 
False  statements  n&ade  by  the  insured  do  not  under  this  condi- 
tion avoid  the  policy,  unless  they  are  knowingly  false  and 
fraudulent.  Honest  mistakes,  however  negligent,  do  not  violate 
the  condition. 

As  we  have  seen  in  a  preceding  chapter,  any  false  or  fraudulent 
conduct  on  the  part  of  the  insured,  inducing  the  insurer  to  make  a 
contract  which  otherwise  he  would  decline,  is  sufficient  to  avoid  the 
insurance,  without  stipulation  to  that  effect.  The  clause  of  the  stand- 
ard policy  making  the  entire  contract  void  "in  case  of  any  fraud  or  false 
swearing  by  the  insured  touching  any  matter  relating  to  this  insurance 

••  WALRADT  V.  INSURANCE  CO.,  136  N.  Y.  375,  32  N.  B.  1063,  32  Am. 
St.  Rep.  752;  Phoenix  Ins.  Co.  v.  Lawrence,  4  Mete.  (Ky.)  9,  81  Am.  Dec.  521; 
McClelland  v.  Insurance  Co.,  107  La.  124,  31  South.  691;  WOOD  v.  INSUR- 
ANCE CO.,  149  N.  Y.  382,  44  N.  E.  80,  52  Am.  St  Rep.  733;  Greenlee  v.  In- 
surance Co.,  102  Iowa,  427,  71  N.  W.  534,  63  Am.  St.  Rep.  455. 

»«  Rice  V.  Tower,  1  Gray  (Mass.)  426;  Walradt  v.  Insurance  Co.,  136  N.  Y. 
375,  32  N.  Eu  1063,  32  Am.  St.  Rep.  752,  affirming  64  Hun,  129,  19  N.  Y. 
Supp.  293. 

»7  Lodge  V.  Insurance  Co.,  91  Iowa,  103,  58  N.  W.  1089;  WOOD  v.  IN- 
SURANCE CO.,  78  Hun,  109,  29  N.  Y.  Supp.  250,  affirmed  149  N.  Y.  582,  44 
N.  E.  80,  52  Am.  St.  Rep.  733;  Hammel  v.  Insurance  Co.,  64  Wis.  72,  11  N. 
W.  349,  41  Am.  Rep.  1. 

•8  But  a  voluntary  conveyance  by  a  debtor  to  his  son  in  order  to  prevent 
lien  of  anticipated  judgment  constitutes  a  change  of  interest  Rosenstein  v. 
Insurance  Co.,  79  App.  Div.  481,  79  N.  Y.  Supp.  736;  Tefft  T.  Insurance  Co., 
19  B.  L  185,  32  AU.  814,  61  Am.  St  Rep.  761. 


§162) 


FRAUD  AND  FALSE  SWEARINC 


455 


or  the  subject  thereof,  whether  before  or  after  a  loss,"  extends  this 
rule  to  all  statements  that  may  be  made  by  the  insured  with  reference 
to  the  insurance,  either  before  the  loss  or  after  it.**  This  condition 
is  reasonable  and  valid,  and  is  intended  to  afford  the  insurer  a  remedy 
against  false  and  fraudulent  claims  that  may  be  made  with  reference 
to  the  value  of  property  lost  or  damaged,  and  is  especially  aimed  at 
falsehood  and  fraud  in  the  statements  required  to  be  made  in  connec- 
tion with  notice  and  proof  of  loss.  In  order  to  enable  the  insurer 
to  secure  evidence  of  any  fraud  or  false  swearing  that  may  .have  taken 
place  in  connection  with  insurance,  the  following  term  is  inserted  in 
the  standard  form:  "The  insured,  as  often  as  required,  shall  exhibit 
to  any  person  designated  by  this  company  all  that  remains  of  any  prop- 
erty herein  described,  and  submit  to  examinations  under  oath  by  any 
person  named  by  this  company,  and  subscribe  the  same;  and,  as  often 
as  required,  shall  produce  for  examination  all  books  of  account,  bills, 
invoices,  and  other  vouchers,  or  certified  copies  thereof  if  originals 
be  lost,  at  such  reasonable  place  as  may  be  designated  by  this  com- 
pany or  its  representative,  and  shall  permit  extracts  and  copies  there- 
of to  be  made."  This  requirement  is  held  to  be  valid,  but  will  be  en- 
forced by  the  courts  only  when  it  is  reasonably  possible  for  the  in- 
sured to  comply  with  its  requirements.^** 

Fraudulent  Overvaluation. 

Overvaluation  of  property  by  the  insured  may  take  place  either  at 
the  time  of  making  the  contract  or  at  the  time  of  submitting  proofs 
of  loss.  In  either  event,  under  the  conditions  of  the  standard  policy, 
such  overvaluation,  if  fraudulent,  entirely  avoids  the  insurance.^*^ 
But  the  mere  fact  of  overvaluation,  even  though  it  be  great,  is  not 
alone  sufficient  proof  of  fraud.  It  must  be  alleged  and  clearly  proved 
by  the  insurer  that  the  insured,  in  overvaluing  his  property,  did  so 
knowingly  and  with  fraudulent  intent. ^''*  Overvaluation  may  be 
due  to  a  perfectly  honest,  though  mistaken,  estimate  as  to  the  real 
value  of  the  property  insured.  It  is  a  characteristic  common  to  all 
men  to  value  their  property  more  highly  than  that  of  others,  and  this 
natural  tendency  in  all  men  may  be  strengthened  in  some  cases  .by  rea- 
son of  inexperience  in  business  matters,  or  by  association,  giving  to 
the  property  a  "pretium  affectionis,"  or  even  by  a  careless  disposition. 

••  Moore  t.  Insurance  CJo.,  28  Grat  (Va.)  508,  26  Am.  Rep.  373. 

100  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Kearney,  180  U.  S.  132,  21  Sup. 
Ct.  326,  45  L.  Ed.  460;   Sneed  v.  Assurance  Co.,  73  Miss.  279,  18  South.  928. 

101  Baker  v.  Insurance  Co.,  31  Or.  41,  48  Pac.  699,  65  Am.  St  Rep.  807; 
Moore  v.  Insurance  Co.,  28  Grat.  (Va.)  SOS,  26  Am.  Rep.  373;  Phoenix  Ins. 
Co.  V.  Plckel,  119  Ind.  155,  21  N.  E.  546,  12  Am.  St  Rep.  393;  TITUS  ▼.  IN- 
SURANCE CO.,  81  N.  Y.  410. 

is2Erman  v.  Insurance  Co.,  35  La.  Ann.  1095;  Daul  v.  Insurance  Coi,  35 
La.  Ann.  08;   HUton  y.  Assurance  Co^  92  Me.  272,  42  AU.  412. 


\l  i 


456 


THE   STANDARD   FIRE   POLICY. 


(Ch.  12 


§163) 


1 1 


In  no  case  will  an  honest  overvaluation  be  sufficient  to  avoid  the  pol- 
icy.108  /pjjg  question  whether  the  overvaluation  was  honest  or  fraud- 
ulent is  for  the  jury  as  a  general  rule,^^*  although  there  may  be  in 
some  cases  such  a  disproportion  between  the  real  and  stated  values  as 
to  justify  the  court  in  declaring  the  existence  of  fraud."' 

In  Behrens  v.  Insurance  Co.,"«  it  was  held  that  a  valuation  of 
property,  subsequently  determined  to  be  worth  $1,240,  at  $2,000,  was 
not  under  the  circumstances  fraudulent;  but  in  a  leading  English 
case  "^  Cockburn,  C.  J.,  declared  that  the  valuation  of  property,  worth 
not  more  than  i30,  at  £418,  was  fraudulent  as  a  matter  of  law.  In 
Wisconsin  "«  it  was  held  that  valuing  property  worth  $2,000  at  $5,000 
was  not  conclusively  fraudulent,  while  in  another  English  case  "»  a 
valuation  of  property  at  twice  its  actual  value  was  held  to  be  conclu- 
sive proof  of  fraud.  In  order  that  overvaluation  shall  be  regarded  as 
fraudulent  within  the  terms  of  this  condition,  it  is  generally  held  that 
it  must  be  material,  and  such  as  to  be  injurious  to  the  insurer.  In  ac- 
cordance with  this  principle,  even  a  gross  overvaluation  of  property  will 
not  avoid  the  policy,  where  the  actual  value  is  greater  than  the  amount 
of  insurance.^^* 

False  Swearing  and  False  Statement  in  Regard  to  the  Loss. 

In  order  that  a  false  statement  of  value  at  the  time  of  making  the 
contract  shall  avoid  the  insurance,  such  statement  must  have  been 
made  with  the  fraudulent  intent  to  injure  the  insurer."^  But  no  such 
specific  intent  is  necessary  in  order  that  a  consciously  false  statement  in 
connection  with  the  proof  of  loss  shall  avoid  the  insurance.  In  accord- 
ance with  the  stipulation  of  the  policy,  the  insurer  is  entitled  to  the 
exact  truth  with  reference  to  the  subjects  of  his  interrogation,  and  any 
statement  known  by  the  insured  to  be  false  would  absolutely  defeat 
his  claim  to  indemnity,  even  though  he  may  have  intended  by  the  false 
statement  not  to  injure  the  insurer  in  any  wise,  but  to  further  some 
ulterior  purpose  of  his  own.^^* 

10*  First  Nat  Bank  ▼.  Hartford  Fire  Ins.  Oo.,  95  U.  S.  673,  24  L.  Bd.  663; 
Miller  v.  Insurance  Co.  (0.  C.)  7  Fed.  649. 

10*  Levle  V.  Insurance  Co.,  163  Mass.  117,  39  N.  B.  792;  Helbing  v.  Insur- 
ance  Co.,  54  Cal.  156,  35  Am.  Rep.  72. 

108  Levy  v.  Baillie,  7  Bing.  349;  Chapman  v.  Pole,  22  L.  T.  (N.  S.)  806, 
Richards,  Ins.  Cas.  475. 

106  64  Iowa,  19, 19  N.  W.  838.  Richards,  Ins.  Cas.  479. 

107  Chapman  v.  Pole,  22  L.  T.  (N.  S.)  306,  Richards,  Ins.  Cas.  475, 

108  Dogge  V.  Insurance  Co.,  49  Wis.  501,  5  N.  W.  889. 
io»  Levy  v.  Baillie,  7  Bing.  349. 

110  Dogge  V.  Insurance  Co.,  49  Wis.  501,  5  N.  W.  880;  Wolf  ▼.  Insurance 
Co.,  43  Barb.  (N.  Y.)  400. 

111  Huston  V.  Insurance  Co.,  100  Iowa,  402,  69  N.  W.  674;  Home  Ins.  Co. 
of  New  York  v.  Mendenhall,  164  111.  458.  45  N.  B.  1078,  36  L.  R.  A  374; 
Atherton  v.  Assurance  Co.,  91  Me.  289,  39  Atl.  1006. 

»"  Claflln  T.  Insurance  Co.,  110  U.  S.  96,  3  Sup.  Ot  5OT,  28  L.  Bd.  76.    See, 


OTHER  INSURANCE. 


OTHER  INSURANCE. 


457 


163.  The  purpose  of  tlie  condition  against  other  insnranoe  is  to  pre- 
vent overinsorance.  Hence  the  double  insurance  must  cover 
the  same  interest,  and  not  different  interests  that  may  exist 
in  the  same  property,  such  as  those  of  mortgagor  and  mort- 
gagee. By  the  better  authority  the  procuring  of  any  other  in- 
surance on  the  same  interest  ivithout  the  consent  of  the  com- 
pany, even  though  void  on  its  face,  constitutes  a  breach  of  the 
condition  as  found  in  the  standard  policy. 

"This  entire  policy,  unless  otherwise  provided  by  agreement  indorsed 
hereon  or  added  hereto,  shall  be  void  if  the  insured  now  has  or  shall 
hereafter  make  or  procure  any  other  contract  of  insurance,  whether 
valid  or  not,  on  property  covered  in  whole  or  in  part  by  this  policy." 

This  condition  is  also  intended  to  give  the  insurer  control  of  the 
moral  hazard  involved  in  the  risk  assumed.  In  the  absence  of  any 
condition  of  this  kind,  the  insured  can  procure  as  many  policies  of  in- 
surance as  the  insurers  are  willing  to  issue.  In  no  case,  however, 
could  the  recovery  by  the  insured  in  case  of  loss  exceed  the  actual 
value  of  the  property  destroyed.  But  the  well-known  liberality  of  ju- 
ries in  fixing  the  value  of  property  which  can  no  more  be  seen  imposes 
a  great  temptation  upon  dishonest  persons,  whose  property  is  insured 
up  to  its  full  value  or  above  it,  to  bring  about  its  destruction ;  and  the 
same  conditions  undoubtedly  tend  to  lessen  the  care  that  may  be  ex- 
ercised by  the  honest  in  preventing  fire.  In  view  of  these  facts,  as 
amply  demonstrated  by  experience  as  they  are  apparent  to  reason,  the 
underwriters  take  every  precaution  to  avoid  overinsurance.  In  pur- 
suance of  this  policy,  the  condition  above  quoted  has  been  inserted  in 
the  standard  form.  It  is  dearly  worded  and  certain  in  meaning,  as 
well  as  being  just  and  proper  in  its  purpose.  It  should  therefore  be 
given  full  force  and  effect  by  the  courts  in  accordance  with  its  terms.*** 

also,  Northwestern  Mut  Life  Ins.  Co.  T.  Montgomery,  116  Ga.  799,  43  8.  E. 
79;  Virginia  Fire  &  Marine  Ins.  Co.  v.  Vaughan,  88  Va.  832,  14  S.  E.  754. 
In  this  last  case  certain  invoices  were  falsified  by  the  insured.  The  undis- 
puted proofs  showed  a  loss  far  in  excess  of  the  insurance,  so  that  the  falsi- 
fication could  not  possibly  have  injured  the  insurer  or  profited  the  insured. 
"However  that  may  be,"  said  the  court,  **the  undisputed  facts  are  that  he 
swore  to  a  loss  in  excess  of  the  actual  loss,  and  furnished  false  vouchers,  for 
which  no  explanation  lias  been  offered.  We  must  therefore  infer  that  hia 
sworn  statements  were  known  to  him  to  be  false,  and,  being  upon  a  mate- 
rial matter,  the  law  presumes  that  they  were  made  with  intent  to  deceive.** 
In  a  second  appeal  of  the  same  case,  this  holding  was  reaffirmed.  See  46 
S.  E.  692. 

118  But  the  courts  will  avoid  a  forfeiture  when  It  Is  possible  to  do  so. 
Thus,  in  Stage  v.  Insurance  Co.,  76  App.  Div.  509,  78  N.  Y.  Supp.  555,  it  was 
held  that  taking  out  a  new  policy  in  the  place  of  an  old  one,  that  might  have 


458 


THB   STANDARD   FIRE   POLICY. 


(Ch.l2 


And  such  has  been  the  construction  of  the  condition  ***  in  all  save  a 
few  jurisdictions,  where  there  is  a  tendency  to  narrow  its  scope  and 
defeat  the  plain  intent  of  the  condition  by  holding  that  subsequent  in- 
surance, which  by  its  terms  is  absolutely  void,  does  not  constitute  a 
breach  of  this  condition.^ ^' 

The  Double  Insurance  must  he  upon  the  Same  Interest, 

The  pu-pose  of  this  condition,  as  stated  above,  makes  it  applicable 
only  when  the  double  insurance  covers  the  same  interest  and  the  same 
risk  at  the  same  time,  even  though  several  insurances  may  be  obtained 
upon  the  same  property.  The  spirit  of  the  condition  is  not  violated 
if  each  separate  insurance  inures  to  the  benefit  of  the  holder  of  a  dis- 
tinct interest.  Thus  the  interests  of  the  mortgagor  and  the  mortgagee 
are  entirely  separate.  Insurance  taken  out  independently  by  either  will 
not  inure  to  the  benefit  of  the  other.  Hence  both  mortgagor  and  mort- 
gagee may  insure  the  same  property  without  violating  the  condition 
against  double  insurance  in  the  policy.*^'  The  same  thing  is  true  of 
the  Hfe  tenant  and  the  remainderman,^ ^^  landlord  and  tenant,^^*  bailor 
and  bailee,  and  other  such  persons  holding  separate  interests  in  the 
same  property. 

But  even  when  a  policy  which  is  issued  to  a  person  having  a  separate 
and  distinct  interest  in  the  property  is  of  such  a  form  as  to  inure  to  the 
benefit  of  the  owner  of  a  different  interest  in  that  same  property,  in- 
surance obtained  upon  this  second  interest  will  be  double  insurance. 
Thus  where  a  carrier  or  warehouseman  insures  goods  in  his  possession 

been  renewed,  was  not  procuring  "other  insurance."  In  Temple  v.  Assur- 
ance Co.,  35  N.  B.  171,  it  was  held  that  the  condition  against  other  insurance 
was  not  broken  by  an  application  for  other  insurance  if  it  was  not  Issued, 
and  no  agreement  had  been  reached  between  the  insured  and  the  other  com- 
pany at  the  time  of  the  fire. 

11*  Arnold  V.  Insurance  Co.,  106  Tenn.  529,  61  S.  W.  1032;  Sugg  v.  Insur- 
ance Co.,  98  N.  C.  143,  3  S.  E.  732;  Orient  Ins.  Co.  v.  Prather,  25  Tex.  Civ. 
App.  446,  62  S.  W.  89. 

115  Phenix  Ins.  Co.  v.  Lamar,  106  Ind.  513,  55  Am.  Rep.  764.  In  Gee  v. 
Insurance  Co.,  55  N.  H.  65,  20  Am.  Rep.  171,  it  was  stated,  obiter,  that  the 
condition  avoiding  a  policy  in  case  of  other  invalid  insurance  was  void  as 
repugnant  to  the  purpose  of  the  contract.  In  Stevens  v.  Insurance  Co.,  69 
Iowa,  658,  29  N.  W.  769,  the  second  insurance  was  held  valid,  since  the  for- 
mer policy  had  been  avoided  by  a  removal  of  the  insured  property  before 
the  issue  of  the  policy  in  suit.  In  Zinck  v.  Insurance  Co.,  60  Iowa,  266,  14 
N.  W.  792,  it  was  held  that  the  belief  of  the  insured  that  no  other  valid  in- 
surance existed  on  his  property  was  immaterial  in  a  suit  on  the  second  pol- 
icy, and  that  the  first  policy  defeated  the  second. 

lie  Home  Ins.  Co.  v.  Koob,  68  S.  W.  453,  24  Ky.  Law  Rep.  223,  58  L.  R.  A. 
58;  Hartford  Fire  Ins.  Co.  v.  Williams,  11  O.  C.  A.  503,  63  Fed.  925;  Cronin 
V.  Association,  123  Mich.  277,  82  N.  W.  45;  Breeyear  v.  Insurance  Co.,  71 
X.  H.  445,  52  Atl.  860. 

117  Franklin  Marine  &  Fire  Ins.  Co.  v.  Drake,  2  B.  Mon.  (Ky.)  47. 

iisClemson  v.  Trammel!,  34  UL  App.  414. 


-. 


§163) 


OTHER  INSURANCE. 


459 


to  the  full  extent  of  their  value  to  protect  his  own  interest  and  that  of 
the  owner,  subsequent  insurance  taken  out  by  the  owner  upon  the  same 
property  will  be  "other  insurance"  within  the  meaning  of  tiiis  clause.*** 
The  criterion  in  every  case  is  whether  the  owner  of  a  single  interest 
may  look  to  more  than  one  policy  for  indemnity.**® 

Double  insurance  procured  without  the  knowledge  or  consent  of  the 
policy  holder  will  not  constitute  a  breach  of  this  condition,***  but  any 
subsequent  act  of  the  insured  ratifying  the  unauthorized  procurement 
of  the  second  policy  will  operate  to  defeat  the  former.*** 

On  principle  it  would  seem  clear  that,  if  a  second  insurance  was  pro- 
cured upon  any  part  of  the  property  covered  by  the  first  policy,  the  con- 
dition would  be  broken,  and  such  is  the  holding  of  the  better  authori- 
ties,*** although  there  are  cases  which  take  the  view  that  other  insur- 
ance does  not  exist  unless  both  policies  cover  identically  the  same 
sub  j  ect-matter.  *  ** 

Construction  of  Older  Forms  of  the  Condition, 

It  will  be  observed  that  the  condition  against  double  insurance  quoted 
above  contains  the  clause  "whether  valid  or  not."  This  clause  was  not 
a  part  of  the  early  conditions  against  double  insurance,  and  was  in- 
serted in  the  standard  policy  for  the  purpose  of  avoiding  the  difficulty 
that  had  been  experienced  in  the  construction  of  those  forms,  which 
merely  prohibited  other  insurance.  Under  such  forms  the  courts  held 
that  the  procuring  of  invalid  insurance  did  not  avoid  existing  policies 
containing  a  condition  against  other  insurance,  "other  insurance"  being 

ii»  Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.,  93  U.  S.  527,  23  L.  Ed.  868. 

i«o  Home  Ins.  Co.  v.  Baltimore  Warehouse  Co.,  93  U.  S.  527,  23  L.  Ed.  868; 
Copeland  v.  Insurance  Co.,  96  Ala.  615,  11  South.  746,  38  Am.  St.  Rep.  134; 
Westchester  Fire  Ins.  Co.  v.  Foster,  90  111.  121. 

121  Breeyear  v.  Insurance  Co.,  71  N.  H.  445,  52  Atl.  860;  Home  Ins.  Co. 
V.  Koob,  68  S.  W.  453,  24  Ky.  Law  Rep.  223,  58  L.  R.  A.  58;  Westchester 
Fire  Ins.  Co.  v.  Foster,  90  111.  121;  Cowart  v.  Insurance  Co.,  114  Ala.  356, 
22  South.  574;  Hughes  v.  Insurance  Co.,  40  Neb.  626,  59  N.  W.  112;  McKel- 
vy  V.  Insurance  Co.,  161  Pa.  279,  28  Atl.  1115.  But  in  Arnold  v.  Insurance 
Co.,  106  Tenn.  .529,  61  S.  W.  1032,  it  was  held  that  the  procurement  of  insur- 
ance by  the  owner  of  goods  after  his  friend,  at  his  request,  had  secured  in- 
surance for  him,  constituted  double  insurance,  although  he  did  not  know 
that  his  friend  had  succeeded  in  obtaining  the  insurance. 

122  German  Ins.  Co.  v.  Emporia  Mut.  Loan  &  Savings  Ass'n,  9  Kan.  App. 
803,  59  Pac.  1092;   Arnold  v.  Insurance  Co.,  106  Tenn.  529,  61  S.  W.  1032. 

128  Diver  V.  Insurance  Co.,  9  N.  T.  St  Rep.  482;  OGDEN  v.  INSURANCE 
CO.,  50  N.  Y.  388,  10  Am.  Rep.  492;  Havens  v.  Insurance  Co.,  Ill  Ind.  90, 
12  N.  E.  137,  60  Am.  Rep.  689;  Liscom  v.  Insurance  Co.,  9  Mete.  (Mass.)  205; 
Phoenix  Ins.  Co.  v.  Michigan  Southern  &  Northern  I.  R.  Co.,  28  Ohio  St  69. 

124  Howard  Ins.  Co.  v.  Hocking,  115  Pa.  415,  8  Atl.  592;  Sloat  v.  Insur- 
ance Co.,  49  Pa.  14,  88  Am.  Dec.  477;  Meigs  v.  Insurance  Co.,  205  Pa.  378, 
54  Atl.  1053.  But  see  Meigs  v.  Assurance  Co.  (0.  0.)  126  Fed.  781.  applying 
the  general  rule  to  exactly  the  same  facts. 


460 


THB   STANDARD   B^IRB    POLICY. 


(Ch.  12 


construed  to  be  other  valid  insurance.**'  When  both  policies  in  ques- 
tion contained  the  prohibition  against  other  insurance,  the  courts  were 
hopelessly  at  variance  as  to  the  effect  to  be  given  to  these  conditions. 
In  some  states  it  was  held  that  the  first  policy  was  rendered  void  by  the 
issue  of  the  second,**'  which,  therefore,  was  to  be  held  valid,  since  upon 
its  issue  there  was  no  other  valid  insurance.  In  other  states  it  was  held 
that  the  issue  of  the  second  policy  was  inoperative,  inasmuch  as  by  its 
terms  it  was  absolutely  void  because  of  the  existence  of  a  preceding 
insurance.**^  This  view  left  the  first  contract  valid  and  enforceable, 
because  no  subsequent  valid  insurance  had  been  obtained.  On  principle 
this  would  seem  to  be  the  sounder  view,  although  the  fact  that  the 
word  "void"  in  insurance  contracts  means  "voidable"  makes  the  ques- 
tion one  of  much  difficulty.*** 

OPERATION  OF  FACTORIES. 

164.  A  mannfaetiuins  establislmient  does  not  cease  to  be  operated, 
within  the  meaning  of  the  condition,  nnless  operation  totally 
ceases  of  definite  purpose,  and  not  merely  incidentally,  in  the 
course  of  ordinary  uiannf actnre* 

"♦  *  ♦  If  the  subject  of  insurance  be  a  manufacturing  establish- 
ment and  it  be  operated  in  whole  or  in  part  at  night  later  than  ten 
o'clock,  or  if  it  cease  to  be  operated  for  more  than  ten  consecutive  days." 

1*8  Phoenix  Ins.  Co.  y.  Copeland,  86  Ala.  551,  6  South.  143,  4  L.  R.  A.  848; 
Germania  Fire  Ins.  Co.  v.  Klewer,  129  111.  599,  22  N.  E.  489;  Reed  T.  Insur- 
ance Co.,  17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A.  496. 

i2«  In  Funke  v.  Insurance  Ass'n,  29  Minn.  347,  13  N.  W.  164,  43  Am.  Rep. 
216,  it  was  held  that  other  insurance,  though  void  by  its  terms,  defeated  the 
first  insurance.  But  in  Pitney  v.  Insurance  Co.,  65  N.  Y.  6,  it  was  held  that 
taking  out  a  new  policy  in  the  place  of  renewing  an  old  one  was  not  "other 
insurance/*  within  the  meaning  of  the  term.  Also,  see  Brown  v.  Insurance 
Co.,  18  N.  Y.  391;  Emery  v.  Insurance  Co.,  51  Mich.  469,  16  N.  W.  816,  47 
Am.  Rep.  590. 

i«7  Sutherland  v.  Insurance  Co.,  31  Grat.  (Va.)  17(5;  Reed  v.  Insurance  Co., 
17  R.  I.  785,  24  Atl.  833,  18  L.  R.  A.  496;  Thomas  v.  Insurance  Co.,  119  Mass. 
121,  20  Am.  Rep.  317;  Knight  v.  Insurance  Co.,  26  Ohio  St  664,  20  Am.  Rep. 
778;  Hardy  v.  Insurance  Co.,  4  Allen  (Mass.)  217;  Lindley  v.  Insurance  Co., 
65  Me.  368,  20  Am.  Rep.  701;  Jersey  City  Ins.  Co.  v.  Nichol,  35  N.  J.  Eq.  291, 
40  Am.  Rep.  625;  Clark  y.  Insurance  Co.,  6  Cush.  (Mass.)  342,  53  Am.  Dec. 
44. 

128  In  Behrens  ▼.  Insurance  Co.,  64  Iowa,  19,  19  N.  W.  838,  it  was  held 
that  subsequent  insurance  did  not  invalidate  a  prior  policy  if  that  subsequent 
insurance  was  known  and  treated  by  the  parties  as  void,  but  that  it  would 
be  otherwise  if  the  parties,  with  knowledge  of  the  facts,  should  regard  such 
insurance  as  binding.  Germania  Fire  Ins.  Co.  v.  Klewer,  129  111.  599,  22  N. 
E.  489.  It  is  held  in  this  case  that  at  the  expiration  of  the  first  poliey  the 
second  policy  is  reyived. 


OPERATION   OF  FACTORIES. 


461 


§164) 

By  this  condition  the  insurer  seeks  to  protect  himself  against  the  in- 
crease of  hazard  due  to  the  unusual  operation  of  a  manufacturing  es- 
tablishment during  the  later  hours  of  the  night,  or  to  the  desertion  of 
such  establishment  when  it  is  shut  down  for  any  considerable  period. 
The  breach  of  this  condition  avoids  the  policy,  irrespective  of  the  ques- 
tion whether  an  increase  of  risk  resulted  from  such  breach  or  not."* 
The  only  difficulty  arising  in  the  construction  of  the  condition  is  found 
in  determining  when  the  factory  ceases  to  be  operated  within  the  mean- 
ing of  the  language  used.  In  deciding  whether  there  has  been  a  cessa- 
tion of  operation  in  any  case,  the  courts  will  keep  in  mind  the  character 
of  the  establishment  and  the  customary  method  of  its  operation.  Any 
temporary  suspension  which  may  be  ordinarily  incident  to  the  opera- 
tion ol  the  establishment  will  not  constitute  a  breach  of  this  condition, 
as  where,  for  instance,  a  low  stage  of  water  causes  a  sawmill  to  cease 
operation  for  several  weeks,  during  wh*.  time  high  water  was  daily 
expected.^*®  In  order  to  avoid  a  policy  under  this  condition,  the  cessa- 
tion must  be  due  to  a  shutting  down  of  the  works  with  the  intention 
to  allow  them  to  remain  idle  for  some  considerable  period,  as  where  a 
sawmill  is  deserted  during  the  winter  months,  operations  beginning 
again  only  with  the  opening  of  spring.^'^ 

In  order  that  a  factory  shall  be  in  operation  within  the  meaning  of 
this  clause,  it  is  not  necessary  that  all  of  its  departments  shall  be  oper- 
ated. It  is  sufficient  if  any  portion  of  the  ordinary  work  of  manufac- 
turing is  being  carried  on.^** 

i2»  Dove-  Glassworks  Co.  y.  Insurance  Co.,  1  Mary.  (Del.)  32,  29  Atl.  1039. 
65  Am.  St.  Rep.  264.  Permission  that  the  establishment  shall  cease  to  be 
operated  for  a  specified  period  merely  suspends  the  condition  during  that 
period.  Upon  its  expiration  the  condition  reattaches,  and  the  policy  is  avoid- 
ed by  continued  cessation  of  operation.  El  Paso  Reduction  Co.  v.  Insurance 
Co.  (O.  C.)  121  Fed.  937;  Reardon  y.  Insurance  Co.,  135  Mass.  121;  Cronin  v. 
Association,  123  Mich.  277,  82  N.  W.  44. 

i»o  City  Planing  &  Shingle  Mill  Co.  y.  Merchants*,  Manufacturers'  &  Citi- 
zens' Mut  Fire  Ins.  Co.,  72  Mich.  654,  40  N.  W.  777,  16  Am.  St.  Rep.  552. 
So  when  the  illness  of  a  foreman  requires  a  temporary  suspension  in  the 
operation  of  a  sawmill.  Ladd  y.  Insurance  Co.,  147  N.  Y.  478,  42  N.  E.  197. 
The  suspension  of  active  operations  hi  a  tannery  on  account  of  a  temporary 
failure  in  the  supply  of  material  needed  does  not  avoid  the  insurance  upon 
it.     LEBANON  MUT.  INS.  CO.  v.  LEATHERS  (Pa.)  8  Atl.  424,  Woodruft. 

Ins.  Cas.  172. 

Ill  McKenzie  v.  Insurance  Co..  112  Cal.  548,  44  Pac.  922.    And  see  Cronin 

y.  Association,  123  Mich.  277,  82  N.  W.  45. 

18J  American  Fire  Ins.  Co.  y.  Brighton  Cotton  Mfg.  Co.,  125  111.  131,  17 
N.  E.  771. 


■11 


( 


!l 


!1 


I 


462 


THE   STANDARD    FIEB   POLICY. 


INCREASE  OF  RISK. 


(Ch.12 


166.  An  Inorease  of  risk,  witl&ia  the  terms  of  tMs  condition,  is  snoh  a 
substantial  ohange  of  conditions  affecting  the  risk  as  mate- 
rially to  increase  it.  Mere  negligent  acts  temporarily  endan- 
gering tke  property  do  not  violate  tke  condition. 

"*  *  *  If  the  hazard  be  increased  by  any  means  within  the  con- 
trol or  knowledge  of  the  insured." 

There  is  an  implied  term  in  every  contract  of  insurance  that  the  in- 
sured will  do  no  act  to  make  the  risk  greater  than  that  which  was  as- 
sumed by  the  insurer.  The  standard  policy  contains  an  express  state- 
ment of  this  term,  and  extends  it  to  such  acts  of  others,  increasing  the 
risk,  as  may  be  within  the  control  or  knowledge  of  the  insured.  It  is 
clear  that  this  condition  is  not  violated  by  the  act  of  the  insured's  ten- 
ant, or  other  agent,  in  increasing  the  risk,  provided  that  act  is  not 
known  to  the  insured."*  It  would  seem,  however,  that  any  act  of  the 
insured's  tenant  substantially  and  permanently  affecting  the  condition 
of  the  property,  so  as  to  constitute  an  increase  of  risk,  would  be  pre- 
sumptively known  to  the  insured."*  Likewise  any  acts  done  on  prop- 
erty adjacent  to  that  insured,  although  increasing  the  risk,  would  not 
violate  this  condition  unless  actually  known  to  the  insured.^'* 

M'^hat  Constitutes  an  Increase  of  Risk, 

One  of  the  principal  purposes  of  the  insurance  contract  is  to  protect 
the  insured  against  the  consequence  of  his  own  negligence  and  that  of 
his  servants."*     Hence  the  insurer  will  not  be  permitted  to  defeat  this 

i««  McGammon  v.  Insurance  Co.,  171  Mo.  143,  17  S.  W.  160,  94  Am.  St.  Rep. 
778;  Springfield  Fire  &  Marine  Ins.  Co.  v.  Wade,  95  Tex.  598,  68  S.  W.  977, 
58  L.  R.  A.  714,  93  Am.  St  Rep.  870.  But  see  Thuringia  Ins.  Co.  v.  Norwaysz, 
1(H  III.  App.  390;  Badger  v.  Platts,  68  N.  H.  222,  44  Atl.  296,  73  Am.  St.  Rep. 
572;  KELLY  v.  INSURANCE  CO.,  97  Mass.  284.  In  Liverpool  &  London  & 
Globe  Ins.  Co.  v.  Gunther,  116  U.  S.  113,  6  Sup.  Ct.  306,  29  L.  Ed.  575,  it  was 
held  that  if  any  of  the  conditions  of  the  policy  were  violated  by  the  presence 
or  use  of  gasoline,  naphtha,  or  benzine  on  the  insured  premises,  it  was  im- 
material whether  or  not  the  insured  knew  of  such  violation,  and  that  such 
acts  would  be  considered  as  a  violation  of  the  condition  by  the  insured  him- 
self. 

184  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Gunther,  116  U.  S.  113,  6  Sup. 
Ct.  306,  29  L.  Ed.  575;  Thuringia  Ins.  Co.  v.  Norwaysz,  104  111.  App.  390. 
But  see  Springfield  Fire  &  Marine  Ins.  Co.  v.  Wade,  95  Tex.  598,  68  S.  W. 
977,  58  L.  R.  A.  714,  93  Am.  St.  Rep.  870. 

"»  See  German  Ins.  Co.  v.  Wright,  6  Kan.  App.  611,  49  Pac.  704. 

i»«  Des  Moines  Ice  Co.  v.  Niagara  Fire  Ins.  Co.,  99  Iowa,  193,  68  N.  W. 
eOO.  In  Karow  v.  Insurance  Co.,  57  Wis.  56,  15  N.  W.  27,  46  Am.  Rep.  17, 
the  insured  was  allowed  to  recover  on  his  policy,  though  he  burned  his  own 
property  when  insane.  Henderson  v.  Insurance  Co.,  10  Rob.  (La.)  164,  43 
Am,  Dec  176;    Cumberland  Valley  Mut  Protection  Co.  v.  Douglas,  58  Pa. 


* 


§165) 


mCEEASB  OF  RISK. 


463 


proper  purpose  by  claiming  such  a  construction  of  the  condition  prohib- 
iting an  increase  of  risk  as  to  make  the  contributory  negligence  of  the 
insured  or  of  his  servants  a  defense  to  an  action  on  the  policy."^  A 
mere  neghgent  act,  temporarily  endangering  the  property,  will  not  be 
regarded  as  increasing  the  risk  within  the  meaning  of  this  condition, 
even  though  the  fire  may  have  been  caused  directly  by  such  negli- 
gence."«  Thus,  where  an  insured  carelessly  used  kerosene  in  kindling 
a  fire  in  a  stove,  and  in  so  doing  caused  the  insured  house  to  catch  fire 
It  was  held  that  the  insurer  was  liable  on  the  policy  despite  the  presence 
of  the  condition  against  increase  of  risk."*  The  parties  must  be  as- 
sumed to  have  intended  that  the  insured  building  shall  be  put  to  such 
uses  as  are  buildings  of  the  same  kind,  so  that  the  making  of  repairs, 
painting,  or  doing  other  acts  of  similar  character,  are  not  to  be  re- 
garded as  increasing  the  risk,  since  the  property  would  be  useless  to 
the  insured  if  such  acts  were  prohibited."® 

But  any  change  in  the  condition  of  the  property  insured  which  tends 
to  increase  the  risk  substantially  and  permanently,  or  for  a  considerable 
period,  is  within  the  condition."^    Thus,  keeping  in  the  house  a  small 

tnwx^n^*  ^T^ToSr^  .?^*^^  ""'  I^«"™°ce  Co..  5  N.  Y.  469,  55  Am.  Dec.  360; 
cTtTj'o^^^^J^^.^^  ^^-  ^  ^"^^  ^^^««)  388:  Huckins  v.  Insurance 
^  L  Ax;^*Sl>^^^^^°^  ^^®  ^''^'  ^*'-  ^-  Whiteford,  31  Md.  219,  100  Am. 
St   k^:  4     ^  ""'  ASSURANCE  CO..  10  S.  D.  82,  71  N.  W.  76i,  66  Am. 

137  Des  Moines  Ice  Co.  v.  Niagara  Fire  Ins.  Co.,  supra;   Henderson  v   In- 

N.  Y.  469,  55  Am.  Dec.  360;  Huckins  v.  Insurance  Co.,  31  N.  H.  238-  Rogers 
V.  Insurance  Co.,  35  C.  C.  A.  396,  95  Fed.  103  ^  •  ^.  ^,    Kogers 

Ren'IS'^^Tl^Ty'''??  -^  ^f  •  Jf '•  ^^-  ^-  ^^^^^'  ^^  «•  ^-  274,  24  Ky.  Law 
Rep  958.    In  Des  Momes  Ice  Co.  v.  Niagara  Fire  Ins.  Co.,  supra,  it  was  said 

that  anmsurance  policy  would  be  of  little  value  if  it  was  permissible  to  set 

up  a  defense  in  every  case  where  negligence  could  be  shown.    Pool  v   Insur- 

SURANPP  rn^'l^fn'  ^.f;  ^-  ^2'  ^^  ^°^-  ^*-  ^P-  »19'    JOHNSON  v.  IN- 
C  n   A    raQ   «;;  t  ^"nl^^^"'-^  ^^-     ^^  "^^^ova  Ins.  Co.  v.  Williams,  11 
C.  O.  A.  503,  63  Fed.  925,  it  was  held  that  the  voluntary  destruction  by  the 
owner  would   not  prevent   the   mortgagee   from  recovering   on  his   policy 
^^{  ^x?^^^"*®  ^''^-  ^'''  ^-  Whiteford,  31  Md.  219,  100  Am.  Rep.  45. 
Ro,!  i^^\^^.  ""'  ASSURANCE  CO.,  10  S.  D.  82,  71  N.  W.  761,  66  Am.  St. 
ft«  Q  w  oit°^o^^  Springfield  Fire  &  Marine  Ins.  Co.  v.  Wade.  95  Tex,  598, 
68  S.  W.  977,  58  L.  R.  A.  714,  93  Am.  St.  Rep.  870. 
1*0  Mears  v.  Insurance  Co.,  92  Pa.  15,  37  Am.  Rep.  647;   An  Sable  Lumber 

tmo7;t>?®*^^"  ^^^^''  ^^^®  ^^^-  ^-^  ^  Mich.  407,  50  N.  W.  870;  O'NIEL  v 
INSURANCE  CO.,  3  N.  Y.  122;  Morse  v.  Insurance  Co.,  30  Wis.  534,  11  Am 
Kep.  587;  Lutz  v.  Insurance  Co.,  205  Pa.  159,  54  Atl  721 
QQc*\?''^f  ^*  ^s^^a°ce  Co.,  124  Mich.  455,  83  N.  W.  124,  83  Am.  St  Rep 
^LZ^^f"^?^®^  ""•  -Assurance  Co.,  123  Mich.  291,  82  N.  W.  46;  Fh-st  Con 
f^^^^*^7»^  Church  V.  Holyoke  Mut.  Fire  Ins.  Co.,  158  Mass.  475.  33  N.  E- 

Y  97^  ^\^'  ^^'  ^^  ^™-  ^^  ^^P-  ^^'  Williams  V.  Insurance  Co.,  67  N. 
^Vmi'  ^^^^^^^  V-  Insurance  Co.,  74  Wis.  470,  43  N.  W.  487,  5  L  R  A  779- 
KYTE  V.  ASSURANCE  00.  149  Mass.  116.  21  N.  E.  361.  3  l!  R.*  I  5^' 


464 


THE   STANDARD    FIRE    POLICY. 


(Ch.  12 


^A 


quantity  of  gasoline,  needed  for  removing  old  paint  during  the  course 
of  making  repairs,  does  not  increase  the  risk,^*^  but  keeping  such  gaso- 
line permanently  in  the  house,  or  for  sale,  or  for  other  purposes,  would 
undoubtedly  violate  this  condition.^*^  So  it  has  been  held  that,  where 
the  insured  made  a  practice  of  throwing  kerosene-soaked  clothing  in  a 
box  kept  in  the  house  insured,  it  was  a  proper  question  for  the  jury 
whether  the  risk  was  increased.^**  The  use  of  a  naphtha  torch  in 
burning  off  paint  from  the  insured  premises,  which  was  continued  dur- 
ing a  month,  was  held  to  be  an  increase  of  the  risk.^**  The  mere  fact 
that  additions  to  or  alterations  of  the  insured  premises  are  made  with- 
out the  consent  of  the  insurer  does  not  avoid  the  policy  under  this  con- 
dition. Whether  or  not  such  repairs  or  additions  constitute  an  increase 
of  risk  is,  as  in  all  other  cases,  a  question  for  the  jury.^** 

MAKING  REPAIBS. 

166*  The  eondltioii.  with  regard  to  the  employment  of  meclianiet  ht 
making  repairs  is  iuam.bigraons,  and  -will  be  enforced  aocordins 
to  its  terms,  whether  the  risk  is  increased  or  not. 

**♦  ♦  *  If  mechanics  be  employed  in  building,  altering,  or  repair- 
ing the  within  described  premises  for  more  than  fifteen  days  at  any  one 
time." 

Richards,  Ins.  Cas.  457;  Imperial  Fire  Ins.  Co.  t.  Coos  County,  151  U.  S. 
452,  14  Sup.  Ct  379,  38  L.  Ed.  231;  Liverpool  &  London  &  Globe  Ing.  Co.  ▼. 
Gunther,  116  U.  S.  113,  6  Sup.  Ct.  306,  29  L.  Ed.  575. 

142  Smith  V.  Insurance  Co.,  107  Mich.  270,  65  N.  W.  236,  30  L.  R.  A.  368. 
And  see  Mears  v.  Ingurance  Co.,  92  Pa.  15,  37  Am.  Rep.  647;  Au  Sable  Lum- 
ber Co.  V.  Detroit  Mfrs.*  Fire  Ins.  Co.,  89  Mich.  407,  50  N.  W.  870;  O'NIEL 
V.  INSURANCE  CO.,  8  N.  Y.  122;  Williams  v.  Insurance  Co.,  54  N.  Y.  569, 
13  Am.  Rep.  620;  Springfield  Fire  &  Marine  Ins.  Co.  ▼.  Wade,  95  Tex.  598 
68  S.  W.  977,  58  L.  R.  A.  714,  93  Am.  St.  Rep.  870. 

143  Sperry  v.  Insurance  Co.  (C.  C.)  26  Fed.  234;  Lntz  v.  Insurance  Co.,  205 
Pa.  150,  54  Atl.  721;  Steinbach  v.  Insurance  Co.,  13  Wall.  (U.  S.)  183,  20  L. 
Ed.  615.  But  see  Ackley  v.  Insurance  Co.,  25  Mont.  272,  64  Pac.  665,  in  which 
a  reasonable  quantity  of  the  prohibited  articles  kept  by  a  druggist  did  not 
effect  a  forfeiture,  being  such  things  as  a  druggist  usually  kept,  notwithstand- 
ing the  clause  in  the  policy  which  prohibited  the  keeping  of  them.  But  in 
this  case  the  insurers  had  indorsed  on  the  policy  a  permit  allowing  the  in- 
sured to  keep  such  things  as  were  customary  for  a  druggist  to  keep,  and  the 
court,  in  construing  this  clause  with  the  conflicting  ciause  In  the  policy, 
reached  the  above  conclusion. 

14*  Williams  v.  Insurance  Co.,  57  N.  Y.  274,  Richards,  Ins.  Oas.  452. 

14  6  First  Congregational  Church  v.  Holyoke  Mut.  Fire  Ins.  Co.,  158  Mass. 
475,  33  N.  E.  572,  19  L.  R.  A.  587,  35  Am.  St  Rep.  508. 

i4«MERRIAM  V.  INSURANCE  CO.,  21  Pick.  (Mass.)  162,  82  Am.  Dec 
252;  Pool  V.  Insurance  Co.,  91  Wis.  530,  65  N.  W.  54,  51  Am.  St  Rep.  919; 
Smith  V.  Insurance  Co.,  107  Mich.  270,  65  N.  W.  236,  30  L.  R.  A.  368;  Wil- 
liams V.  Insurance  Co.,  67  N.  Y.  274;  Kircher  v.  Insurance  Co.,  74  Wis.  47(^ 
43  N.  W.  487,  6  L.  E.  A.  779. 


gl66) 


MAKING  REPAIRS. 


465 


There  appears  to  be  little  room  for  doubt  as  to  the  proper  construc- 
tion of  this  condition,  and  it  seems  to  have  given  rise  to  little  litigation. 
It  is  supplementary  to  the  preceding  condition  prohibiting  an  increase 
of  hazard.  If  mechanics  are  employed  for  the  specified  time,  the  con- 
dition is  broken  and  the  policy  avoided,  unless  the  insurer  has  pre- 
viously consented  to  such  repairs  or  waived  his  right  to  claim  the  for- 
feiture. It  is  immaterial  whether  the  making  of  the  repairs  increased 
the  risk  or  not,  or  whether  it  in  any  wise  contributed  to  the  loss.^*^  By 
the  better  authority  the  policy  becomes  void  at  the  option  of  the  insurer, 
even  though  the  fire  takes  place  long  after  the  repairs  have  been  com- 
pleted.^*' Painting  or  papering  the  building  insured,  or  any  other 
work  done  in  ornamenting  it,  constitutes  repairs,  as  well  as  do  changes 
in  its  structure  ^*'  more  usually  understood  as  coming  within  that  term. 


.  ^ 


147  German  Ins.  Co.  v.  Hearne,  117  Fed.  289,  54  a  a  A.  527,  59  L.  R.  A. 
492,   Newport  Imp.  Co.  v.  Home  Ins.  Co.,  163  N.  Y.  237,  57  N.  B.  475. 

1*8  Imperial  Fh-e  Ins.  Co.  v.  Coos  County,  151  U.  S.  463,  14  Sup.  Ct  379, 
B8  L.  Ed.  231;  KYTB  v.  ASSURANCE  CO ,  149  Mass.  116,  21  N.  E.  361,  3 
L.  R  A.  508,  Richards,  Ins.  Cas.  457. 

148  German  Ins  Co.  y.  Heame,  117  Fed.  289,  54  a  G.  A.  527,  59  L.  B.  A. 
4&2. 

Vanob  Ins.— -80 


466 


THE   STANDARD    FIRE   POLICT. 


(Ch.  13 


§167) 


PORECLOSURE  PROCEEDINGS. 


4G7 


n 


CHAPTER  XTTT. 

THE  STANDARD  FIRE  POLICY  (CJontlnned)^ 

167.  Foreclosure  Proceedings. 

168.  Assignments. 

169.  Generation  of  Gas. 

170.  Explosive  and  Inflammable  Substances. 

171.  Vacant  or  Unoccupied  Buildings. 

172.  Collapse  of  Building. 
173-175.  Liability  of  the  Insurer. 
176-177.  Measure  of  Insurer's  Liability, 

178.  Appraisal  and  Arbitration. 

179.  Option  to  Rebuild. 

180.  As  Affected  by  Valued  Policy  Laws. 

181.  Documents  Made  Part  of  Contract  by  Referenoa 

182.  Authority  of  Agents — Waivera, 

183.  Cancellation  of  Policy. 
184^189.  Notice  and  Proofs  of  Losai 

190.  Magistrate's  Certificate. 

191.  Limitation  upon  Actions. 

FORECLOSURE  PROCEEDINGS. 

167*  Tl&e  condition  avoiding  the  policy  npon  foreclosure  proceedings 
is  reasonable,  and  is  fairly  enforced.  By  the  terms  of  the  con- 
dition the  first  legal  step  institntins  the  proceedings  to  fore- 
close violates  the  condition. 

*****!£  with  the  knowledge  of  the  insured,  foreclosure  pro- 
ceedings be  commenced  or  notice  given  of  sale  of  any  property  covered 
by  this  policy  by  virtue  of  any  mortgage  or  trust  deed." 

This  condition,  giving  the  insurer  the  opportunity  to  cancel  the  policy 
in  case  any  legal  proceedings  are  instituted  for  the  purpose  of  fore- 
closing any  mortgage  or  other  lien  upon  the  insured  property,  is  in- 
serted in  recognition  of  the  fact  that  the  prospect  of  early  loss  of  prop- 
erty by  legal  process  is  apt  to  induce  the  insured  to  bring  about  its 
more  profitable  destruction  by  fire.  The  condition  is  reasonable  and 
in  full  accord  with  public  policy,  and  as  a  general  rule  the  courts 
have  given  it  a  construction  perfectly  fair  to  the  insurer.  Its 
terms  clearly  indicate  that  it  is  the  duty  of  the  insured,  immedi- 
ately upon  acquiring  knowledge  in  any  manner  whatever  of  the  com- 
mencement of  foreclosure  proceedings,  or  of  notice  that  the  prop- 
erty will  be  sold  by  virtue  of  the  power  given  in  a  mortgage  or  trust 
deed,  to  give  that  information  to  the  insurer,  who  may  then,  at  his  op- 
tion, cancel  the  policy,  or  indorse  upon  it  an  agreement  for  the  contin- 
uance of  the  insurance  in  spite  of  such  proceedings.    This  has  been 


the  construction  given  by  most  of  the  courts  before  which  the  question 
has  come,'  but,  curiously  enough,  in  a  few  jurisdictions  the  courts  have 
looked  at  the  terms  of  the  condition  with  such  distorted  vision  as  to 
see  in  it  a  requirement  that  notice  must  be  given  to  the  insured  before 
the  commencement  of  the  foreclosure  proceedings  in  order  that  the 
condition  shall  be  violated.  Thus,  it  has  been  held  in  North  Carolina 
that  where  a  sale  of  the  insured  property  was  advertised  under  a  deed 
of  trust  without  previous  notice  to  the  insured,  who,  however,  saw  the 
notice  of  the  sale  before  the  fire,  there  was  no  breach  of  the  condition.* 
It  was  further  held  in  this  case  that  the  knowledge  of  such  impending 
sale  possessed  by  the  local  agent  of  the  insurer  made  it  incumbent  upon 
the  insurer  to  cancel  the  policy  and  return  the  unearned  premium,  and 
that  its  failure  to  do  so  was  meant  to  be  a  waiver  of  the  breach,  if  any 
existed.  This,  however,  is  clearly  opposed  to  both  reason  and  author- 
ity. In  other  states  it  has  also  been  held  that  the  filing  of  a  bill  to  fore- 
close a  mortgage,  without  previous  notice  thereof  to  the  insured,  did  not 
avoid  the  insurance  under  this  condition,  although  the  insured  had 
knowledge  of  the  commencement  of  the  proceedings  a  short  time  there- 
after." 

It  will  be  noted  that  the  condition  requires  notice  to  the  insurer  of  the 
commencement  of  foreclosure  proceedings  if  known  to  the  insured.  It 
is  held  by  the  courts  that  such  proceedings  are  deemed  to  "commence" 
with  the  first  legal  step  taken  to  bring  about  foreclosure,  such  as  the 
service  of  the  petition  to  foreclose  upon  the  insured.*  So  it  is  generally 
held  that  the  public  advertisement  of  the  sale  under  a  mortgage  or  deed 
of  trust  is  such  notice  as  is  contemplated  by  the  condition.* 

ifi^  ^5f'  especially,  Delaware  Ins.  Co.  y.  Greer,  120  Fed.  016.  57  0.  O.  A. 
ir  oo   A  -^^"^^  ^^^*  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  31  N.  E. 

QQo   \r^:  ^**  ^®P-  ^^'    Merchants*  Ins.  Co.  v.  Brown,  77  Md.  79.  25  Ati. 
yy-i;   McKinney  v.  Assurance  Co.,  97  Ky.  474,  30  S.  W.  1004 
7j*  Horton  v.  Insurance  Co.,  122  N.  O.  498.  29  8.  B.  944,  65  Am.  St  Rep. 

»  Bellevue  Roller-Mill  Co.  ▼.  London  &  L.  Fire  Ins.  Co..  4  Idaho,  307   39 
W  1091  "^  ^"^^^^  *  Mercantile  Co.  v.  Freeman  (Tex.  Qv.  App.)  33  S. 

»  ^l^^^I  T:  l^S"''^^^^  C^'  74  VL  211.  52  Atl.  429.  93  Am.  St  Rep.  885. 
9QQ  ^P"°^e^d  Steam  Laundry  Co.  v.  Traders*  Ins.  Co..  151  Mo.  90,  52  S   W 
^8.  74  Am.  St  Rep.  521;    Merchants'  Ins.  Co.  v.  Brown,  77  Md.  79.  25  Atl' 
V  7.      ^^^17-  Insurance  Co..  132  N.  C.  702.  44  S.  E.  404;   Delaware  Ins   Co' 
I;.  ^^V^  ^^^  ^^^'  ^^  ^'  ^'  ^'  ^^  «1  ^  R-  ^-  137.    But  in  wis  y   I^I 

Zfl'n''  ^'  ^^^  ^^-  ^^'  ^  ^^'  ^^'  "  ^««  ^^'^  «^«t  tbe  issue  of  a  sci^ 
racias  on  tte  property  was  not  a  commencement  of  foreclosure  proceedmes 

S.  m  "^  ^^l^O^y.  Brown,  77  Md.  64,  27  AtL  814.  sT^   It* 


4G8 


THB  STANDARD   FIRE   POLICY. 


(Ch.  13 


§§  169-170)      EXPLOSITB  AND  INFLAMMABLE  SUBSTANGB& 


ASSIGNMENTS. 

168.  Tlie  condition  avoldins  the  policy  In  case  of  astignmeat  without 
consent  of  insurer  applies  to  an  assignment  accompanying  a 
eonveyanoe  of  the  property  Insured,  and  not  merely  a  pledge  of 
the  policy  as  collateral  security  for  a  debt. 

•<*    m    m    If  this  policy  be  assigned  before  a  loss." 

Since  personal  and  moral  considerations  are  so  important  an  element 
in  the  hazard  involved  in  any  insurance  contract,  it  is  manifest  that  the 
insurer  cannot  be  compelled  to  accept  as  the  party  insured  any  person 
to  whom  the  policy  may  be  assigned.  The  contract  is  personal,  and 
does  not  in  any  wise  run  with  or  adhere  in  the  property  insured. 
Therefore  the  assignment  of  the  policy,  without  the  consent  of  the  in- 
surer, to  a  person  to  whom  the  subject  of  insurance  has  been  trans- 
ferred, absolutely  avoids  the  contract  of  insurance,®  unless  the  insurer 
has  agreed  to  accept  the  assignee  as  the  other  party  to  the  contract, 
which  agreement  in  effect  creates  a  novation.  Likewise  an  absolute 
assignment  before  loss  to  one  having  no  interest  in  the  property  would 
be  vicious  and  in  violation  of  the  condition.''     -- 

None  of  the  considerations  just  stated  as  prohibiting  an  assignment 
of  insurance  to  the  transferee  of  the  insured  property  are  present  in  the 
case  of  a  mere  pledge  of  the  policy.  The  pledgee  occupies  no  contrac- 
tual relation  towards  the  insurer,  nor  has  he  anything  to  do  with  the 
subject  of  insurance.  The  insurer,  therefore,  has  no  reason  for  ob- 
jecting to  such  a  pledge,  which  is  not  infrequently  made  by  a  mere  de- 
livery of  policy  as  additional  security  for  some  debt*  The  legal  effect 
of  such  a  pledge  is  merely  to  make  the  pledgee  the  equitable  assignee 
of  any  fund  that  may  become  due  under  the  policy.^ 

An  assignment  of  the  policy  after  loss,  when  it  has  become  a  mere 
money  claim,  is  not  within  the  condition."  Nor  would  an  attempted 
restraint  upon  such  an  assignment  be  valid.** 

•  Buchanan  ▼.  Insurance  Co.,  61  N.  T.  611;  Watertown  Fire  Ins.  Co.  v. 
Cherry,  84  Va.  72,  3  S.  E.  876;  Stolle  v.  Insurance  Co.,  10  W.  Va.  546,  27  Am. 
Rep.  503.  But  this  condition  Is  not  violated  by  the  insured's  agreement  that 
the  carrier  shall  be  entitled  to  any  Insurance  carried,  in  case  of  loaa.  Jack- 
son Co.  V.  Boylston  Mut  Ins.  Co..  139  Mass.  508,  2  N.  B.  103,  52  Am.  Rep. 

728. 
TBentley  ▼.  Insurance  Co.,  40  W.  Va.  729,  23  S.  B.  584. 

•  Key  T.  Insurance  Co.,  101  Mo.  App.  344,  74  S.  W.  162;  True  v.  Insurance 
Co.  (C.  C.)  26  Fed.  83;  Giflfey  v.  Insurance  Co.,  100  N.  Y.  417,  3  N.  B.  309,  53 
Am.  Rep.  202.  But  see  Ferree  v.  Insurance  Co.,  67  Pa.  373»  5  Am.  Rep.  436, 
In  which  the  terms  of  the  condition  are  peculiar. 

•  See  Cromwell  v.  Insurance  Co.,  39  Barb.  (N.  Y.)  227. 

10  Roger  Williams  Ins.  Co.  v.  Carrington,  43  Mich.  252,  6  N.  W.  203, 
IX  Alkan  T.  Insurance  Co.,  53  Wis.  136,  10  N.  W.  91. 


GENERATION  OF  OA8. 

169.  The  condition  prohibiting  the  generation  of  illnminating  gas  «v 
vapor  on  the  insnred  premises  is  so  clearly  x7orded  as  not  to 
have  given  any  occasion  for  dispute  as  to  its  construction. 


«<♦ 


*    *    If  illuminating  gas  or  vapor  be  generated  in  the  described 
building  (or  adjacent  thereto)  for  use  therein." 

The  insurer  is  justified  in  inserting  such  a  provision,  which  it  will  be 
noticed  refers  only  to  the  generation  of  gas  on  the  premises,  and  not 
to  its  use.  While  there  may  have  been  litigation  involving  the  con- 
struction of  this  condition,  the  reported  cases  do  not  give  any  evidence 
of  it.  It  is  doubtless  true,  however,  that  the  same  general  principle 
would  be  applied  in  construing  the  terms  of  this  condition  as  have  been 
so  frequentiy  applied  in  connection  with  other  conditions  of  the  fire  pol- 
icy; that  is,  the  condition  must  be  substantially,  and  not  merely  liter- 
ally, violated  in  order  to  avoid  the  policy.  It  is  doubtful  whether  the 
generation  of  illuminating  gas  in  small  quantities,  as  for  bicycle  lamps, 
would  be  construed  as  a  breach  of  this  condition. 

EXPLOSIVE  AND  INFLAMMABLE  SUBSTANCES. 

170.  The  presence  of  any  of  these  prohibited  substances  on  the  in- 
sured premises  will  avoid  the  insurance  only  when  in  such 
quantities  and  for  such  a  time  as  materially  to  increase  the 
risk.  And  -when  the  property  insured,  as  described  in  the  pol- 
icy, either  expressly  or  by  reasonable  implication,  includes  any 
of  the  prohibited  substances,  their  presence  on  the  premises  in- 
sured will  not  avoid  the  insurance. 

*****  Or  if  (any  usage  or  custom  of  trade  or  manufacture  to 
the  contrary  notwithstanding)  there  be  kept,  used,  or  allowed  on  the 
above  described  premises,  benzine,  benzole,  dynamite,  ether,  fireworks, 
gasolene,  greek  fire,  gunpowder  exceeding  twenty-five  pounds  in  quan- 
tity, naphtha,  nitro-glycerine  or  other  explosives,  phosphorus,  or  pe- 
troleum or  any  of  its  products  of  greater  inflammability  than  kerosene 
oil  of  the  United  States  standard,  (which  last  may  be  used  for  lights 
and  kept  for  sale  according  to  law  but  in  quantities  not  exceeding  five 
barrels,  provided  it  be  drawn  and  lamps  filled  by  daylight  or  at  a  dis- 
tance not  less  than  ten  feet  from  artificial  light)." 

This  condition,  while  proper  and  valid,  will  be  given  a  reasonable 
construction,  so  as  to  carry  out  the  intention  of  the  parties.  The  pres- 
ence of  such  small  quantities  of  these  inflammable  materials,  or  of  large 
quantities  for  so  short  a  time  as  not  to  materially  increase  the  hazard. 


Il 


470 


THE    STANDARD    FIRE    POLICY. 


(Ch.  13 


1 


will  not  be  construed  as  constituting  a  breach  of  the  condition,"  which 
is  manifestly  aimed  at  the  hazardous  consequences  resulting  from  the 
presence  of  explosives  and  other  highly  inflammable  substances. 

It  will  also  be  noted  that  the  terms  of  the  condition  apply  equally 
well  to  those  cases  in  which  these  prohibited  articles  are  kept  on  the 
insured  premises  without  the  knowledge  or  consent  of  the  insured  nor 
by  his  procurement.  Thus,  the  act  of  a  tenant  in  keeping  benzine  upon 
the  premises  constitutes  a  breach  of  this  condition,  despite  the  fact  that 
it  was  done  without  the  knowledge  or  consent  of  the  insured.^* 

As  Affected  by  Custom  and  Usage  of  Trade. 

It  has  become  a  settled  rule  of  construction  that  when  the  written 
description  of  the  subject  of  insurance  includes  property  which  custo- 
marily consists  in  part  of  some  of  the  prohibited  inflammable  sub- 
stances, or  where  the  building  insured  is  described  as  being  used  for 
some  trade  or  business  which  customarily  involves  the  use  of  these 
inflammable  substances,  the  printed  condition  will  yield  to  the  written 
description,  and  the  policy  remain  valid  in  spite  of  the  presence  of  such 
articles.^*  Thus,  in  a  New  York  case  it  was  held  when  a  policy  was  is- 
sued on  a  store  that  was  to  be  used  as  "a  fancy  goods  and  Yankee  no- 
tion store"  it  was  not  avoided  by  the  presence  of  fireworks  in  the  store, 
when  it  was  shown  that  fireworks  were  ordinarily  recognized  as  part 
of  the  stock  of  goods  usually  carried  in  such  a  store."  So,  in  spite  of 
this  provision,  gunpowder  may  be  kept  as  a  part  of  a  stock  of  goods 
in  a  country  store  when  it  is  shown  that  gunpowder  is  usually  kept  in 
such  stores."  Likewise  insurance  upon  property  described  as  "watch- 
makers* material"  allows  the  keeping  of  benzine  upon  the  premises,  al- 
though expressly  forbidden  by  the  policy,  since  benzine,  used  for  clean- 
ing purposes,  is  a  necessary  material  in  the  watchmaker's  shop."  This 
rule  of  construction,  however,  like  every  other  such  rule,  is  intended 
merely  to  carry  out  the  intentions  of  the  parties,  and  not  to  defeat  them. 

i«  Bayly  v.  Insurance  Co.,  Fed.  Cas.  No.  1,145;  Phoenix  Ins.  Oo.  ▼.  Tay- 
lor, 5  Minn.  492  (Gil.  393);  Williams  v.  Insurance  Co.,  54  N.  Y.  569,  13  Am. 
Rep.  620. 

18  Liverpool  &  L.  &  G.  Ins.  Oo.  v.  Gunther,  116  U.  S.  113,  6  Sup,  Ct.  306, 
29  L.  Ed.  575;  Duncan  v.  Insurance  Co.,  6  Wend.  (N.  Y.)  488,  22  Am.  Dec. 
539;  Thuringia  Ins.  Co.  v.  Norwaysz,  104  111.  App.  390.  But  see  Springfield 
Fire  &  Marine  Ins.  Co.  v.  Wade,  95  Tex.  598,  68  S.  W.  977,  58  L.  R.  A.  714, 
93  Am,  St.  Rep.  870. 

1*  Citizens'  Ins.  Co.  v.  McLaughlin,  63  Pa.  485;  Lancaster  Silver  Plate  Co. 
V.  Fire  Ins.  Co.,  170  Pa.  151,  32  AtL  613;  Hall  ▼.  Insurance  Co.,  58  N.  Y. 
292.  17  Am.  Rep.  255. 

18  Baraum  v.  Insurance  Co.,  97  N.  Y.  188. 

i«  Peoria  Marine  &  Fire  Ins.  Co.  v.  Hall,  12  Mich.  202.  To  the  same  effect, 
see  Yoch  v.  Insurance  Co.,  Ill  Oal.  503,  44  Pac.  189,  34  L.  R.  A.  857. 

IT  Maril  V.  Insurance  Co.,  95  Ga.  604,  23  S.  E.  463,  SO  L.  E.  A.  835  51 
Am.  St  Rep.  102.  ' 


§m) 


YACANT  OR  UNOCCUPIED  BUILDINGS. 


471 


Therefore  a  custom  or  usage  to  employ  the  prohibited  articles  in  a 
given  trade  or  business  will  not  be  allowed  to  negative  the  effect  of  a 
prohibitory  condition,  when  the  court  may  reasonably  infer  from  all  the 
circumstances  in  the  case  that  the  parties  in  fact  intended  to  exclude 
such  hazardous  articles,  despite  the  custom  of  trade.  Thus,  where  th? 
policy  prohibited  the  keeping  of  nitroglycerin  on  the  insured  premises, 
it  was  held  that  this  condition  was  intended  to  override  a  usage  in  the 
business  of  the  insured  to  keep  nitroglycerin  and  dynamite  for  sale.^* 
So  it  was  held  by  the  Supreme  Court  of  the  United  States  "  that  in- 
surance granted  upon  a  stock  of  fancy  goods,  toys,  and  other  articles 
in  the  insured's  line  of  business  as  a  jobber  and  importer,  with  privilege 
to  keep  firecrackers,  was  avoided  by  the  insured  keeping  fireworks 
which  were  expressly  prohibited  in  the  policy,  although  it  was  shown 
that  fireworks  were  usually  kept  by  those  engaged  in  the  plaintiff's 
business.  The  Court  of  Appeals  of  New  York,***  considering  the  same 
clause  of  a  similar  policy,  under  exactly  the  same  facts,  held  that  the 
insurer  was  liable  on  the  policy  despite  the  presence  of  the  fireworks 
in  accordance  with  the  general  doctrine  explained  above.  These  two 
cases  so  differently  decided,  by  two  such  eminent  courts,  show  striking- 
ly the  difficulty  of  applying  this  rule  of  construction. 

The  form  of  this  condition,  as  appearing  in  the  standard  policy,  con- 
tains the  expression,  "any  usage  or  custom  of  trade  or  manufacture  to 
the  contrary  notwithstanding."  This  clause  is  evidently  aimed  at  the 
rule  laid  down  by  the  courts  that  a  usage  of  business  can  be  shown  in 
order  to  include  some  of  the  prohibited  articles  in  the  subject  of  insur- 
ance as  described.  The  effort  of  the  draftsman  of  the  standard  policy 
to  abrogate  this  rule  has  been  wholly  abortive,  and  must  necessarily 
have  been.  The  very  theory  of  the  rule  is  that  the  written  description 
of  the  property  insured  prevails  over  repugnant  printed  terms  of  any 
condition  of  the  policy.  Therefore  any  expression  that  may  be  used  in 
order  to  strengthen  the  repugnancy  will  wholly  fail  to  affect  the  rule 
of  construction.** 


VACANT  OR  XTNOCCUFIED  BUILDINGS. 

271«  The  eondition  requiring  that  the  building  insured  shall  Hot  be 
vacant  or  unoccupied  is  satisfied  by  such  occupation  as  is  in- 
volved in  the  ordinary  use  of  buildings  of  like  kind  with  that 
insured.  A  church  or  a  bam  is  not  occupied  in  the  san&e  fashion 
as  a  dwelling  house.  A  dwelling  is  "vacant"  when  permanently 
deserted  by  its  tenant,  and  "unoooupied"  during  his  temporary 
absence. 

IS  Sperry  y.  Ingurance  Co.,  26  Fed.  234.    See,  also,  Lutz  v.  Insurance  COn 
205  Pa.  159,  54  Atl.  721. 

"  Steinbach  v.  Insurance  Co.,  13  Wall.  183,  20  L.  Ed.  615. 

«o  StPinbach  v.  Insurance  Co.,  54  N.  Y.  90. 

•1  Ackley  V.  Insurance  Co.,  25  Mont  272,  64  Pac.  665. 


472 


THE   STANDARD    FIRE   POLICY, 


(Ch.  13 


VACANT  OR  UNOCCUPIED  BUILDINGS. 


475 


"* 


^  *  If  a  building  herein  described,  whether  intended  for  oc- 
cupancy by  owner  or  tenant,  be  or  become  vacant  or  unoccupied  and  so 
remain  for  ten  days." 

The  purpose  of  this  condition  is  to  secure  for  the  insured  building 
the  presence  and  care  of  some  occupant  whose  watchfulness  will  tend 
to  preserve  the  property."  But  it  is  apparent  at  the  outset  that  build- 
ings designed  for  different  purposes  are  susceptible  of  occupancy  in 
very  different  degrees.  Thus  a  church  or  schoolhouse  cannot,  in  the 
nature  of  things,  be  occupied  in  the  same  manner  as  a  dwelling  house, 
while  a  barn  is  less  capable  of  being  actually  occupied  than  is  a  church. 
Therefore  the  condition  requiring  that  the  property  shall  be  occupied, 
and  not  vacant,  will  be  construed  reasonably,  with  reference  to  what 
must  have  been  the  intention  of  the  parties,  in  view  of  the  character  of 
the  building.^* 

A  church  or  schoolhouse  is  considered  to  be  occupied  when  it  is  used 
in  the  customary  manner.  It  is  "unoccupied  and  vacant"  when  it 
ceases  to  be  so  used."  The  mere  fact,  however,  that  a  church  build- 
ing should  be  closed  for  one  week  or  several  weeks  on  account  of  the 
illness  or  absence  of  the  pastor,  or  for  other  adventitious  reasons,  would 
not  cause  it  to  be  "unoccupied,"  nor  would  a  schoolhouse  be  "unoc- 
cupied" if  it  was  temporarily  closed  during  an  epidemic  A  barn  is  to 
be  regarded  as  occupied  when  used  for  those  purposes  to  which  such 
buildings  are  ordinarily  put,  as  the  housing  of  horses,  or  the  storing 
of  hay  and  grain.  If  the  bam  were  allowed  to  fall  into  disuse,  so  that 
it  was  no  longer  receiving  daily  visits  of  the  owner  or  his  representa- 
tive, it  would  be  "unoccupied."  "  The  same  principle  applies  to  in- 
surance upon  a  mill  *•  or  factory  *^  or  store.** 

There  is  a  distinction  made  even  between  the  different  kinds  of  dwell- 

««  Names  v.  Insurance  Co.,  95  Iowa,  642,  64  N.  W.  628.  Therefore,  Eoala 
fide  occupancy  does  not  satisfy  the  condition. 

2  3  Limburg  v.  Insurance  Co.,  90  Iowa,  709,  57  N.  W.  626,  23  L.  R.  A.  99, 
48  Am.  St  Rep.  468 ;  Hoover  v.  Insurance  Co.,  93  Mo.  App.  Ill,  69  S.  W.  42 ; 
Continental  Ins.  Co.  v.  Kyle,  124  Ind.  132,  24  N.  E.  727,  9  L.  R.  A.  81, 
19  Am.  St  Rep.  77;  WHITNEY  v.  INSURANCE  CO.,  72  N.  Y.  117,  28  Am. 
Rep.  116;  Georgia  Home  Ins.  Co.  v.  Kinnier's  Adm'x,  28  Grat  (Va.)  88; 
Sonneborn  v.  Insurance  Co.,  44  N.  J.  Law,  220,  43  Am.  Rep.  365. 

24  Limburg  v.  Insurance  Co.,  90  Iowa,  709,  57  N.  W.  626.  23  L.  R.  A.  99, 
48  Am.  St  Rep.  468;  Home  Ins.  Co.  v.  Scales,  71  Miss.  975,  15  South.  134,  42 
Am.  St  Rep.  512;  Caraher  v.  Insurance  Co.,  63  Hun,  82,  17  N.  Y.  Supp. 
85a 

««  See  Fritz  v.  Insurance  Co.,  78  Mich.  565,  44  N.  W.  139. 

«•  Bellevue  Roller  MIU  Co.  v.  London  &  L.  Fire  Ins.  Co.,  4  Idaho,  307,  39 
Pac.  196;  American  Fire  Ins.  Co.  v.  Brighton  Cotton  Mfg.  Co.,  24  111.  App. 
149;    Id.,  125  111.  131,  17  N.  E.  771. 

«T  Halpln  V.  Insurance  Co.,  118  N.  Y.  165,  23  N.  B.  482. 

as  Limburg  Y.  Insurance  Co.,  sunra;  Rockford  Ins.  Co.  T.  Wrlsht  30  IlL 
App.  574. 


§171) 

ings.  Thus  it  is  generally  held  that  the  expression  "vacant  and  unoc- 
cupied" has  a  different  significance  when  used  in  reference  to  houses 
known  by  the  insurer  to  be  customarily  leased  to  tenants  from  that 
which  it  bears  when  applied  to  dwellings  occupied  by  the  owner.  It  is 
well  known  that  tenement  houses  are  liable  to  be  left  unoccupied  for  a 
few  days  between  the  moving  out  and  the  moving  in  of  successive  ten- 
ants. Such  temporary  lack  of  occupation  is  considered  to  be  incident 
to  the  known  use  of  the  buildings,  and  therefore  not  to  violate  the  terms 
of  this  condition."  It  is  probable,  however,  that  this  peculiar  rule  of 
construction  will  not  apply  to  the  condition  of  the  standard  policy, 
which,  it  will  be  noted,  contains  a  qualification,  "whether  intended  for 
occupancy  by  owner  or  tenant." 

The  Distinction  between  Unoccupied  and  Vacant  Buildings, 

In  the  construction  of  this  provision  a  marked  distinction  between 
vacancy  and  lack  of  occupation  has  grown  up.  A  building  is  said  to  be 
vacant  when  it  is  wholly  and  permanently  deserted  by  its  former  ten- 
ant, with  the  removal  of  all  his  goods  therefrom.*®  But  when  the 
house  is  merely  closed  temporarily  during  an  absence  of  the  tenant  it  is 
said  to  be  "unoccupied."  Thus,  a  house  which  has  been  shut  up  for 
the  summer,  with  all  of  its  furniture  and  other  accessories  of  habitation 
remaining  in  it,  is  not  vacant,  but  merely  unoccupied,  even  though  it 
may  be  tenantless  for  many  months  ** 

«»  Union  Ins.  Co.  v.  McCullougn  (Neb )  96  N.  W.  79;  Liverpool  &  L.  &  G. 
Ins.  Co.  V.  Buckstafif,  38  Neb.  146,  56  N.  W.  695,  41  Am.  St.  Rep.  724;  Ger- 
man-American Ins.  Co.  V.  Buckstaff,  38  Neb.  135,  56  N.  W.  692;  Hunt  v.  In- 
surance Co.  (Neb.)  92  N.  W.  921;  Roe  v.  Insurance  Co.,  149  Pa.  94,  23  Atl. 
718,  34  Am.  St.  Rep.  595;  Traders'  Ins.  Co.  v.  Race  (lU.)  29  N.  E.  846;  Home 
Ins.  Co.  V.  Wood,  47  Kan.  521,  28  Pac.  167;  City  Planing  &  Shingle  Mill  Co 
V  Merchants',  Manufacturers'  &  Citizens'  Mut.  Fire  Ins.  Co.,  72  Mich.  654, 
40  N.  W.  777,  16  Am.  St  Rep.  552.  A  well-expressed  statement  of  the  prin- 
ciple upon  which  these  cases  rest  may  well  be  quoted  from  Hotchkiss  v.  In- 
surance Co.,  76  Wis.  269,  11  N.  W.  1106,  20  Am.  St.  Rep.  69,  as  follows:  "Un- 
der certain  circumstances  premises  may  be  vacant  or  unoccupied  when,  un- 
der other  circumstances,  premises  in  like  situation  may  not  be  so,  within  the 
meaning  of  that  term  in  insurance  policies.  Thus,  if  one  insures  his  dwell- 
ing house,  described  in  the  policy  as  occupied  by  himself  as  his  residence, 
and  moves  out  of  it,  leaving  no  person  in  the  occupation  thereof,  it  thereby 
becomes  vacant  or  unoccupied.  But  if  he  insures  it  as  a  tenement  house, 
or  as  occupied  by  a  tenant,  it  may  fairly  be  presumed,  nothing  appearing  to 
the  contrary,  that  the  parties  to  the  contract  of  insurance*  contemplated  that 
the  tenant  was  liable  to  leave  the  premises,  and  that  more  or  less  time  might 
elapse  before  the  owner  could  procure  another  tenant  to  occupy  them,  and 
hence  that  the  parties  did  not  understand  that  they  should  be  considered 
vacant  and  the  policy  forfeited  or  suspended,.^cording  to  its  terms,  imme- 
diately upon  the  tenant's  leaving  it" — citing  Lockw^od  v.  Assurance  Co.,  47 
Conn.  561;    Whitney  v.  Insurance  Co.,  9  Hun,  39. 

80  See  HERRMAN  v.  INSURANCE  CO.,  85  N.  Y.  162,  39  Am.  Rep.  644, 
Woodruff,  Ins.  Cas.  165. 

•1  Moody  V.  Insurance  Co.,  52  Ohio  St  12,  38  N.  B.  1011,  26  L.  B.  A.  313, 


474 


THB   STANDARD    FIRE    POLICY, 


(Ch.  13 


In  the  earlier  forms  of  this  condition,  the  prohibition  was  against  the 
building's  being  "vacant  and  unoccupied,"  whereas  in  the  standard  pol- 
icy it  is  "vacant  or  unoccupied."  The  courts  construed  the  earlier  form 
as  meaning  that  the  insurance  should  remain  valid  unless  the  house  was 
both  vacant  and  unoccupied.  But  this  loophole  of  escape  for  the  care- 
less householder  seems  to  have  been  closed  by  the  provision  of  the 
standard  policy,  which  defeats  the  insurance  if  the  building  is  either 
vacant  or  unoccupied.  •• 


; 


OOIXAPSE  OF  BUILDINO, 

172.  In  tlie  standard  policy  a  fall  of  any  substantial  part  of  the  Iraild- 
ing  insured  immediately  terminates  the  insurance. 

"If  a  building  or  any  part  thereof  fall,  except  as  the  result  of  fire,  all 
insurance  by  this  policy  on  such  building  or  its  contents  shall  imme- 
diately cease." 

The  collapse  of  any  building,  whether  because  of  a  storm  or  of 
structural  weakness,  will  almost  inevitably  cause  the  fallen  structure  to 
take  fire.  Loss  from  such  a  fire  would  impose  a  liability  upon  the  in- 
surer unless  such  a  condition  as  the  one  above  quoted  appears  in  the 
policy.  Under  this  condition,  however,  the  insurance  comes  imme- 
diately to  an  end  in  case  the  whole  or  any  part  of  the  insured  building 
falls.  In  older  forms  of  this  condition  it  was  held  that  the  insurance 
was  not  defeated  unless  the  entire  building  fell,"  but  the  Texas  Su- 
preme Court  has  recently  held  that  under  the  standard  form  of  policy 
the  falling  of  a  small  cupola  surmounting  a  large  building  constituted  a 
breach  of  this  condition  and  defeated  the  insurance.** 


49  Am.  St  Rep.  699;   Cummins  v.  Insurance  Co.,  67  N.  Y.  260,  23  Am.  EeD. 
111. 

«2  O^mpare  HERRMAN  v.  INSURANCE  CO..  81  N.  T.  184,  37  Am.  Rep. 
488,  with  HERRMAN  v.  INSURANCE  00.,  85  N.  Y.  162,  39  Am.  Rep.  644, 
Woodruff,  Ins.  Cas.  165. 

33  Security  Ins.  Co.  v.  Mette,  27  IlL  App.  324;  Huck  ▼.  Insurance  Co.,  127 
Mass.  306,  34  Am.  Rep.  373. 

34  Home  Mut  Ins.  Co.  v.  Tomkles  &  Co.,  96  Tex.  187,  71  S.  W.  814.  To  the 
same  effect,  see  Nelson  v.  Insurance  Co.,  86  App.  Div.  66,  83  N.  Y.  Supp.  220. 
But  even  under  the  standard  form  the  falling  of  an  immaterial  portion  of 
the  building,  not  a  functional  part  of  the  structure,  will  not  avoid  the  Insur- 
ance.   London  &  L.  Fire  Idi.  Co.  t.  Orunk,  81  Tenn.  376»  23  S.  W.  140. 


§§  173-175) 


LIABILITY   OF  THE   INSUREB. 


475 


ZiIABHiITY  OF  THE  INSURER. 

173.  DIRECT  LOSS  OR  DAMAGE  by  fire,  for  wUoIk  fhe  Inrarev  eon- 

tracts  to  give  indemnity,  consists  of  all  snch  injuries  as  are 
proximately  due  to  the  action  of  a  hostile  fire.  These  include 
not  only  damage  done  by  actual  ig:nition,  but  also  such  as  re- 
sults from  charring,  scorching,  smoke,  water  used  in  quenching 
the  fire,  or  from  the  hasty  efforts  to  remove  the  goods  insured 
to  a  place  of  safety. 

(a)  Fire  is  said  to  be  the  proximate  cause  of  a  loss  when  that  loss  has 

been  caused  by  a  force  set  in  motion  by  fire,  without  the  inter- 
vention of  any  new  and  independent  force. 

(b)  A  fire  is  hostile  when  it  bums  in  a  place  or  manner  not  intended. 

174.  EXCEPTED  CAUSES— Under  the  standard  policy  certain  causes 

of  loss  are  expressly  excepted.  These,  like  all  exceptions  in 
favor  of  the  insurer,  will  be  construed  strictly  against  him. 

175.  EXCEPTED    SUBJECTS— Certain    specified    kinds    of    property 

which  are  peculiarly  susceptible  of  overvaluation  in  case  of 
loss  are  expressly  excepted  from  the  operation  of  the  policy. 
Such  exceptions  will  yield  to  an  agreement  inferable  from  the 
written  description  of  the  property  insured  to  include  snoh  ar- 
ticles. 


II 


*'♦    ♦    *    Does  insure    ♦    ♦    ♦    against  all  direct  loss  or  damage 
by  fire,  except  as  hereinafter  provided.' 


»> 


Direct  Damage  by  Fire. 

Insurance  against  loss  or  damage  by  fire  does  not  cover  damage  due 
merely  to  heat,  unless  that  heat  is  due  directly  to  a  hostile  fire.  Thus 
damage  due  to  intense  heat  caused  by  steam  escaping  from  a  broken 
steam  pipe  is  not  damage  by  fire;  *'  nor  is  injury  that  is  caused  by  the 
blistering  heat  of  the  sun.  But  if  ignition  actually  takes  place  the  in- 
surer becomes  liable,  not  only  for  the  destruction  by  the  flames  them- 
selves, but  also  for  such  damages  as  are  immediately  consequent  upon 
the  presence  of  the  flames,  such  as  injury  by  smoke,'*  and  the  charring 
or  blistering  of  articles  that  are  heated  to  a  point  lower  than  that  of 
ignition.  Likewise  damage  wrought  to  the  property  insured  by  wa- 
ter *^  used  in  efforts  to  extinguish  the  fire,  or  due  to  the  efforts  made 
to  remove  the  property  to  a  place  of  safety,*'  or  loss  by  theft  in  the 


«»  Gibbons  v.  Insurance  Co.,  30  111.  App.  263. 

»•  SCRIPTURE  V.  INSURANCE  CO.,  10  Cush.  (Mass.)  356,  67  Am.  Dec, 
111,  Richards,  Ins.  Cas.  439. 

»T  John  Davis  &  Cb.  v.  Insurance  Co.  of  North  America,  115  Mich.  382,  73 
Nf.  W.  393. 

»8  Case  V.  Insurance  Co.,  13  111.  676;  Le^ber  v.  Insurance  Co.,  6  Bush  (Ky.) 

639.  99  Am.  Dec  695;  WHITE  T.  INSURANCE  CO^  57  Me.  91,  2  Am.  Rep. 
22. 


476 


THE    STANDARD    FIRE   POLICY. 


(Ch.  13 


' 


I 


course  of  such  removal,"  as  well  as  the  expense  of  the  removal,  is 
covered  by  msurance  against  direct  loss  by  fire. 

Fire  Must  be  the  Proximate  Cause  of  the  Damage, 

The  rule  that  the  law  looks  at  the  proximate  and  not  the  remote  cause 
of  an  mjury  applies  as  well  to  the  law  of  insurance  as  to  that  of  torts 
There  is,  however,  one  exception  to  the  application  of  the  rule  as  it  is 
ordmanly  applied  in  the  law  of  torts :  The  insurer  is  responsible  for 
loss  directly  caused  by  fire,  even  though  the  fire  may  have  been  due  to 
the  negligence  of  the  insured  or  of  some  third  party;  that  is,  even 
though  negligence  on  the  part  of  the  plaintiff  or  his  agent  may  have 
been  the  onginal  cause  of  the  loss.**  With  this  one  exception,  in  de- 
termining whether  a  given  loss  has  been  directly  caused  by  fire  the 
courts  strictly  apply  the  doctrine  of  proximate  cause,  which  may  be 
best  defined  by  quoting  the  language  of  Mr.  Justice  Strong  in  a  leading 
case : "  "The  question  always  is,  was  there  an  unbroken  connection 
between  the  wrongful  act  and  the  injury— a  continuous  operation? 
Did  the  facts  constitute  a  continuous  succession  of  events  so  linked  to- 
gether as  to  make  a  natural  whole,  or  was  there  some  new  and  inde- 
pendent cause  intervening  between  the  wrong  and  the  injury?"  The 
application  of  this  rule  may  well  be  illustrated  by  two  leading  cases 
In  Lynn  Gas  &  Electric  Co.  v.  Meriden  Fire  Ins.  Co.,  "  the  policy  in- 

TLf".^*^rfrr."  ^'  ^"^"'^^c®  Co.,  49  Me.  200;  Newmark  v.  Insurance  Co.,  30 
MO.  IfeO,  77  Am.  Dec.  608;  Leiber  v.  Insurance  Co.,  6  Bush  (Ky.)  639,  99  Am 
Dec.  69o;  Whitehurst  v.  Insurance  Co.,  51  N.  C.  352;   Independent  Mut.  Ins' 
Co.  v.  Agnew,  34  Pa.  96,  75  Am.  Dec.  638. 

*o  "For  instance,  where  the  negligent  act  of  the  insured,  or  of  anybody 
else,  causes  a  fire,  and  so  causes  damage,  although  the  negligent  act  is  the 
direct  proximate  cause  of  the  damage,  through  the  fire,  which  was  the  pas- 
sive agency,  the  insurer  is  held  liable  for  a  loss  caused  by  the  fire  "    LYNN 
p'^fiQn*  f^^^l^^?  SS-  I'r.  ^E^I^EN  FIRE  INS.  CO..  158  Mass.  570.  33  N. 
fc^^'J?^        Txi;.?^'  ^  ^™-  ®*-  ^^P-  ^'  Woodruff,  Ins.  Cas.  178.  citing 
JOHNSON  v    INSURANCE  CO.,  4  Allen  (Mass.)  388;    Walker  v.  Maitlan(t 
o  Bam.  &  Aid.  171;   WATERS  r.  INSURANCE  CO.,  11  Pet  (U.  S.)  213   9  L 
^t^^l   PETERS  V.  INSURANCE  CO.,  14  Pet   (U.  S.)  99,  10  L.  Ed.  371  i 
GENERAL  MUT.  INS.  CO.  y.  SHERWOOD,  14  How.  (U.  S.)  351,  14  L.  Ed. 
452;  Louisiana  Mut  Ins.  Co.  v.  Tweed,  7  Wall.  (U.  S.)  44,  19  L.  Ed.  65.    But 
the  insurer  is  not  liable  for  a  loss  due  to  the  intentional  act  of  the  insured 
or  his  agent    WATERS  v.  INSURANCE  CO.,  11  Pet  (U.  S.)  213,  9  L    Ed 
69.    However,  the  insurance  covers  a  loss  due  to  the  intentional  act  of  an 

I^.^l°f  ^^^^®  ^^  ^^  ^  stranger  to  the  insured.    Union  Ins.  Co.  v.  McCullough 
(Neb.)  96  N.  W.  79.  ^ 

«  Milwaukee  &  St  Paul  Ry.  Co.  v.  Kellogg,  94  U.  S.  469,  474,  24  L.  Ed 
^56.  quoted  with  approval  by  Knowlton,  J.,  in  LYNN  GAS  &  ELE0TRI(3 
GO.  y  MERIDEN  FIRE  INS.  CO.,  supra.  In  the  latter  case  ''proximate 
cause  is  defined  as  the  "active  efficient  cause  that  sets  in  motion  a  train 
of  events  which  brings  about  a  result  without  the  intervention  of  any  force 
started  and  working  actively  from  a  new  and  independent  source  " 

"  LYNN  GAS  &  ELECTRIC  CO.  v.  MERIDEN  FIRB  INS.  CO.,  158  Mass. 


LIABILITY   OF  THE   INSUKER. 


477 


g§  173-175) 

sured  the  building  and  machinery  of  the  insured  against  loss  or  dam- 
age by  fire.  A  fire  occurred  in  the  wire  tower,  situate  some  distance 
from  the  building  in  which  the  dynamos  and  other  electrical  machines 
of  the  insured  were  placed.  By  reason  of  the  burning  of  the  wire  tow- 
er a  short  circuit  was  formed.  This  caused  a  sudden  increase  of  pres- 
sure upon  the  driving  belt  of  the  dynamo,  which  parted,  and  left  the 
engine  without  restraint.  The  fly  wheel,  thus  caused  to  revolve  too 
rapidly,  burst,  and  wrecked  the  machinery  and  building.  It  was  con- 
tended by  the  defendant  that  the  loss  to  the  machinery  and  building 
was  too  remote  to  be  covered  by  the  insurance  against  fire.  But  the 
court  held  that  there  was  an  unbroken  chain  of  causation  between  the 
fire  in  the  tower  and  the  wrecking  of  the  building  and  machinery,  and 
therefore  held  the  insurer  liable  as  for  damage  by  fire. 

In  the  second  case,  Ermentrout  v.  Girard  Fire  &  Marine  Ins.  Co.,*' 
the  building  of  the  insured  was  damaged  by  the  falling  of  the  wall  of 
an  adjacent  house,  which  was  on  fire.  No  part  of  the  insured  building 
was  actually  burnt,  but  the  court  held  that  the  damage  suffered  by  the 
insured  was  due  directly  to  the  falling  of  the  wall  of  the  adjacent 
building,  which  was,  in  turn,  caused  by  fire.  So  it  has  been  held  that 
damage  to  a  building,  due  principally  to  the  force  of  exploding  gun- 
pov;drr,  was  proximately  due  to  a  fire  which  caused  the  ignition  of  the 
gunpov^der,  and  to  the  burning  of  the  powder  itself.** 

Hos^Ue  and  Friendly  Fires, 

In  determining  the  liability  of  the  insurer  against  damage  by  fire,  it 
is  necessary  to  make  a  rather  subtle  distinction  between  fires  that  are 
hostile  and  those  that  are  friendly  in  their  origin.  So  long  as  a  fire 
burns  in  a  place  where  it  was  intended  to  bum,  and  ought  to  be,  it  is 
to  be  regarded  as  merely  an  agency  for  the  accomplishment  of  some 
purpose,  and  not  as  a  hostile  peril.  Thus,  a  fire  burning  in  a  furnace, 
or  a  stove,  or  a  lamp,  is  considered  a  friendly  fire;  and  damage  that 
may  be  caused  by  such  fires,  due  to  their  negligent  management,  is  not 
considered  to  be  within  the  terms  of  the  policy.  Thus,  in  the  old  case 
of  Austin  V.  Drew,**  the  plaintiffs  sought  to  hold  an  insurer  against  fire 

i570.  33  N.  E.  690,  20  L.  R.  A.  297,  35  Am.  St.  Rep.  540,  Woodruff.  Ina.  Cas. 
178 

♦i  ERMENTROUT  V.  GIRARD  FIRE  &  MARINE  INS.  CO.,  63  Minn.  305. 
65  N.  W.  635,  30  L.  R.  A.  346,  56  Am.  St  Rep.  481,  Woodruff,  Ins.  Cas.  184. 

**  SCRIPTURE  V.  INSURANCE  CO..  10  Cush.  (Mass.)  356,  57  Am.  Dec. 
Ill,  Richards,  Ins.  Cas.  439.  Such  losses  are  expressly  excepted  by  the  ex- 
plosion clause  of  the  standard  policy. 

In  Hartford  Steam  Boiler  Inspection  &  Ins.  Co.  v.  Henry  Sonnebom  &  Cc 
96  Md.  616,  54  Atl.  610,  it  was  held  that  a  policy  against  loss  by  explosion 
of  steam  boilers  covered  damage  due  to  water  escaping  from  an  automatic 
sprinkler  when  melted  by  reason  of  escaped  steam  from  a  broken  pipe. 

*»  AUSTIN  V.  DREW,  6  Taunt  435,  4  Camp.  360. 


'f  i 


»  •.' 


478 


THE    STANDARD    FIRB    POLICY. 


(Ch.  13 

liable  for  injury  done  to  a  stock  of  sugar  in  process  of  refining,  due  to 
overheating  from  certain  flues  that  were  used  in  the  process  of  manu- 
facture. These  flues,  on  account  of  the  negligence  of  a  servant  of  the 
plaintiff,  became  overheated,  and  thus  caused  the  damage  complained 
of,  though  no  actual  ignition  took  place.  The  court  held,  however,  that 
such  damage  was  not  within  the  policy ;  that  it  was  due  rather  to  the 
negligent  use  of  an  agency  employed  in  the  manufacture  of  sugar  than 
to  "fire"  in  the  sense  in  which  the  term  was  used  in  the  policy  of  in- 
surance. So  it  has  been  held  that  damage  caused  by  smoke  issuing 
from  a  lamp  that  is  turned  up  too  high,*«  or  from  a  stove  pipe  that  is 
defective,*^  is  not  to  be  considered  as  directly  caused  by  fire.  Neither 
would  damage  caused  to  furniture  by  an  overheated  stove  be  charge- 
able to  the  insurer.  The  principle  underlying  these  cases  is  simply  that 
the  policy  shall  not  be  construed  to  protect  the  insured  from  injury  con- 
sequent upon  his  negligent  use  or  management  of  fire,  so  long  as  it  is 
confined  to  the  place  where  it  ought  to  be."  But  a  friendly  fire  may 
become  hostile  by  escaping  from  the  place  where  it  ought  to  be  to  some 
place  in  which  it  ought  not  to  be.  Therefore,  where  a  fire  in  a  chim- 
ney, due  to  the  ignition  of  soot  there,  caused  soot  and  smoke  to  issue 
from  the  stove  so  as  to  damage  the  property  insured,  the  court  very 
properly  held  the  damage  due  to  a  hostile  fire.**  The  fire  was  intended 
to  burn  in  the  stove  and  not  in  the  chimney. 

Excepted  Causes  of  Loss. 

The  standard  policy,  like  most  other  fire  policies,  contains  a  list  of 
perils  for  which  the  underwriter  is  unwilling  to  assume  liability,  as 
follows :  "This  company  shall  not  be  liable  for  loss  caused  directly  or 
indirectly  by  invasion,  insurrection,  riot,  civil  war  or  commotion,  or 
military  or  usurped  power,  or  by  order  of  any  civil  authority;  or  by 
theft;  or  by  neglect  of  the  insured  to  use  all  reasonable  means  to  save 
and  preserve  the  property  at  and  after  a  fire  or  when  the  property  is 
endangered  by  fire  in  neighboring  premises ;  or  (unless  fire  ensues,  and, 
in  that  event,  for  the  damage  by  fire  only)  by  explosion  of  any  kind,  or 
lightning;  but  liability  for  direct  damage  by  lightning  may  be  assumed 
by  specific  agreement  hereon."  •• 

♦•Samuels  ▼.  Insurance  Co.,  2  Pa.  DIst.  R.  397. 

*T  Cannon  v.  Insurance  Co.,  110  Ga.  563,  35  S.  R  775,  78  Am.  St  Rep.  124. 

<«  In  American  Towing  Co.  v.  German  Fire  Ins.  Co.,  74  Md.  25,  21  Atl.  553, 
it  was  held  that  a  fire  policy  upon  a  tug  and  her  fixtures  did  not  cover  dam- 
age done  to  a  leaky  boiler  by  the  action  of  a  too  fierce  fire  in  the  furnace 

*»  WAY  V.  INSURANCE  CO.,  166  Mass.  67,  43  N.  B.  1032,  32  L.  E.  A.  608, 
55  Am.  St  Rep.  379. 

BO  The  standard  "lightning  clause"  is  as  foUows:  rrhis  policy  shall  cover 
any  direct  loss  or  damage  caused  by  lightning,  (meaning  thereby  the  com- 
monly accepted  use  of  the  term  lightning,  and  in  no  case  to  include  loss  or 
damage  by  cyclone,  tornado,  or  wind  stwrn,)  not  exceeding  the  sum  insured. 


§§  173-175) 


LIABILITY  OP  THE  INSURER. 


479 


The  rates  charged  by  underwriters  for  fire  insurance  are  based  upon 
the  average  percentage  of  loss  under  usual  conditions.  Consequently 
it  is  proper  that  the  operaticm  of  the  policy  should  be  restricted  to  losses 
such  as  may  happen  under  ordinary  conditions,  excluding  those  due  to 
unusual  and  peculiarly  destructive  causes.  It  is  attempted  in  this  enu- 
meration of  excepted  risks  just  quoted  from  the  standard  policy  to  in- 
clude all  such  extraordinary  causes  of  loss  the  presence  of  which  might 
render  unreliable  the  actuary's  calculation  of  probabilities.  The  terms 
used  should  be  construed  in  their  ordinary  and  generally  accepted  sense, 
inasmuch  as  they  are  presumed  so  to  have  been  used  by  the  contracting 
parties.  Thus  "invasion"  means  the  entrance  of  an  armed  force  with 
hostile  intent  into  a  foreign  territory.*^  So  the  words  "insurrection, 
riot,  civil  war  or  commotion,"  will  include  armed  and  violent  opposi- 
tion to  law  and  government  in  all  its  various  phases.** 

Military  or  Usurped  Power. 

Some  courts  have  held  that  this  expression  is  to  be  so  construed  as 
to  make  the  word  "usurped"  qualify  military,  and  thus  to  include  with- 
in it  only  such  acts  of  military  power  as  are  wrongfully  and  illegally 
exercised.  But  the  Supreme  Court  has  held  that  such  a  construction 
is  unjustifiable.  In  the  case  of  -^tna  Fire  Ins.  Co.  v.  Boon  ••  the  in- 
sured property  was  destroyed  by  fire  caused  by  the  order  of  the  com- 
mander of  the  Federal  forces  in  his  desire  to  prevent  certain  military 
stores  from  falling  into  the  hands  of  the  Confederate  forces  that  were 
about  to  enter  the  town  in  which  it  was  situated.  It  was  held  that  this 
loss  was  within  the  exception  in  the  policy,  although  caused  by  the  law- 
ful orders  of  the  commander  of  the  government  troops.  The  Connect- 
icut court  had  previously  held  otherwise.** 

Destruction  by  Order  of  Civil  Authority, 

In  the  absence  of  such  a  provision  as  that  found  in  the  standard  pol- 
icy the  insurer  is  liable  for  property  destroyed  by  order  of  civil  au- 
thority, for  the  purpose  of  checking  the  progress  of  a  fire,  such  loss 

nor  the  interest  of  the  insured  in  the  property,  and  subject  In  all  other  re- 
spects to  the  terms  and  conditions  of  this  policy.  Provided,  however,  if 
there  shall  be  any  other  insurance  on  said  property  this  company  shall  be 
liable  only  pro  rata  with  such  other  insurance  for  any  direct  loss  by  light- 
ning, whether  such  other  insurance  be  against  direct  loss  by  lightning  or 
not" 

Bi  Portsmouth  Ina  Co.  t.  Reynolds*  Adm*x,  32  Grat  (Va.)  613;  ^tna  Fire 
Ins.  Co.  V.  Boon,  95  U.  S.  117,  24  L.  Ed.  395.  See,  also,  Royal  Ins.  Co.  v.  Mar- 
tin, 192  U.  S.  149,  24  Sup.  Ct  247,  48  L.  Ed.  385. 

»2  See  Lycoming  Fire  Ins.  Co.  v.  Schwenk,  95  Pa.  89,  40  Am.  Rep.  629 
(riot);  Spruill  v.  Insurance  Co.,  46  N.  C.  126  (insurrection);  Portsmouth  Ins. 
Co.  V.  Reynolds'  Adm'x,  32  Grat  (Va.)  613. 

"  95  U.  S.  117,  24  L.  Ed.  395. 

»*Boon  ▼,  Insurance  Co.,  40  Conn.  575. 


I  «l 


480 


THE    STANDARD    FIRE    POLICY, 


(Ch.  13 


§§  173-176) 


LIABILITY   OP  THE   INSURER. 


481 


J    I 


being  considered  to  be  the  proximate  consequence  of  fire."  It  is  prob- 
able, however,  that  the  courts  will  not  be  able  to  find  any  way  of  es- 
caping the  effect  of  the  provision  in  the  standard  policy,  which  is  un- 
doubtedly intended  to  relieve  the  insurer  from  liability  for  any  such 
cause. 

Loss  by  Theft, 

As  stated  above,  in  the  absence  of  an  express  stipulation  to  the  con- 
trary, the  insurer  will  be  held  liable  for  any  such  loss  sustained  by  theft 
that  occurs  in  consequence  of  removal  of  goods  from  the  burned  build- 
ing to  some  place  of  safety,  since  such  loss  can  be  immediately  traced 
to  the  fire  as  an  efficient  cause."  Claims  for  such  losses  are  peculiarly 
difficult  to  test  by  the  ordinary  means  within  the  power  of  the  insurer, 
and  are  very  wisely  excluded. 

Neglect  of  the  Insured, 

This  exception  is  aimed  at  the  bad  faith  of  the  insured  rather  than 
intended  to  secure  a  lessened  risk  to  the  insurer.  The  insured's  own 
self-interest  will  prompt  him  to  use  all  reasonable  means  to  save  his 
property,  if  he  really  desires  it  to  be  saved,  without  the  stimulus  of 
a  contract,  and  his  failure  to  do  so  would  cast  grave  suspicion  upon 
his  good  faith.  Therefore  the  neglect  of  the  insured  in  the  premises, 
in  order  to  bring  the  loss  within  this  exception,  must  be  such  as  in 
effect  to  show  bad  faith.  Negligence  on  the  part  of  his  servants  will 
not  bring  the  loss  within  the  exception.'* 

Loss  by  Explosion,  * 

Under  the  older  policies,  which  did  not  except  losses  due  to  explo- 
sions, it  was  held  that  the  insurer  was  liable  for  the  full  consequence 
of  an  explosion,  provided  there  was  present,  as  either  the  cause  or  the 
accompaniment  of  the  explosion,  actual  fire."  But,  under  the  excep- 
tion as  contained  in  the  standard  policy,  all  damage  directly  caused  by 
explosion  is  excluded,  although  the  insurer  is  liable  for  the  damage 
actually  done  by  a  fire  resulting  from  the  explosion.  It  seems,  how- 
ever, that  even  under  the  standard  policy  the  mere  fact  that  an  explo- 
sion takes  place  in  a  burning  building  will  not  bring  the  loss  within  this 
exception."     The  efficient  cause  of  the  damage  done  in  such  case  is 

••  CITY  FIRE  INS.  (X>.  T.  CORLIES,  21  Wend.  367,  34  Am.  Dec.  25a 

»«  See  note  39,  supra. 

»T  Wertheimer-Swartg  Shoe  Oo.  v.  United  States  Casualty  Co..  172  Mo.  135. 
72  a  W.  635.  61  L.  R.  A.  766,  95  Am.  St.  Rep.  500. 

»«  See  SCRIPTURE  v.  INSURANCE  CO..  10  Cush.  (Mass.)  356,  67  Am. 
Dec.  Ill,  Richards,  Ins.  Cas.  439. 

"  Washbum  v.  Insurance  Oo.  (C.  C.)  2  Fed.  804;   Washburn  ▼.  Insurance 
Co.  (C.  C.)  2  Fed.  633;    Transatlantic  Fire  Ins.  Oo.  v.  Dorsey.  56  Mo    7u; 
Renshaw  v.  Insurance  Co.,  103  Mo.  609,  15  S.  W.  949,  23  Am.  St.  Rep    913 
See^  also,  WATERS  v.  INSURANCE  CO.,  11  Pet  (U.  S.)  213,  9  L.  Ed.  691; 


I 


considered  to  be  the  fire,  and  not  the  explosion,  which  is  merely  the  con- 
sequence of  the  fire.  But,  in  order  that  this  rule  shall  apply,  the  fire 
causing  the  explosion  must  be  hostile,  and  not  friendly.  Thus,  an  ex- 
plosion due  to  the  ignition  of  vapor  by  coming  in  contact  with  a  burn- 
ing gas  jet  or  lamp  is  not  considered  to  be  a  consequence  of  fire.'®  So, 
where  an  employe  of  the  insured  struck  a  match  in  a  cellar,  thus  caus- 
ing gasoline  vapor  to  explode  and  destroy  the  insured  building,  it  was 
held  that  the  loss  was  due  proximately  to  the  explosion,  and  was  within 
the  exception.'^ 

Some  difficulty  is  encountered  in  determining  whether  an  explosion 
is  the  proximate  or  the  remote  cause  of  a  loss  in  question,  and  some 
conilict  is  found  in  the  decisions  on  the  subject.  Thus,  it  has  been  held 
by  the  Supreme  Court  of  the  United  States  that  an  explosion  which 
took  place  in  a  building  across  the  street  from  the  one  insured,  causing 
a  great  conflagration,  which  spread  to  the  insured  premises  through 
intermediate  houses,  was  the  proximate  cause  of  the  loss  complained 
of,  which  was,  therefore,  not  chargeable  to  the  insurer.'^  In  some  of 
the  state  courts,  however,  a  different  view  has  been  taken  of  the  scope 
of  this  exception.  These  courts  consider  that  the  exception  includes 
only  those  losses  that  are  caused  proximately  and  immediately  by  the 
explosive  forces,  and  not  those  due  to  fires  originating  from  explo- 
sions •• 


Mitchea  ▼.  Insurance  Co.,  183  U.  S.  42,  22  Sup.  Ct  22,  46  L.  Ed.  74.    But  It 

has  been  held  that,  where  the  building  insured  was  wrecked  by  an  explosion 
caused  by  the  burning  of  a  neighboring  structure,  the  explosion,  and  not  the 
fire,  was  the  proximate  cause  of  the  loss.  Hustace  v.  Insurance  Co.,  175  N. 
Y.  292,  67  N.  B.  592,  62  L.  R.  A.  651.  See,  also,  Caballero  v.  Insurance  Co., 
15  La.  Ann.  217. 

•0  Briggs  V.  Insurance  Co.,  53  N.  Y.  446;  United  Life,  Fire  &  Marine  Ins. 
Co.  V.  Foote,  22  Ohio  St.  340,  10  Am.  Rep.  735;  Heuer  v.  Insurance  Co.,  144 
lU.  393,  33  N.  E.  411,  19  L.  R.  A.  594. 

«i  Mitchell  V.  Insurance  Co.,  183  U.  S.  42,  22  Sup.  Ct.  22,  46  L.  Ed.  74. 

•2  Louisiana  Mut  Ins.  Co.  v.  Tweed,  7  Wall.  (U.  S.)  44,  19  U  Ed.  65.  Here 
the  court  said:  •*The  explosion  undoubtedly  produced  or  set  in  operation  the 
fire  that  burned  the  plaintiflTs  cotton.  The  fact  that  it  was  can*ied  to  the 
cotton  by  first  burning  another  building  supplies  no  new  force  or  power 
which  caused  the  burning." 

«3  Heffron  v.  Insurance  Co.,  132  Pa.  580,  20  Atl.  698.  In  this  case  the  court 
said  that  the  exception  "is  to  be  restricted  to  losses  arising  from  explosions, 
rather  than  extended  to  the  much  broader  ground  of  losses  by  fire  originat- 
ing from  explosions."  See,  also,  Heuer  v.  Insurance  Co.,  144  111.  393,  33  N. 
B.  411,  19  L.  R.  A.  594. 

The  construction  given  to  this  exception  by  these  courts  is  manifestly  the 
more  reasonable.  It  would  be  outrageous  to  hold  that  all  the  property  own- 
ers who  suffered  loss  in  the  recent  Baltimore  fire  would  be  deprived  of  any 
benefit  of  their  insurance  in  case  it  should  be  proved  that  that  disastrous 
confiagration  had  its  origin  in  some  kind  of  explosion.  Such  a  conflagration 
as  the  great  Chicago  fire  might  as  easily  have  originated  in  a  gimpowder  ex- 
^ARCB  Ins. — 31 


4S1' 


H 


THE    STANDARD    FIEB   POLICY. 
\ 


(Ch.13 


§§  176-177)  MEASURE  OF  INSURER'S  LIABILITT. 


483 


'm 


■■■\\ 


Lightning, 

The  older  cases  held  the  insurer  against  loss  by  fire  liable  also  for 
damage  done  by  lightning,  which  they  declared  to  be  "fire  from  heav- 
en." •*  Since,  however,  latter-day  scientists  have  made  clear  to  the 
judges  the  mundane  origin  of  lightning,  it  is  uniformly  held  that  a  loss 
due  to  lightning  alone  is  not  covered  by  a  fire  policy,**  although,  of 
course,  damage  done  by  fire  caused  by  the  lightning  must  be  made  good 
by  the  insurer.** 

Excepted  Subjects  of  Loss, 

The  standard  policy  expressly  excepts  from  the  operation  of  the  con- 
tract certain  articles  enumerated  in  the  following  condition : 

"This  company  shall  not  be  liable  for  loss  to  accounts,  bills,  cur- 
rency, deeds,  evidences  of  debt,  money,  notes,  or  securities ;  nor,  unless 
liability  is  specifically  assumed  hereon,  for  loss  to  awnings,  bullion, 
casts,  curiosities,  drawings,  dies,  implements,  jewels,  manuscripts,  med- 
als, models,  patterns,  pictures,  scientific  apparatus,  signs,  store  or  office 
furniture  or  fixtures,  sculpture,  tools,  or  property  held  on  storage  or 
for  repairs." 

The  insurer  declines  to  make  himself  liable  for  loss  of  such  articles 
because  their  nature  is  such  as  to  make  their  value  largely  a  matter  of 
irresponsible  opinion,  more  apt  to  be  based  upon  sentiment  or  fancy 
than  upon  the  ordinary  rules  that  fix  commercial  values.  The  lan- 
guage in  which  these  exceptions  are  expressed  will,  however,  be  strong- 
ly construed  in  favor  of  the  insured.*^  Thus,  the  terms  "store  or  of- 
fice furniture  or  fixtures"  will  be  so  limited  as  to  include  only  those 
fixtures  or  furniture  that  are  peculiar  to  offices  or  stores  as  such,  and 
not  all  of  their  movable  contents.**  So,  the  expression  "held  on  storage" 
will  apply  only  to  goods  technically  on  storage.  Goods  that  are  kept 
on  hand  or  in  stock  by  merchants  for  sale,**  or  material  kept  by  a 

plosion  at  the  handg  of  careless  hojn  In  a  stable,  as  In  the  historic  overturn- 
ing of  a  lantern.  In  such  a  case  the  doctrine  of  Louisiana  Mut.  Ins.  06.  v. 
Tweed,  supra,  would  surely  yield. 

•*  SCRIPTURE  V.  INSURANCE  CO.,  10  Cush.  (Mass.)  356,  57  Am.  Dec. 
Ill,  Richards,  Ins.  Cas.  439,  citing  1  Emerigon,  c.  12,  §  17. 

•  5KENNIST0N  v.  INSURANCE  CO.,  14  N.  H.  341,  40  Am.  Dec.  193; 
Babcock  v.  Insurance  Co.,  4  N.  Y.  326. 

•«  Babcock  v.  Insurance  Co.,  4  N.  Y.  326. 

«7  GEORGIA  HOME  INS.  00.  v.  ALLEN,  119  Ala.  436,  24  South.  399; 
Liverpool  &  London  &  Globe  Ins.  Co.  v.  Kearney,  180  U.  S.  132,  21  Sup,  Ct 
326,  45  L.  Ed.  460;  Canton  Ins.  Office  v.  Woodside,  90  Fed.  301,  33  a  a  A. 
63. 

••  Thurston  v.  Insurance  Co.  (C.  C.)  17  Fed.  127. 

••  New  York  Equitable  Ins.  Co.  v.  Langdon,  6  Wend.  QL  X.)  623;  Yogel 
T.  Insurance  Co^  9  Gray  (Mass.)  23. 


manufacturer,^*  or  furniture  stored  away  by  a  person  intending  to 
open  a  hotel  in  a  building/^  will  not  be  regarded  as  being  on  storage. 

MEASURE  OF  INSUBER'S  XJULBILITY. 

176.  THE  AOTUAI.  CASH  VALUE  of  the  insnred  property  «t  the  time 

of  loss  is  the  limit  of  the  insurer's  liahUity  at  oommon  law. 
The  standard  policy  expressly  so  stipulates,  and  further  limits 
the  insurer's  liability  upon  certain  specified  losses  and  risks. 

177.  PRO  RATA  CLAUSE— In  case  of  concurrent  insurance  upon  the 

property  damaged,  the  underwriter  is  made  liable  only  for  such 
a  proportion  of  the  loss  suffered  as  the  amount  insured  by  !»<«« 
bears  to  the  total  amount  of  insurance. 

"This  company  shall  not  be  liable  beyond  the  actual  cash  value  of  the 
property  at  the  time  any  loss  or  damage  occurs,  and  the  loss  or  dam- 
age shall  be  ascertained  or  estimated  according  to  such  actual  cash 
value,  with  proper  deduction  for  depreciation  however  caused,  and  shall 
in  no  event  exceed  what  it  would  then  cost  the  insured  to  repair  or  re- 
place the  same  with  material  of  like  kind  and  quality ;  said  ascertain- 
ment or  estimate  shall  be  made  by  the  insured  and  this  company,  or,  if 
they  differ,  then  by  appraisers,  as  hereinafter  provided ;  and,  the  amount 
of  loss  or  damage  having  been  thus  determined,  the  sum  for  which 
this  company  is  liable  pursuant  to  this  policy  shall  be  payable  after  due 
notice,  ascertainment,  estimate,  and  satisfactory  proof  of  the  loss  have 
been  received  by  this  company  in  accordance  with  the  terms  of  this 
policy." 

In  accordance  with  the  well-recognized  principle  that  the  contract  of 
insurance  is  intended  to  afford  merely  indemnity  for  loss,  the  insured 
will,  under  the  common  law,  under  no  circumstances  be  allowed  to  re- 
cover more  than  the  actual  value  of  his  property  at  the  time  of  the  loss. 
Unless  the  policy  is  valued,  the  sum  set  forth  on  its  face  is  intended 
merely  as  the  maximum  limit  of  the  insurer's  liability,  not  as  the  meas- 
ure of  it"    Therefore,  the  stipulation  found  in  the  standard  policy, 

»•  Vogel  v.  Insurance  Co.,  9  Gray  (Mass.)  23. 

Ti  Continental  Ins.  Co.  v.  Pruitt,  65  Tex.  125;    Home  Ins.  Go.  T.  Gwath- 
mey,  82  Va.  923,  1  S.  E.  209. 

Ti  In  several  states  statutes  have  been  passed  imposing  as  a  penalty  on 
insurance  companies  unsuccessfully  contesting  claims  made  nnder  their  pol- 
icies the  payment  of  the  insured's  reasonable  attorney's  fees,  and  a  certain 
percentage  of  the  loss  in  addition  to  the  sum  otherwise  payable.  See  Oomp 
St.  Neb.  1903,  c.  43,  §  45;  Civ.  Code  Ga.  1895,  §  2140;  Rev.  St  Tex.  1895,  { 
^71.  The  constitutionality  of  these  acts  has  been  vigorously  and  persist- 
ently assailed,  but  unsuccessfully.  The  Supreme  Court  has  upheld  the  con- 
stl^tionality  of  such  statutes  in  Fidelity  Mut  Life  Ass'n  v.  Mettler  185  U 
S.  308,  22  Sup.  Ct  662,  46  L.  Ed.  922;  Iowa  Life  Ins.  Co.  v.  Lewis,  187  U  S* 
<i35.  23  Sup.  Ct  126.  47  L.  Ed.  204;  Farmers'  &  Merchants'  Ins.  Ca  ^  Dob-' 


I 


484 


THE   STANDARD    FIRE    POLICY, 


(Ch.  13 


111 


limiting  the  liability  of  the  insurer  to  the  actual  cash  value  of  the  prop- 
erty damaged  or  destroyed,  would  seem  to  be  more  or  less  needless, 
since  it  adds  nothing  to  the  insurer's  common-law  rights,  and  is  power- 
less to  prevent  the  operation  of  valued  policy  statutes.  The  value  of 
the  property  destroyed  is  ultimately  a  question  for  the  jury,  but  the 
policy  provides  for  an  estimate  to  be  made  by  appraisers.  This  pro- 
vision will  be  considered  later. "'•  It  will  also  be  noted  that  the  policy 
contains  a  rule  for  determining  the  value  of  property  destroyed — that 
it  shall  in  no  event  exceed  what  it  would  cost  the  insured  to  repair  or 
replace  the  same  with  material  of  the  same  kind  and  like  quality.  This 
is  substantially  the  rule  by  which  juries  fix  the  measure  of  the  insured's 
damage. 

Loss  Occasioned  by  Municipal  Regulations. 

In  the  absence  of  the  condition  found  in  the  standard  policy  as 
quoted  in  the  note  below,  ^*  the  insurer  will  be  liable  for  loss  suffered 
by  the  owner  of  a  building  damaged  by  fire,  by  reason  of  building  regu- 
lations of  the  municipality  in  which  the  building  is  situated,  which  may 
prohibit  the  reconstruction  of  buildings  of  the  type  insured,  and  thus 
transform  a  partial  into  a  total  loss.^*    Under  the  standard  policy, 

ney,  189  U.  S.  301,  23  Sup.  Ct  565,  47  L.  Ed.  821.  And  the  same  conclusion 
has  been  reached  by  all  the  state  courts  save  that  of  Georgia.  Union  Cent. 
Life  Ins.  O).  v.  Chowning,  86  Tex.  654,  26  S.  W.  982,  24  L.  R.  A.  504;  Fidel- 
ity &  Casualty  Co.  of  New  York  v.  Allibone,  90  Tex.  660,  40  S.  W.  399;  Brit- 
ish America  Assur.  Co.  v.  Bradford,  60  Kan.  82,  55  Pac.  335;  Insurance  Co. 
of  North  America  v.  Bachler,  44  Neb.  549,  62  N.  W.  911;  Lancashire  Ins.  Co. 
V.  Bush,  60  Neb.  116,  82  N.  W.  313;  Continental  Fire  Ins.  Co.  ▼.  Whitaker 
(Tenn.  190i)  79  S.  W.  119. 

The  Georgia  court  was  misled  by  Gulf,  O.  &  S.  F.  R.  Co.  ▼.  Ellis,  165  U. 
S.  150,  17  Sup.  Ct.  255,  41  L.  Ed.  666,  into  holding  such  a  statute  imconstitu- 
tional.  See  Phenix  Ins.  Co.  v.  Hart,  112  Ga.  765,  38  S.  E.  67;  Phoenix  Ins. 
Co.  v.  Schwartz,  115  Ga.  113,  41  S.  B.  240,  57  L.  R.  A.  752,  90  Am.  St  Rep. 
98. 

Ts  See  post,  §  178. 

T4  "This  company  shall  not  be  liable,  beyond  the  actual  ralue  destroyed  by 
fire,  for  loss  occasioned  by  ordinance  or  law  regulating  construction  or  re- 
pair of  buildings,  or  by  interruption  of  business,  manufacturing  processes,  or 
otherwise;  nor  for  any  greater  proportion  of  the  value  of  plate  glass,  fres- 
coes, and  decorations  than  that  which  this  policy  shall  bear  to  the  whole  in- 
surance on  the  building  described." 

7»Larkin  v.  Insurance  Co.,  80  Minn.  527,  83  N.  W.  409,  81  Am.  St.  Rep. 
286.  In  this  case  It  was  said:  **These  authorities  lay  down  the  rule  that 
such  ordinances  are  a  part  of  the  contract  of  insurance,  and  that  the  insurer 
is  bound  thereby.  This  is  in  line  with  the  general  doctrine  that,  where  the 
parties  contract  upon  a  subject  which  is  surrounded  by  statutory  limitations 
and  requirements,  they  are  presumed  to  have  entered  Into  their  engagements 
with  reference  to  such  statute,  and  the  same  enters  into  and  becomes  a  part 
of  such  contract"  Of  course,  under  such  circumstances  the  building  will 
not  be  considered  a  total  loss  unless  so  badly  damaged  as  to  be  practically 


§§  176-177)  MEASURE  OF  INSURER'S  LIABILITY.  485 

however,  the  insurer  is  clearly  liable  only  for  the  sum  that  would  be 
required  to  restore  the  property  to  its  original  condition  if  such  restora- 
tion were  allowed. 

It  is  also  to  be  observed  that  the  standard  policy  carefully  limits  the 
liability  of  the  insurer  for  such  fragile  and  easily  damaged  articles  as 
plate  glass,  frescoes,  and  decorations. 

The  Pro  Rata  Clause, 

"This  company  shall  not  be  liable  under  this  policy  for  a  greater  pro- 
portion of  any  loss  on  the  described  property,  or  for  loss  by  and  ex- 
pense of  removal  from  premises  endangered  by  fire,  than  the  amount 
hereby  insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not, 
or  by  solvent  or  insolvent  insurers,  covering  such  property,  and  the 
extent  of  the  application  of  the  insurance  under  this  policy  or  of  the 
contribution  to  be  made  by  this  company  in  case  of  loss,  may  be  provided 
for  by  agreement  or  condition  written  hereon  or  attached  or  appended 
hereto.    Liability  for  re-insurance  shall  be  as  specifically  agreed  here- 

on. 

Under  concurrent  policies  that  do  not  contain  a  limitation  of  this 
kind,  the  insured  may  proceed  against  any  one  of  the  several  insurers 
to  recover,  within  the  limit  of  his  insurance,  the  whole  amount  of  loss 
suffered,  leaving  the  latter  to  prosecute  his  claim  for  contribution 
against  his  co-insurers  in  a  separate  proceeding.^*  It  is  to  avoid  such 
circuity  of  action,  and  to  render  settlements  among  co-insurers  more 
easy  and  satisfactory,  that  the  above  condition  is  included  within  the 
standard  policy.  The  condition  will  be  enforced  in  accordance  with  its 
terms,  even  though  it  may  work  some  hardship  upon  the  insured.''^ 
In  Pennsylvania,  however,  a  rather  peculiar  doctrine  has  grown  up,  in 
accordance  with  which  insurance  is  not  deemed  concurrent  unless  it 
is  also  co-extensive.  Thus,  where  a  policy  was  issued  to  cover  only  a 
part  of  property  previously  insured,  it  was  held  that,  upon  the  destruc- 

valueless  without  the  repah-s  so  prohibited;  but  In  fixing  the  insurer's  lia- 
bility the  value  of  the  material  remaining  must  be  deducted  from  the  total 
value  of  the  uninjured  building.    Id. 

T«  Godin  V.  Assurance  Co.,  1  Burrows,  489;  Norwich  Union  Fire  Ins.  Soc. 
V.  Wellhouse,  113  Ga.  970,  39  S.  E.  397.  Of  course,  if  the  amount  of  loss 
should  equal  or  exceed  the  total  insurance,  there  could  arise  no  question  of 
prorating  or  contribution.   Bach  insurer  would  be  liable  for  the  whole  amount 

of  his  policy. 

7  7  The  "whole  insurance"  of  this  condition  is  the  sum  of  the  face  values 
of  all  the  policies  written  upon  the  property  in  question.  And  in  apportion- 
ing any  loss  all  policies  are  to  be  included,  even  though  some  of  them  may 
give  only  partial  indemnity,  by  reason  of  provisions  making  the  insured  co- 
insurer.  Farmers'  Feed  Ck).  v.  Scottish  Union  &  National  Ins.  Co.,  173  N.  Y. 
241,  65  N.  E.  1105 ;  Stephenson  v.  Insurance  Co.,  116  Wis.  277,  93  N.  W.  19. 


486 


THB   STANDARD   FIBB   POLICY. 


(Ch.  13 


APPRAISAL  AND  ARBITRATION. 


487 


I' 


.  i 


tion  of  the  property  covered  by  both  policies,  there  could  be  no  pro- 
rating of  the  loss,  since  the  policies  were  not  concurrent/* 

It  has  been  recently  held  in  Kentucky  that  a  condition  of  a  policy 
making  the  insured  co-insurer,  unless  he  maintained  other  insurance  to 
a  stipulated  amount,  was  void  as  opposed  to  the  valued  policy  laws  of 
that  state.^* 

APPBAISAI.  AND  ARBITRATION. 

178.  In  case  of  dispute  as  to  the  valne  of  property  lost  or  damaged,  It 
is  stipulated  tliat  appraisers  shall  be  appointed,  who,  with  an 
umpire,  shall  make  an  award  as  to  the  amount  of  loss.  Such 
an  appraisal  and  award,  when  required,  is  made  a  condition 
precedent  to  any  claim  against  the  insurer.  As  such,  it  is  valid, 
in  the  absence  of  statute  providing  otherwise. 

"In  the  event  of  disagreement  as  to  the  amount  of  loss  the  same 
shall,  as  above  provided,  be  ascertained  by  two  competent  and  disin- 
terested appraisers,  the  insured  and  this  company  each  selecting  one, ' 
and  the  two  so  chosen  shall  first  select  a  competent  and  disinterested 
umpire ;  the  appraisers  together  shall  then  estimate  and  appraise  the 
loss,  stating  separately  sound  value  and  damage,  and,  failing  to  agree, 
shall  submit  their  differences  to  the  umpire ;  and  the  award  in  writing 
of  any  two  shall  determine  the  amount  of  such  loss ;  the  parties  thereto 
shall  pay  the  appraiser  respectively  selected  by  them  and  shall  bear 
equally  the  expenses  of  the  appraisal  and  umpire." 

This  provision  for  a  settlement  of  disputes  as  to  the  value  of  property 
destroyed,  without  a  resort  to  litigation,  is  one  much  to  be  commended 
But  when  made  a  condition  precedent  to  bringing  an  action  on  the  pol- 
icy, as  in  the  case  of  the  standard  policy,  it  is  sometimes  liable  to  abuse 
by  the  insurer,  and  has  frequently  been  the  cause  of  vexatious  litigation. 

It  is  well  settled  that  a  clause  intended  to  refer  to  arbitration  the 
whole  question  of  the  insurer's  liability  under  the  contract  is  void,  as 
ousting  the  jurisdiction  of  the  court.'*  If  the  matter  referred  is  mere- 
ly the  amount  of  that  liability,  the  condition  is  perfectly  valid  and  will 
be  enforced."     If,  by  the  terms  of  the  policy,  compliance  with  the  con- 

T8  Meigs  v.  Insurance  Co.,  205  Pa.  378,  64  Atl.  1053;  Clarke  v.  Assurance 
Co.,  146  Pa.  561,  23  Atl.  248,  15  L.  R.  A.  127,  28  Am.  St  Rep.  821;  Sloat  v. 
Insurance  Co.,  49  Pa.  14,  88  Am.  Dec.  477.  But  see,  contra,  OGDEN  v.  IN- 
SURANCE CO.,  50  N.  Y.  388,  10  Am.  Rep.  492. 

T»  Sachs  V.  Insurance  Co.  (Ky.)  67  S.  W.  23.  But  see  Stephenson  v.  Insui^ 
ance  Co.,  116  Wis.  277,  93  N.  W.  19. 

soPhcBuix  Ins.  Co.  v.  Zlotky  (Neb.)  92  N.  W.  736;  German- American  Ins. 
Co.  v.  Etherton,  25  Neb.  505,  41  N.  W.  406;  Hartford  Fire  Ins.  Co.  v.  Hon 
(Neb.)  92  N.  W.  746,  60  L.  R.  A.  436 ;  Leach  v.  Insurance  Co.,  68  N.  H.  245. 

«i  Hamilton  v.  Insurance  Co.,  136  U.  S.  242,  10  Sup.  Ct  945,  34  L.  Ed.  419; 
Hanover  Fire  Ins.  Co.  v.  Lewis,  28  Fla.  209,  10  South.  297;  Mentz  v.  Insure 


§g  178-179) 

dition  and  the  return  of  an  award  is  expressly  made  a  condition  preced- 
ent to  the  bringing  of  an  action  upon  the  policy,  a  failure  on  the  part 
of  the  insured  to  submit  the  question  in  dispute  to  arbitration,  as  agreed, 
will  be  a  good  defense  to  an  action  on  the  policy."  But  if  the  agree- 
ment to  submit  to  arbitration  is  not  so  expressly  made  a  condition 
precedent,  the  insured  may  decline  to  comply  with  the  condition,  and 
maintain  his  suit  on  the  policy,  thus  rendering  himself  liable  for  a 
breach  of  his  collateral  agreement  to  arbitrate." 

As  in  the  case  of  other  awards,  the  award  under  this  condition  will 
not  be  binding  unless  it  has  been  rendered  strictly  .in  accordance  with 
the  terms  of  its  submission,  and  by  arbitrators  who  have  considered  the 
evidence  submitted  in  a  fair  and  judicial  manner.  Thus,  it  was  held 
that  when  the  insurer,  acting  under  this  condition,  fraudulently  ap- 
pointed his  own  agent  to  represent  him,  and  this  agent  procured  the 
selection  of  a  person  friendly  to  the  insurer  as  umpire,  the  award  re- 
turned by  such  a  board  of  arbitrators  was  not  binding  upon  the  insured, 
who  was  allowed  to  maintain  his  action  upon  the  policy,  without  refer- 
ence to  the  award.'* 

179.  OPTION  TO  KEBXTILD— In  order  to  protect  tlio  insurer  against 
unfairness  in  the  appraisal  and  award,  or  in  the  proofs  of  loss, 
the  standard  policy  reserves  to  him  the  option  to  restore  the 
property  damaged,  or  to  purchase  it  at  the  appraised  valuation. 
An  election  by  the  insurer  to  rebuild  or  purchase  gives  rise  to 
a  new  and  fixed  liability,  which  can  be  enforced  by  the  insured 
in  appropriate  proceedings. 

"It  shall  be  optional,  however,  with  this  company  to  take  all,  or  any 
part,  of  the  articles  at  such  ascertained  or  appraised  value,  and  also  to 
repair,  rebuild,  or  replace  the  property  lost  or  damaged  with  other  of 
like  kind  and  quality  within  a  reasonable  time  on  giving  notice,  within 
thirty  days  after  the  receipt  of  the  proof  herein  required,  of  its  inten- 
tion so  to  do ;  but  there  can  be  no  abandonment  to  this  company  of  the 
property  described." 

ance  Co.,  79  Pa.  478,  21  Am.  Rep.  80;  Viney  v.  Bignold,  20  Q.  B.  Div.  172; 
Scott  V.  Avery,  5  H.  L.  Gas.  811. 

82  Hamilton  v.  Insurance  Co.,  136  U.  S.  242,  10  Sup.  Ct  945,  34  L.  Ed.  419; 
Fischer  v.  Insurance  Co.,  95  Me.  486,  50  Atl.  282,  85  Am.  St  Rep.  428;  Ran- 
dall V.  Insurance  Co.,  10  Mont  340,  25  Pac.  953,  24  Am.  St  Rep.  50;  Caledo- 
nia Ins.  Co.  V.  Traub,  83  Md.  524,  35  Atl.  13. 

88  HAMILTON  V.  INSURANCE  CO.,  137  U.  S.  370,  11  Sup.  Ct  133,  34  L. 
Ed.  708,  Woodruff,  Ins.  Cas.  194;  Birmingham  Fire  Ins.  Co.  v.  Pulver,  128 
111.  329,  18  N.  B.  804,  9  Am.  St  Rep.  598;  Seward  v.  Rochester,  109  N.  Y.  164, 
16  N.  E.  348;  Collins  v.  Locke,  4  App.  Cas.  674. 

84  Insurance  Co.  of  North  America  v.  Hegewald  (Ind.  Sup.)  66  N.  El  902. 
And  see  Kaiser  v.  Insurance  Co..  172  N.  Y.  663,  65  N.  £.  1118;  HaU  y.  Assur- 
ance Co.,  133  Ala.  637,  32  South.  257. 


i88 


THE   STANDARD    FIRE   POLICY. 


(Ch.  13 


i  • 


The  insurer  is  also  apt  at  times  to  suffer  from  the  perverted  valua- 
tion made  by  appraisers  friendly  to  the  insured,  or  by  an  award  ren- 
dered by  a  packed  board  of  arbitrators.  While  the  insurer  would  have 
the  same  right  to  avoid  the  award  or  appraisement,  if  unfairly  made, 
as  would  the  insured,  he  would  hardly  be  so  successful  in  proving  the 
fraud  before  a  jury.  Therefore,  the  insurer  seeks  to  escape  prejudice 
to  his  interests  on  account  of  unfair  or  fraudulent  appraisers  by  reserv- 
ing the  option  to  take  personal  property  damaged  by  fire  at  the  valua- 
tion assigned  to  it  by  such  appraisers,***  or  by  the  insured  in  his  proof 
of  loss,  or  to  rebuild  or  repair  any  building  that  may  have  been  dam- 
aged," Thus  the  provision  operates  as  a  wholesome  check  upon  the 
msured  and  his  friends  in  estimating  the  value  of  damaged  goods,  and 
should  be  given  a  reasonable  construction. 

Insurer^ s  Election  to  Rebuild, 

The  insurer  must  exercise  his  option  to  rebuild  fairly,  and  within 
the  time  stipulated  in  tiie  policy,  or,  in  the  absence  of  stipulation, 
witiiin  a  reasonable  time."  He  must  give  unmistakable  notice  of 
his  election  to  rebuild,  and  an  election  once  made  is  irrevocable." 
While  the  insurer  may  take  advantage  of  repairs  made  by  the  insured 
before  notice  of  election,  yet  he  cannot  do  so  if  he  has  unfairly  al- 
lowed the  insured  to  proceed  with  repairs  necessary  to  preserve  the 
property  from  further  damage,  when  the  latter  in  good  faith  believed 
that  the  insurer  did  not  intend  himself  to  make  repairs."    Upon  elect- 

8»  The  Insurer  must  elect  to  take  the  damaged  goods  within  a  reasonable 
time,  which  may  be  less  than  the  stipulated  thirty  days.  Thus,  when  the 
insured  had  given  due  notice  of  a  loss,  it  was  held  that  a  sale  of  the  damaged 
goods  at  auction  eighteen  days  after  the  Are,  and  after  public  advertisement, 
the  insurer  meanwhile  having  shown  no  disposition  to  take  the  goods,  con- 
stituted no  defense  to  the  insurer  under  this  condition.  Davis  v.  Insurance 
Co.,  158  N.  Y.  688,  53  N.  B.  1154. 

8 «  It  is  clear  that  such  a  right  of  option  could  not  be  claimed  In  the  absence 
of  agreement  WYNKOOP  v.  INSURANCE  CO.,  91  N.  Y.  478,  43  Am.  Rep. 
686,  Woodruff,  Ins.  Cas.  203;  Hartford  Fire  Ins.  Co.  v.  Peebles'  Hotel  Co.,  27 
C.  C.  A.  223,  82  Fed.  546,  54  U.  S.  App.  215;  COMMONWEALTH  INa  CO. 
V.  SENNETT,  37  Pa.  205,  78  Am.  Dec.  418. 

87  Beals  V.  Insurance  Co.,  36  N.  Y.  522;  Insurance  Co.  of  North  America 
V.  Hope,  58  111.  75,  11  Am.  Rep.  48;  KeUy  v.  Sun  Fire  Office,  141  Pa.  10,  21 
Atl.  447,  23  Am.  St.  Rep.  254.  It  is  competent  for  the  insurer,  as  a  defense, 
to  show  an  extension  of  time  allowed  him  by  agreement  with  the  insured' 
Frauklin  Fire  Ins.  Co.  v.  HamUl,  5  Md.  170;  Home  Mut  Fh-e  Ins.  Co.  v  Gar^ 
field,  60  lU.  124.  14  Am.  Rep.  27;   Haskius  v.  Insurance  Co.,  6  Gray  (Mass.) 

•»  A  request  for  arbitration  amounts  to  an  election  to  pay  money  in  satis- 
faction of  the  Insured's  claim;  and  such  an  election  cannot  be  afterwards  re- 
voked. Iowa  Cent.  Building  &  Loan  Ass'n  v.  Merchants'  &  Bankers'  Fire  Ins 
Co.,  120  Iowa,  530,  94  N.  W.  1100;  Fire  Ass'n  of  Philadelphia  v.  Rosenthal! 
108  Pa.  474,  1  Atl.  303;   Heilmann  v.  Insurance  Co.,  75  N.  Y.  7. 

89  Eliot  Five  Cents  Sav.  Bank  v.  Commercial  Assur.  Co.,  142  Mass.  145,  T 
N.  SL  550.    And  see  Beals  t.  Insurance  Co.,  36  N.  Y.  522. 


.^^ 


k&  AFFECTED  BY   VALUED  POLICY   LAWS. 


489 


§180) 

ing  to  rebuild,  the  former  contract  of  insurance  is  discharged,  and  the 
parties  are  deemed  to  have  made  a  new  agreement,  under  which  the 
insurer  undertakes  to  restore  the  building  to  its  former  condition.*^ 
Therefore,  after  such  election,  the  insured  cannot  bring  any  action 
upon  the  policy,*^  nor  can  the  insurer  claim  the  benefit  of  any  conditions 
in  the  policy,  unless  it  be  by  reason  of  a  ground  of  forfeiture,  of  which 
he  had  no  knowledge  at  the  time  of  making  his  election.'*  Unless 
the  policy  has  limited  the  cost  of  rebuilding  to  the  amount  of  the  in- 
surance, the  insurer,  after  electing  to  rebuild,  can  be  compelled  to  per- 
form his  undertaking,  even  though  the  cost  may  exceed  the  oris^nal 
amount  of  insurance.  •• 


f     M 


AS  AFFECTED  BY  VALUED  POLICY  LAWS. 

1 80.  When  the  standard  f  onn  Is  nsed  in  those  states  in  which  a  stand- 
ard policy  has  not  been  adopted,  any  terms  or  conditions  re- 
png:nant  to  local  statutes  are  invalid.  Of  especial  importance 
are  the  so-called  "valued  policy  laws,"  existing  in  many  states, 
which  are  held  to  niake  invalid  those  provisions  of  the  standard 
form,  for  determining  the  value  of  property  totally  destroyed, 
for  arbitration  in  case  of  total  loss,  and  for  repairing  and 
rebuilding  under  the  same  conditions* 

In  nearly  half  the  states  of  the  Union,  statutes  have  been  enacted 
which  provide  that  the  amount  of  insurance  written  on  the  face  of  the 
policy,  and  upon  which  premiums  are  paid,  shall  be  conclusively  pre- 
sumed to  be  the  value  of  insured  realty  in  case  of  a  total  loss,  provided 
there  has  been  no  depreciation  between  the  time  of  writing  the  policy 
and  the  time  of  the  loss,  and  also  provided  that  the  insured  has  prac- 
ticed no  fraud  upon  the  insurer  in  overvaluing  the  property.  These 
are  the  usual  provisions  of  such  statutes,  although  their  terms  vary 

•0  WYNKOOP  V.  INSURANCE  CO.,  91  N.  Y.  478,  43  Am.  Rep.  686,  Wood- 
ruff, Ins.  Cas.  203;  Hartford  Fire  Ins.  Co.  v.  Peebles'  Hotel  Co.,  27  C.  C.  A. 
223,  82  Fed.  546,  54  U.  S.  App.  215;  Morrell  v.  Insurance  Co.,  33  N.  Y.  429,  88 
Am.  Dec.  396;  Beals  v.  Insurance  Co.,  36  N.  Y.  522. 

•1  Hartford  Fire  Ins.  Co.  v.  Peebles*  Hotel  Co.,  27  C.  C.  A.  223,  82  Fed.  546, 
54  U.  S.  App.  215.  In  this  case  the  insured  was  allowed  to  sue  for  damages 
owing  to  the  inferior  material  used  by  the  insurers  in  repairing  the  insured's 
building.  Beals  v.  Insurance  Co.,  36  N.  Y.  522.  Here  the  insured  was  not 
allowed  to  recover  on  his  policy  because  he  refused  to  permit  the  insurers  to 
rebuild,  which  right  they  claimed  by  virtue  of  their  policy. 

82  WYNKOOP  V.  INSURANCE  CO.,  91  N.  Y.  478,  43  Am.  Rep.  686;  Bersche 
▼.  Insurance  Co.,  31  Mo.  546. 

•3  Morrell  v.  Insurance  Co.,  33  N.  Y.  429,  88  Am.  Dec.  396;  Fire  Ass'n  of 
Philadelphia  v.  Rosenthal,  108  Pa.  474,  1  Atl.  303;  Hartford  Fire  Ins.  Co.  ▼. 
Peebles'  Hotel  Co.,  27  C.  C.  A.  223,  82  Fed.  546,  54  U.  S.  App.  215;  Heilmann 
V.  Insurance  Co.,  75  N.  Y.  7;  Stamps  v.  Insurance  Co.,  77  N.  O.  209,  24  Am. 
Rep.  443;   Home  Mut  Fire  Ins.  Co.  v.  Garfield,  60  111.  124,  14  Am.  Rep.  27. 


490 


THE  STANDARD   FIRE   POLICY, 


(Ch.  13 

considerably  in  the  diflFerent  states.**  These  statutes  have  been  held 
to  be  constitutional,  and  not  to  interfere  with  the  freedom  of  con- 
tract.»» 

All  insurances  effected  under  the  standard  form  of  policy  in  the 
states  in  which  these  laws  exist  are  necessarily  subject  to  them.  In 
fact,  the  provisions  of  these  laws  become  as  fully  a  part  of  the  contracts 
as  if  set  forth  in  terms  in  the  policies,"'  and  all  conditions  and  terms  in 
the  standard  policy  which  are  in  any  wise  repugnant  to  the  provisions 
of  such  statutes  are  invalid.'^  The  provisions  of  these  statutes  are 
held  to  be  in  the  interest  of  the  public  at  large,  and  not  merely  for  the 
benefit  of  the  insured.®*     Hence  they  cannot  be  waived  by  him.    An 

•*  The  Kentucky  valued  policy  law  may  be  here  given  as  an  example  (Ky. 
St  1903,  §  700):  "That  insurance  companies  that  take  fire  or  stonn  risks  on 
real  property  in  this  commonwealth  shall,  on  all  policies  issued  after  this  act 
takes  effect  (in  case  of  total  loss  thereof  by  fire  or  storm),  be  liable  for  the 
full  estimated  value  of  the  property  Insured,  as  the  value  is  fixed  In  the  face 
of  the  policy;  and  in  cases  of  partial  loss  of  the  property  Insured,  the  liabil- 
ity of  the  company  shall  not  exceed  the  actual  loss  of  the  party  Insured:  pro- 
vided, that  the  estimated  value  of  the  property  insured  may  be  diminished 
to  the  extent  of  any  depreciation  in  the  value  of  the  property  occurring  be- 
tween the  dates  of  the  policy  and  the  loss:  and  provided  further,  that  the 
insured  shall  be  liable  for  any  fraud  he  may  practice  in  fixing  the  value  of 
the  property,  If  the  company  be  misled  thereby." 

»8  Orient  Ing.  Co.  v.  Daggs,  172  U.  S.  557,  19  Sup.  Ct  281,  43  L.  Ed.  552, 
affirming  136  Mo.  382,  38  S.  W.  85,  35  L.  R.  A.  227,  58  Am.  St.  Rep.  638;  Bug- 
ger V.  Insurance  Co.,  95  Tenn.  245,  32  S.  W.  5,  28  L.  R.  A.  796;  ^tna  Ina. 
Co.  V.  Tucker  (Tenn.)  32  S.  W.  9. 

•«  OSHKOSH  GASLIGHT  CO.  v.  GERMANIA  FIRE  INS.  CO.,  71  Wis.  454, 
37  N.  W.  819,  5  Am.  St.  Rep.  233;  Reilly  v.  Insurance  Co.,  43  Wis.  449,  28 
Am.  Rep.  552;  Milwaukee  Mechanics'  Ins.  Co.  v.  Russell,  65  Ohio  St  230,  62 
N.  E.  338,  56  L.  R.  A.  159. 

»T  Thompson  v.  Insurance  Co.,  45  Wis.  388;  Insurance  Co.  of  North  Amer- 
ica V.  Bachler,  44  Neb.  549,  62  N.  W.  911;  Home  Fire  Ins.  Co.  v.  Bean,  42 
Neb.  537,  60  N.  W.  907;  Hartford  Fire  Ins.  Co.  v.  Bourbon  Co.  Ct,  24  Ky. 
Law  Rep.  1850,  72  S.  W.  739;  Hlckerson  v.  Insurance  Co.,  96  Tenn.  193,  33 
S.  W.  1041,  32  L.  R.  A.  172;  Dugger  v.  Insurance  Co.,  95  Tenn.  245,  32  S.  W. 
5,  28  L.  R.  A.  796;  Reilly  v.  Insurance  Co.,  43  Wis.  449,  28  Am.  Rep.  552; 
Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St  409,  24  N.  E.  1072;  OSHKOSH  GAS- 
LIGHT CO.  V.  GERMANIA  FIRE  INS.  CO.,  71  Wis.  454,  37  N.  W.  819,  5  Am. 
St  Rep.  233;  Havens  v.  Insurance  Co.,  123  Mo.  403,  27  S.  W.  718,  26  L.  R.  A. 
107,  45  Am.  St  Rep.  570.  In  this  case  it  was  held  that  an  agreement  to  con- 
sider real  property  as  personal  property  was  invalid.  Milwaukee  Mechanics' 
Ins.  Co.  V.  Russell,  65  Ohio  St  230,  62  N.  E.  338,  56  L.  R.  A.  159;  Bammessel 
V.  Insurance  Co.,  43  Wis.  463.  In  this  case  the  insured  was  allowed  to  recov- 
er the  face  value  of  his  policy,  that  being  the  damages  agreed  upon  by  the 
parties,  although  he  knowingly  and  Intentionally  stated  the  cash  value  of  his 
property  to  be  greater  than  It  actually  was,  which,  by  virtue  of  one  of  the 
conditions  In  his  policy,  was  to  cause  a  forfeiture.  To  the  same  effect  see 
Cayon  v.  Insurance  Co.,  68  Wis.  510,  32  N.  W.  540. 

•8  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St  409,  24  N.  B.  1072;   Thompson  y. 


AS  AFFECTED  BY  VALUED  POLICT  LAWS. 


491 


§  180) 

attempted  waiver  is  absolutely  void.®*  Most  of  the  provisions  of  the 
standard  policy  intended  to  fix  the  amount  of  the  insurer's  liability  for 
a  total  loss  are  invalid  in  the  states  in  which  these  valued  policy  laws 
exist.  Thus,  it  has  been  held  that  the  condition  limiting  the  liability 
of  the  insurer  to  the  cash  value  of  the  property  at  the  time  of  the  loss 
is  void.^®®  So  is  the  condition  giving  the  insurer  his  option  to  re- 
build, as  being  repugnant  to  the  provision  of  the  statute  fixing  the  lia- 
bility of  the  insurer  at  the  amount  named  on  the  face  of  the  policy.*®^ 
In  those  states  in  which  valued  policy  laws  do  not  exist,  the  question 
of  whether  a  total  loss  has  been  suffered  or  not  may  be  submitted  to 
the  arbitrators,  as  well  as  the  amount  of  damage  suffered  when  the  loss 
was  only  partial.*®^  But  under  the  valued  policy  acts  it  is  held  that 
the  submission  of  the  question  whether  a  total  loss  has  been  suffered 
tn  any  given  case  is,  in  effect,  to  submit  to  the  arbitrators  the  question 
of  the  insurer's  liability,  thus  ousting  the  jurisdiction  of  the  courts.^® ^ 
Hence  in  those  states  the  arbitration  condition  of  the  standard  policy 
is  valid  as  to  partial  losses,  but  not  as  to  a  total  loss. 

A  total  loss  of  the  insured  building  exists  when  the  result  of  the  fire 
is  such  as  to  render  the  property  wholly  unfit  for  use  as  a  building, 
however  valuable  it  may  be  as  mere  material.    Or,  to  put  it  otherwise, 

Insurance  Co.,  45  Wis.  388;   Pennsylvania  Ins.  Co.  v.  Drackett  63  Ohio  St 
41,  57  N.  B.  962,  81  Am.  St  Rep.  608. 

»»  Reilly  v.  Insurance  Co.,  43  Wis.  449,  28  Am.  Rep.  552;  Queen  Ins.  Co. 
V.  Leslie,  47  Ohio  St  409,  24  N.  K  1072;  Pennsylvania  Ins.  Co.  v.  Drackett, 
63  Ohio  St  41,  57  N.  B.  962,  18  Am.  St  Rep.  608. 

100  Hartford  Fire  Ins.  Co.  v.  Bourbon  Co.  Ct.,  24  Ky.  Law  Rep.  1850,  72  S. 
W.  739.  Also,  see  Queen  Ins.  Co.  v.  Leslie,  47  Ohio  St  409,  24  N.  B.  1072; 
Hlckerson  v.  Insurance  Co.,  96  Tenn.  193,  33  S.  W.  1041,  32  L.  R.  A.  172; 
Dugger  V.  Insurance  Co.,  95  Tenn.  245,  32  S.  W.  5,  28  L.  R.  A.  796. 

101  Hartford  Fire  Ins.  Co.  v.  Bourbon  Co.  Ct,  24  Ky.  Law  Rep.  1850,  72  S. 
W.  739;  Milwaukee  Mechanics'  Ins.  Co.  v.  Russell,  65  Ohio  St  230,  62  N.  E. 
338,  56  L.  R.  A.  159.  But  see,  contra,  Temple  v.  Insurance  Co.,  109  Wis.  372. 
85  N.  W.  361. 

102  Williamson  v.  Insurance  Co.,  58  G.  O.  A.  241,  122  Fed.  59;  Rutter  v.  In- 
surance Co.  (Ala.)  35  South.  33;  Chippewa  Lumber  Co.  v.  Phenix  Ins.  Co., 
80  Mich.  116,  44  N.  W.  1055;  Adams  v.  Insurance  Co.,  85  Iowa,  6,  51  N.  W. 
1149. 

108  This  Is  soundly  held,  since,  In  case  of  total  loss,  the  liability  of  the  In- 
surer is  fixed  by  statute.  Hartford  Fire  Ins.  Co.  v.  Bourbon  Co.  Ct,  24  Ky. 
Law  Rep.  1850,  72  S.  W.  739;  Thompson  v.  Insurance  Co.,  43  Wis.  459.  Nor 
does  consent  to  arbitrate  estop  the  insured  to  claim  a  total  loss  as  provided 
for  by  statute.  Pennsylvania  Fire  Ins.  Co.  v.  Drackett  63  Ohio  St  41,  57  N. 
El  962,  81  Am.  St  Rep.  608.  And  see  Merchants*  Ins.  Co.  v.  Stephens,  22  Ky. 
Law  R^.  999,  59  S.  W.  511;  Home  Fire  Ins.  Co.  v.  Bean,  42  Neb.  537,  60  N. 
W.  907;  Daggs  v.  Insurance  Co.,  136  Mo.  382,  38  S.  W.  85,  35  L.  R.  A.  227,  58 
Am.  St  Rep.  638;  Seyk  v.  Insurance  Co.,  74  Wis.  67,  41  N.  W.  443,  3  L.  R.  A. 
523.  In  this  case  the  jury  deducted  from  the  insurance  the  value  of  the  brick 
and  other  material  left  from  the  building  burned.  Queen  Ins.  Co.  v.  Leslie. 
47  Ohio  St  409,  24  N.  K  1072. 


492 


THE   STANDARD    FIRE   POLICY. 


(Ch.  13 


if  any  portion  of  the  building  left  standing  could  be  utilized  by  a  ju- 
dicious builder  in  the  proper  restoration  of  the  building,  the  loss  is  not 
total;  but  when  the  standing  walls  are  in  such  a  condition  that  the 
owner,  in  deciding  to  rebuild,  apart  from  any  question  of  insurance, 
would  tear  the  walls  down  to  the  level  of  the  foundation,  a  total  loss 
IS  said  to  exist,  however  imposing  may  be  the  appearance  of  the 
ruins.^®* 


DOCUMISXTS  MADE  PART  OP  CONTBACT  BY  REFEREITOB. 

181.  The  provisions  of  the  standard  poUcy  making  surveys,  etc.,  ^^ 
ferred  to  in  the  poUoy,  or  regnlations  of  a  mutual  company, 
part  of  the  contract,  do  not  add  anything  to  the  legal  effect  of 
such  references  and  regulations,  save  in  constituting  such  sur- 
reys, etc.,  warranties. 

"If  an  application,  survey,  plan,  or  description  of  property  be  re- 
ferred to  in  this  policy  it  shall  be  a  part  of  this  contract  and  a  warranty 
by  the  insured.  ♦  *  *  If  this  policy  be  made  by  a  mutual  or  other 
company  having  special  regulations  lawfully  applicable  to  its  organiza- 
tion, membership,  policies  or  contracts  of  insurance,  such  regulations 
shall  apply  to  and  form  a  part  of  this  policy  as  the  same  may  be  written 
or  pnnted  upon,  attached,  or  appended  hereto." 

As  we  have  already  seen  in  a  preceding  chapter,"'  plans,  surveys, 
and  other  documents  descriptive  of  the  risk  may  be  made  a  part  of  the 
contract  by  proper  reference.    Therefore  the  condition  above  quoted 

w"^,?*^'''^  ^^""^  ^'*^*  ^°-  '''  Bourbon  Co.  Ct.  24  Ky.  Law  Rep.  1850.  72  S. 
W.  i39;  Pennsylvania  Fire  Ins.  Co.  v.  Draclcett,  63  Ohio  St  57.  57  N.  B.  962. 
«1  Am.  St.  Rep.  608;  Oorbett  v.  Insurance  Co..  155  N.  Y.  389,  50  N.  B.  282  41 
.;-T   .^\^^^*«^^^^°^  ^-  IJisurance  Co..  123  Mo.  403.  27  S.  W.  718,  26  L.  r!  A. 
w  ct«  ^?V  ^  ^^^'  ^"^^^  German  Fire  Ins.  Co.  v.  Eddy,  36  Neb.  461.  54  N. 
w.  85b,  19  L.  R.  A.  707;   Seyk  v.  Insurance  Co.,  74  Wis.  67.  41  N.  W  443  3 
L.  R  A.  523;  Palatine  Ins.  Co.  v.  Weiss,  22  Ky.  Law  Rep.  994,  59  S.  W  509; 
Royal  Ins.  Co.  v.  Mclntyre,  90  Tex.  170,  37  S.  W.  1068.  35  L.  R.  A.  672.  59 
Am.  St.  Rep.  797.    In  this  case  the  court  said,  if  any  part  of  the  building  Is 
standing  after  the  fire,  the  rule  applied  to  ascertaining  if  it  is  a  total  loss  or 
not  is  whether  or  not  such  remaining  portions  would  be  utilized  by  a  "rea- 
sonably prudent  owner."  who  was  uninsured,  in  restoring  the  building  to  its 
original  condition.    But  see  O'Keefe  v.  Insurance  Co.,  140  Mo.  558,  41  S   W 
922  39  L.  R.  A.  819.    It  was  said  that  a  total  loss  existed  even  if  the  portions 
of  the  walls  which  remained  standing  could  be  utilized,  if  to  utilize  them 
would  cost  as  much  as  building  them  anew.    Oshkosh  Packing  &  Provision 
Co.  v.  Mercantile  Ins.  Co.  (C.  C.)  31  Fed.  200;   Insurance  Co.  of  North  Amer- 
ica v.  Bachler,  44  Neb.  549.  62  N.  W.  911;   Home  Fire  Ins.  Go   v   Bean   42 
Neb.  537,  60  N.  W.  907;  Hamburg-Bremen  Fire  Ins.  Co.  v.  Gariington  66  Tex 
103,  18  S.  W.  337,  59  Am.  Rep.  613;  Huck  ▼.  Insurance  Co.,  127  Mass.  306.  34 
Am.  Rep.  373.  ^ 

io«  See  ante,  p.  183. 


§182) 


AUTHORITY   OF  AGENTS — WAIVEBS. 


493 


probably  does  not  add  anything  to  the  binding  effect  of  such  a  refer- 
ence, for  it  has  been  held  that  such  documents  do  not,  under  this  clause, 
become  a  part  of  the  contract,  unless  the  reference  is  such  as  to  indicate 
the  intention  of  the  parties  that  they  should  be  so  made.'"  Likewise, 
the  provision  making  the  regulations  of  mutual  companies,  as  attached 
to  the  policy,  a  part  thereof,  amounts  to  nothing  more  than  incorpo- 
rating such  regulations  into  the  contract  by  reference. 


f      r'^ 


AUTHORITY  OF  AGENTS— WAIVERS. 

182.  The  provisions  limiting  the  powers  of  agents  of  the  insnrer  oper- 
ate merely  as  notice  to  the  insured  of  the  limitations  upon  such 
powers,  and  are  binding  only  in  so  far  as  they  are  kept  true  in 
fact.  Likewise,  restrictions  imposed  upon  the  methods  and 
power  of  waiving  conditions  have  no  further  effect  than  to  give 
notice  of  the  existence  of  such  restrictions  if  they  actually 
exist. 

"In  any  matter  relating  to  this  insurance  no  person,  unless  duly  au- 
thorized in  writing,  shall  be  deemed  the  agent  of  this  company." 

''This  company  shall  not  be  held  to  have  waived  any  provision  or 
condition  of  this  policy  or  any  forfeiture  thereof  by  any  requirement, 
act,  or  proceeding  on  its  part  relating  to  the  appraisal  or  to  any  exam- 
ination herein  provided  for." 

"This  policy  is  made  and  accepted  subject  to  the  foregoing  stipula- 
tions and  conditions,  together  with  such  other  provisions,  agreements, 
or  conditions  as  may  be  indorsed  hereon  or  added  hereto,  and  no  officer, 
agent,  or  other  representative  of  this  company  shall  have  power  to 
waive  any  provision  or  condition  of  this  policy  except  such  as  by  the 
terms  of  this  policy  may  be  the  subject  of  agreement  indorsed  hereon 
or  added  hereto,  and  as  to  such  provisions  and  conditions  no  officer, 
agent,  or  representative  shall  have  such  power  or  be  deemed  or  held  to 
have  waived  such  provisions  or  conditions  unless  such  waiver,  if  any, 
shall  be  written  upon  or  attached  hereto,  nor  shall  any  privilege  or  per- 
mission affecting  the  insurance  under  this  policy  exist  or  be  claimed  by 
the  insured  unless  so  written  or  attached." 

Principles  covering  the  determination  of  the  extent  of  the  authority 
of  insurance  agents,  and  of  their  right  to  waive  conditions  of  the  pol- 
icy, have  already  been  fully  treated."^  It  may  be  stated  here,  however, 
that  the  condition  in  the  standard  policy  stipulating  that  "no  person 
shall  be  agent  of  the  insurer  unless  authorized  in  writing"  has  no  con- 
tractual significance  whatever.    It  does  amount  to  notice  to  the  insured, 

»••  See  Vilas  v.  Insurance  CJo.,  72  N.  Y.  590,  28  Am.  Bep.  186;  Lft  Belle  ▼. 
Insurance  Soc,  34  N.  B.  51& 
^•T  See  ante,  p.  322. 


494 


THE   STANDARD   FIRE   POLICY. 


(Ch.  13 


and,  as  such,  is  binding  on  him,  if  true ;  otherwise  not.  The  same  gen- 
eral statement  may  be  made  with  regard  to  the  limitations  imposed  by 
the  policy  upon  the  power  of  any  representative  of  the  company  to 
waive  any  of  its  conditions  except  in  the  prescribed  manner.  Such 
hmitations  are  operative  only  so  far  as  they  are  kept  true.  If  any  agent 
has  been  in  fact  given  power  to  waive  this  stipulation,  it  becomes  im- 
material.^®* 

The  stipulation  that  the  company  shall  not  be  deemed  to  have  waived 
a  right  to  claim  a  forfeiture  by  taking  part  in  a  tentative  effort  to  ad^ 
just  the  loss  is  a  reasonable  and  valuable  provision,  inasmuch  as,  in  its 
absence,  some  states  have  held  that  such  a  participation  by  the  insurer 
m  attempting  to  adjust  the  loss  constituted  a  waiver  of  any  known  con- 
dition of  forfeiture."* 


CANCELLATION  OP  POLICY. 

183.  Under  the  cancellation  clause  of  the  standard  policy,  the  policy 
is  terminated,  as  a  contract,  upon  the  expiration  of  the  five  days 
after  notice  of  an  election  to  cancel.  No  act  of  canceUation  is 
necessary,  though  it  has  been  held  otherwise;  nor,  by  the  better 
authority,  is  the  return  of  the  unearned  premium  a  condition 
precedent  to  cancellation. 

"This  policy  shall  be  canceled  at  any  time  at  the  request  of  the  in- 
sured; or  by  the  company  by  giving  five  days'  notice  of  such  cancella- 
Uon.  If  this  policy  shall  be  canceled  as  hereinbefore  provided,  or  be- 
come void  or  cease,  the  premium  having  been  actually  paid,  the  un- 
earned portion  shall  be  returned  on  surrender  of  this  policy  or  last  re- 
newal, this  company  retaining  the  customary  short  rate;  except  that 
when  this  policy  is  canceled  by  this  company  by  giving  notice  it  shall 
retain  only  the  pro  rata  premium." 

The  cancellation  clause  of  the  standard  form  of  policy  seems  so 
clearly  worded  that  one  is  surprised  to  see  that  disputes  have  arisen 
as  to  its  construction.  It  is  held  by  the  better  authority  that,  after  the 
expiration  of  the  five-days  notice  required  in  case  the  cancellation  is  by 
the  company,  the  insurance  is  deemed  to  be  terminated  and  inoperative, 
without  furtlier  act  on  the  part  of  the  insurer  or  any  actual  cancellation 
of  the  policy."^  The  Kentucky  court,  however,  in  its  zeal  to  protect 
the  insured,  has  recently  decided  that  this  condition  requires  of  the  in- 

108  See  ante,  p.  324.  Also,  Virginia  Fire  &  Marine  Ins.  Co.  v.  Richmond 
Mica  Co.  (Va.  1904)  46  S.  E.  463. 

io»  Liverpool,  London  &  Globe  Ins.  Co.  v.  Verdier,  33  Mich.  138. 

"0  Sehwarzschlld  &  Sulzberger  Co.  v.  Phoenix  Ins.  Co.,  124  Fed.  52,  59  C. 
C.  A.  572.  In  this  case  a  telegraphic  notice  was  held  to  terminate  the*  policy 
fire  days  thereafter,  although  the  poUcy  had  not  been  surrendered  or  the  pro 
rata  premium  repaid. 


8  183) 


CANCELLATION  Or  POLICY. 


495 


surer  desiring  to  terminate  the  insurance  that  he  shall  first  cancel  the 
policy  and  return  the  pro  rata  premium,  when  the  insurance  will  be 
terminated  after  five  days*  notice  of  such  cancellation.^^*  Such  a  con- 
struction seems  to  stretch  the  language  of  the  condition  almost  beyond 
recognition. 

By  the  weight  of  authority  the  repayment  of  the  unearned  premium 
is  not,  under  the  standard  policy,  a  condition  precedent  to  the  termina- 
tion of  the  insurance  by  the  insurer.***  Such  repayment  becomes  due 
only  upon  surrender  of  the  policy.  The  New  York  Court  of  Appeals 
has,  however,  in  a  very  unsatisfactory  opinion,  adopted  the  contrary 
rule.**' 

The  right  to  cancel,  being  derived  only  from  the  contract,  must  be 
exercised  strictly  in  accordance  with  the  terms  of  the  contract.  Noth- 
ing less  will  terminate  the  insurance  without  the  consent  of  the  other 
party.***  The  notice  given  must  be  in  the  form  of  an  explicit  notifica- 
tion, not  of  a  request  or  of  a  general  expression  of  intention;  **•  and  it 
must  be  given  to  the  insured  or  to  his  agent  authorized  to  receive  such 
notice.**'  It  must  also  be  given  in  good  faith.***  Of  course,  no  right 
of  cancellation  exists  after  a  loss.*** 


i 


111  Continental  Ins.  Co.  v.  Daniel  (Ky.)  78  S.  W.  866. 

112  Sehwarzschlld  &  Sulzberger  Co.  v.  Phoenix  Ins.  Co.,  124  Fed.  52,  59  C. 
C.  A.  572;  El  Paso  Reduction  Co.  v.  Hartford  Fire  Ins.  Co.  (C.  C.)  121  Fed. 
937;   Newark  Fire  Ins.  Co.  v.  Sammons,  11  111.  App.  230. 

118  Tisdell  V.  Insurance  Co.,  155  N.  Y.  163,  49  N.  E.  664,  40  L.  R.  A.  765; 
following  Nitsch  v.  Insurance  Co.,  152  N.  Y.  635,  46  N.  E.  1149. 

11*  Wicks  Bros.  v.  Scottish  Union  &  National  Ins.  Co.,  107  Wis.  606,  83  N. 
W.  781. 

115  JOHN  R.  DAVIS  LUMBER  CO.  v.  HARTFORD  INS.  CO.,  95  Wis.  226, 
70  N.  W.  84,  37  L.  R.  A.  131.  See,  also.  State  Ins.  Co.  v.  Hale  (Neb.)  95  N. 
W.  473,  in  which  an  illegible  notice  was  held  insufficient 

ii«  Edwards  v.  Insurance  Co.,  101  Mo.  App.  45,  73  S.  W.  886.  But  the  un- 
authorized act  of  an  agent  in  consenting  to  cancellation  is  ratified  by  the  in- 
sured when  he  accepts  a  substitute  policy  in  place  of  the  one  canceled.  Lar- 
sen  V.  Insurance  Co.  (111.)  70  N.  E.  31;  Amfeld  t.  Assurance  Co.,  172  Pa.  605. 
34  Atl.  580. 

117  Thus,  an  attempted  cancellation  upon  the  approach  of  a  conflagration, 
and  when  the  insured  property  was  in  imminent  danger,  would  not  avail  the 
insurer,  though  complying  with  the  letter  of  the  contract  See  Home  Ins. 
Co.  v.  Heck,  65  111.  111. 

lit  Massasoit  Steam  Mills  Ca  ▼.  Western  Assur.  Go,  125  Masa.  IIOL 


496 


THB   STANDARD    FIEB   POLICY. 


(Ch.  13 


KOTICE  AND  PROOFS  OF  LOSS. 

184.  NOTICE  OF  LOSS  ia  held  to  be  ''immediate,"  within  the  require- 

ment of  the  standard  policy,  when  it  is  given  as  soon  after  the 
fire  as  is  reasonably  possible  under  ezisting  oironmstanees,  in 
the  exercise  of  due  diligence. 

185.  PROOFS  OF  LOSS  satisfactory  to  the  insurer  are  required  to  be 

given.  But  the  insurer  must  be  satisfied  when  the  insured  has 
done  all  in  his  power  to  furnish  the  information  stipulated  for 
in  the  policy.  It  is  the  duty  of  the  dissatisfied  insurer  to  indi- 
cate the  defects  in  the  proofs  of  loss  as  given,  so  that  the  de- 
ficiencies may  be  supplied.  His  retention  of  the  defective 
proofs  constitutes  a  waiver  of  his  objections. 

186.  The  insurer's  denial  of  all  liability  under  the  policy  constitutes 

a  waiver  of  his  right  to  receive  proofs  of  loss. 

187.  The  requirement  of  the  standard  policy  that  proofs  of  loss  shall 

be  given  within  sixty  days  is,  by  the  better  authority,  not  a 
condition  precedent,  the  breach  of  which  defeats  all  rights  of 
the  insured  under  the  policy.  Time  is  not  regarded  as  of  the 
essence  of  the  condition,  which  is  to  be  construed  as  suspending 
the  right  of  action  until  the  expiration  of  the  specified  period 
after  receipt  by  the  insurer  of  satisfactory  proofs  of  loss. 

188.  Failure  to  give  notice  and  proofs  of  loss  as  required  will  be  ex- 

eused  when  it  is  due  to  the  death  or  incapacity  of  the  insured, 
or  to  any  other  circumstance  rendering  compliance  with  the 
condition  impossible. 

189.  Notice  and  proofs  of  loss  can  be  given  to  any  agent  of  the  in- 

surer expressly  or  in&pliedly  authorized  to  receive  them.  They 
are  to  be  given  by  the  insured  himself,  or,  it  seems,  if  he  im 
dead,  absent,  or  incapacitated,  by  some  one  in  his  behalf. 

The  lengthy  provisions  of  the  standard  policy  requiring  notice  and 
proofs  of  loss  are  set  forth  in  the  note  below.^^* 


:ii,' 


ii»  "If  fire  occtir  the  insured  ihall  give  Immediate  notice  of  any  loss  there- 
by in  writing  to  this  company,  protect  the  property  from  further  damage, 
forthwith  separate  the  damaged  and  undamaged  personal  property,  put  it  in 
the  best  possible  order,  make  a  complete  inventory  of  the  same,  stating  the 
quantity  and  cost  of  each  article  and  the  amount  claimed  thereon ;  and,  within 
sixty  days  after  the  fire,  unless  such  time  is  extended  in  writing  by  this  com- 
pany, shall  render  a  statement  to  this  company,  signed  and  sworn  to  by  said 
insured,  stating  the  knowledge  and  belief  of  the  insured  as  to  the  time  and 
origin  of  the  fire;  the  interest  of  the  insured  and  of  all  others  in  the  property; 
the  cash  value  of  each  item  thereof  and  the  amount  of  loss  thereon;  aU  in- 
cumbrances thereon;  all  other  insurance,  whether  valid  or  not,  covering  any  of 
said  property;  and  a  copy  of  all  the  descriptions  and  schedules  In  all  policies; 
any  changes  in  the  title,  use,  occupation,  location,  possession,  or  exposures  of 
said  property  since  the  issuing  of  this  policy;  by  whom  and  for  what  purpose 
any  building  herein  described  and  the  several  parts  thereof  were  occupied  at 
the  time  of  fire;  and  shall  furnish,  if  required,  verified  plans  and  specifica- 
tions of  any  building,  fixtures,  or  machinery  destroyed  or  damaged;    •    •    • 


§§  184r-189) 


NOTICE  AND  PROOFS  OF  LOSS. 


497 


General  Purpose  and  Nature  of  Conditions. 

It  should  be  first  observed  by  the  reader  that  these  conditions,  while 
in  the  form  of  conditions  precedent,  are  in  nature  conditions  subsequent, 
the  breach  of  which  affects  a  right  that  has  already  accrued.  Until  a 
loss  occurs  through  a  peril  covered  by  the  policy,  the  insurer  incurs  no 
liability  under  his  contract,  but  with  the  happening  of  the  capital  fact 
of  loss  his  liability  arises  and  becomes  properly  fixed.  All  those  condi- 
tions of  the  policy  making  requirements  of  the  insured  after  the  loss  are 
intended  merely  for  evidential  purposes,  and  do  not  properly  form  any 
part  of  the  conditions  of  liability.  That  the  insurer  should  have  the  evi- 
dence that  he  stipulates  for  is  most  reasonable  and  proper,  and  it  is  also 
reasonable  that  he  should  be  allowed  to  stipulate  for  a  penalty  to  be  im- 
posed upon  the  insured  if  he  fails  to  give  the  evidence  required  by  the 
contract  But  all  of  these  conditions  concern  matters  after  the  loss. 
When  they  contain  provisions  of  forfeiture  they  must  be  regarded  as 
penalties  defeating  a  right  that  has  already  accrued.  Such  being  the 
nature  of  these  conditions,  it  is  manifest  that  the  general  rules  of  con- 
struction require  that  they  shall  be  construed  with  much  less  strictness 
than  those  conditions  that  operate  prior  to  the  loss.  A  condition  sub- 
sequent should  never  be  construed  as  defeating  an  already  vested  right, 
unless  the  intention  of  the  parties  to  create  a  forfeiture  is  unquestion- 
able. In  accordance  with  these  principles,  we  find  the  majority  of  the 
courts  most  unwilling  to  give  such  a  construction  to  these  subsequent 
conditions  as  will  defeat  the  rights  of  the  insured,  unless  the  facts  of 
the  case  show  fraud  or  clear  injustice  to  the  insurer. 

This  provision  of  the  standard  policy  requires  that  notice  in  writing 
of  the  fire  shall  be  given  immediately,  and  that  a  carefully  drawn  state- 
ment describing  the  character  and  extent  of  the  loss,  and  sworn  to  by 
the  insured,  shall  be  given  within  sixty  days  after  the  fire.  The  re- 
quirement of  notice  is  intended  merely  to  give  the  insurer  information 
upon  which  he  may  act  promptly  in  protecting  the  property  from  fur- 
ther loss  for  which  he  may  be  liable,  or  to  enable  him  to  take  any  other 
immediate  steps  that  his  interests  may  require.  The  statement  of  loss 
is,  however,  a  very  much  more  formal  requirement,  and  intended  not 
only  to  give  the  insurer  information  by  which  he  may  determine  the 
extent  of  his  liability,  but  also  to  afford  to  him  a  means  of  detecting 

and  the  loss  shall  not  become  payable  until  after  the  notice,  ascertainment, 
estimate,  and  satisfactory  proof  of  the  loss  herein  required  have  been  receiv- 
ed by  this  company,  including  an  award  by  appraisers  when  appraisal  has 
been  required.    •    ♦    • 

"No  suit  or  action  on  this  policy,  for  the  recovery  of  any  claim,  shall  be 
sustainable  in  any  court  of  law  or  equity  until  after  full  compliance  Dy  the 
insured  with  all  the  foregoing  requirements^  not  onleBS  commenced  within 
twelve  months  next  after  the  fire.** 
Vance  Ins. — 82 


498 


THE   STANDARD   FIBB   POLICY. 


(Ch.  13 


184-189) 


NOTICE  AND  PROOFS  OF  LOS8. 


499 


III 


liH 


I 


any  fraud  that  may  have  been  practiced  upon  him,  and  to  operate  as  a 
check  upon  extravagant  claims. 

Immediate  Notice  of  Loss, 

We  may  easily  derive,  from  the  principles  stated  above,  the  rule  that 
the  courts  construe  the  requirement  of  immediate  notice  liberally  in 
favor  of  the  insured.  In  using  the  term  "immediate"  the  parties  clearly 
do  not  intend  to  impose  upon  the  insured  any  impossible  requirements, 
and  therefore  notice  will  be  considered  as  immediate  if  it  has  been  given 
as  soon  as  circimistances  permitted  the  insured,  in  the  exercise  of  rea- 
sonable diligence,  to  communicate  it.  The  question  of  whether,  in  any 
given  case,  notice  has  been  given  within  such  reasonable  time  as  to  be 
immediate,  is  for  the  jury,^'*  although  there  may  be  some  cases  in 
which  the  delay  is  so  clearly  unreasonable  as  to  make  the  breach  of 
condition  a  question  of  law.^*^  No  rule  can  be  given  fixing  even  ap- 
proximately a  time  which  shall  be  deemed  to  be  reasonable  for  all  cases. 
Thus,  it  has  been  held  that  a  delay  of  fifty-three  days  in  giving  notice 
of  loss  was  excusable,  and  not  a  breach  of  this  condition,  in  a  case  in 
which  the  policy  had  come  into  the  hands  of  an  assignee  and  had  been 
lost  at  the  time  of  the  fire.  The  assignee,  not  having  before  him  the 
policy,  and  being  ignorant  of  its  conditions,  was  unable  to  give  notice 
until  the  policy  was  found  some  fifty  days  after  the  fire.  The  notice 
given  within  three  days  after  such  discovery  was  considered  to  be  im- 
mediate, within  the  condition  of  the  policy.^*'  In  this  case,  however, 
it  was  proved  that  the  insurer  had  actual  notice  of  the  fire  on  the  day 
that  it  had  occurred.  So,  it  has  been  held  that  a  delay  of  thirty-five 
days,  when  excusable  under  the  circumstances,  might  not  be  considered 
a  breach  of  this  condition.^**  In  other  cases  it  has  been  held  that  a 
delay  of  eleven  days,***  or  even  of  forty-eight  hours,***  without  suffi- 
cient reason,  constituted  a  breach  of  this  condition  requiring  immediate 
notice.  Conditions  in  other  forms  of  policies  requiring  that  notice  be 
given  "forthwith,"  or  "as  soon  as  possible,"  are  likewise  construed  to 
mean  that  the  notice  shall  be  given  within  a  reasonable  time.**' 

i«o  Solomon  v.  Insurance  Co.,  160  N.  Y.  595,  55  N.  B.  279,  46  L.  R.  A.  682, 
73  Am.  St  Rep.  707;  Fletcher  v.  Insurance  Co.,  79  Minn.  337,  82  N.  W.  647. 

"1  BRMENTROUT  v.  INSURANCE  CO.,  63  Minn.  305,  65  N.  W.  635,  30 
L.  R.  A.  346,  56  Am.  St  Rep.  481,  Woodruff,  Ins.  Cas.  487. 

122  Solomon  y.  Insurance  Co.,  160  N.  Y.  595,  55  N.  B.  279,  46  L.  B.  A.  68% 
73  Am.  St  Rep.  707. 

"»  Knickerbocker  Ins.  Co.  v.  McGinnis,  87  111.  70. 

is«  Trask  y.  Insurance  Co.,  29  Pa.  198,  72  Am.  Dec.  622, 

»«»  Brown  y.  London  Assur.  Co.,  40  Hun,  101. 

i»«  See  Mason  v.  Insurance  Co.,  82  Minn.  336,  85  N.  W.  13,  83  Am.  St  Rep. 
433;  CENTRAL  CITY  INa  CO.  v.  GATES,  86  Ala.  558,  6  South.  83,  11  Am. 
St  Rep.  67;  Harnden  v.  Insurance  Co.,  164  Mass.  382,  41  N.  E.  658,  49  Am. 
St  Rep.  467.    A  requirement  that  proofs  of  loss  should  be  furnished  *'forth' 


Since  notice  of  loss  is  required  merely  for  the  purpose  of  giving  in- 
formation to  the  insurer,  the  insurer  who  has  in  some  other  wav  ob- 
tained  full  information  of  the  happening  of  the  loss  cannot  complain 
that  he  has  not  received  formal  notice.  The  requirement  that  the  no- 
tice shall  be  in  writing  will  not  be  strictly  enforced.  Thus,  if  the  in- 
surer sends  an  adjuster  immediately  after  the  fire  to  look  into  the  ex- 
tent of  the  loss,  he  cannot  afterwards  be  heard  to  claim  that  he  had  no 
notice  of  the  loss.^*' 

When  no  Policy  has  Issued. 

As  we  have  seen  above,  oral  insurances  are  valid  and  enforceable. 
They  generally,  however,  contemplate  the  subsequent  issue  of  a  policy. 
There  is  a  difference  of  opinion  as  to  whether  one  who  has  insured  un- 
der an  oral  contract  is  obliged  to  give  notice  or  proofs  of  loss  in  accord- 
ance with  conditions  of  the  contemplated  policy.  By  the  weight  of 
authority,  however,  the  insured  is  not  chargeable  with  knowledge  of 
and  assent  to  the  conditions  of  the  policy  which  he  has  never  receiv- 
ed.^ ^®  Certainly,  if  the  insurer  denies  liability  upon  the  contract,  and 
refuses  to  deliver  the  policy  as  agreed,  it  would  seem  that  the  insured 
should  not  rest  under  any  obligation  to  comply  with  the  conditions  thus 
repudiated  by  the  insurer.* *•  The  contrary  has  recently  been  held  in 
New  York,  but  this  decision,  by  a  divided  court,  would  seem  to  be 
clearly  mistaken.**® 

Proofs  of  Loss  must  be  Satisfactory, 

The  standard  policy  sets  forth  with  much  detail  and  precision  the 
duties  of  the  insured  after  the  occurrence  of  a  fire.  These  include  the 
rendering,  within  sixty  days  after  the  fire,  of  a  sworn  statement  upon 
numerous  specified  subjects  connected  with  the  insurance  and  the  loss. 
If  it  is  possible  for  the  insured  to  give  all  the  information  that  he  has 
agreed  to  give,  he  must  do  so  before  he  can  be  entitled  to  hold  the  in- 
surer liable  for  the  loss  that  has  occurred.*'*     If  the  statement  as  ren- 

wlth"  was  held  to  be  satisfied,  under  the  circumstances  of  the  case,  by  ren- 
dering such  proofs  eighteen  days  after  the  fire.  Rines  v.  Insurance  Co.,  78 
Minn.  46,  80  N.  W.  839. 

"7  Partridge  v.  Insurance  Co.,  162  N.  Y.  597,  57  N.  B.  1119. 

128  Tayloe  v.  Insurance  Co.,  9  How.  (U.  S.)  390,  13  L.  Ed.  187;  Wooddy  v. 
Insurance  Co.,  31  Grat  (Va.)  362,  31  Am.  Rep.  732;  Gold  v.  Insurance  Co.,  73 
Cal.  216,  14  Pac.  786;  Nebraska  &  Iowa  Ins.  Co.  v.  Seivers,  27  Neb.  541,  43 
N.  W.  351.  But  see,  contra,  Barre  v.  Insurance  Co.,  76  Iowa,  609,  41  N.  W. 
373. 

i2»  Weeks  y.  Insurance  Co.,  29  Fed.  Cas.  581,  No.  17,353;   CAMPBELL  y. 

INSURANCE  CO.,  73  Wis.  100,  40  N.  W.  661;  Baile  y.  Insurance  Co.,  73  Mo. 
371. 

1*0  HICKS  y.  ASSURANCE  CO.,  162  N.  Y.  284,  56  N.  B.  743,  48  L.  R.  A. 
424. 

1*1  Parks  y.  Insurance  Co.,  106  Iowa,  402,  76  N.  W.  743;   BuCTalo  Loan, 


500 


THE    STANDARD    FIRE    rOLICT. 


(Ch.  13 


NOTICE  AND  PBOOFS  OF  LOSS. 


501 


II 


'III 


dered  by  the  insured  does  not  contain  all  the  information  that  the  policy 
requires  to  be  given,  and  which  it  is  in  the  power  of  the  insured  to  give, 
the  insurer  has  a  right  to  reject  the  statement  as  insufficient/^*  But 
it  is  his  duty  to  make  his  objections  promptly  and  specifically,  so  as  to 
give  the  insured  an  opportunity  to  make  such  corrections  as  will  render 
the  statement  satisfactory.  If  the  insurer  fails  to  make  his  objection 
within  due  time,  and  retains  the  statement,  he  will  be  deemed  to  have 
waived  his  right  to  object.^^^ 

While  the  insurer  has  a  right  to  reject  the  proofs  of  loss  if  they  are 
not  satisfactory,  he  may  not  set  up  for  himself  an  arbitrary  standard 
of  satisfaction.  The  courts  will  deem  the  proofs  satisfactory  to  the  in- 
surer if,  under  all  the  circumstances,  the  insurer  ought  to  have  been 
satisfied  with  them.*'*  Substantial  compliance  with  the  requirements 
will  always  be  deemed  sufficient,  even  though  there  may  be  immaterial 
literal  defects  in  the  statement  rendered.  Accordingly,  when  it  has  be- 
come impossible,  for  any  reason,  to  g^ve  information  stipulated  for,  the 
failure  to  give  that  information  will  not  render  the  statement  of  loss 
defective.*''  Thus,  a  failure  on  the  part  of  the  insured  to  make  a  com- 
plete inventory  of  goods  damaged  by  fire  was  held  not  to  make  the 
statement  of  loss  insufficient,  where  a  portion  of  the  goods  had  been 
entirely  destroyed,  so  that  it  was  impossible  for  them  to  be  listed,  and 
the  remainder  of  the  damaged  goods  had  already  been  inventoried  by 
representatives  of  the  insurer  and  the  insured.*'*  And  a  failure  to  in- 
clude in  the  statement  two  policies  covering  the  property  destroyed, 
which  had  been  offered  to  the  insured  but  refused,  was  held  not  to  con- 
stitute a  breach  of  the  requirement  that  "all  other  insurance,  whether 
valid  or  not,  covering  any  of  the  said  property,"  should  be  reported.*'^ 
So,  the  stipulation  that  "the  interest  of  the  insured  and  of  all  others  in 
the  property"  shall  be  stated  is  satisfied  by  a  statement  of  the  interest 
at  the  time  of  the  fire,  even  though  a  change  may  have  taken  place  in 
that  interest  subsequently.* •• 

Trust  &  Safe-Deposit  Co.  v.  Knights  Templar  &  Masonic  Mut.  Aid  Ass'n,  120 
N.  Y.  450,  27  N.  E.  942,  22  Am.  St.  Rep.  839. 

182  Buffalo  Loan,  Trust  &  Safe-Deposit  Co.  v.  Knights  Templar  &  Masonic 
Mut.  Aid  Ass'n,  126  N.  Y.  450,  27  N.  E.  942,  22  Am.  St  Rep.  839;  Fowle  v. 
Insurance  Co.,  122  Mass.  191,  23  Am.  Rep.  308. 

i«»  Welsh  V.  Assurance  Co.,  151  Pa.  607,  25  Atl.  142,  31  Am.  St  Rep.  786. 

i84Braker  v.  Association,  27  App.  Div.  234,  50  N.  Y.  Supp.  547;  Flyn  v. 
Association,  152  Mass.  288,  25  N.  B.  716. 

188  Sun  Mut  Ins.  Co.  v.  Crist,  39  S.  W.  837,  19  Ky.  Law  Rep.  305;  Roches- 
ter Loan  &  Banking  Co.  v.  Liberty  Ins.  Co.,  44  Neb.  537,  62  N.  W.  877,  48  Am. 
St  Rep.  745;  Boyle  v.  Insurance  Co.,  169  Pa.  349,  32  Atl.  553. 

18 «  Davis  v.  Insurance  Co.,  157  N.  Y.  685,  51  N.  E.  1090. 

18  T  Partridge  v.  Insurance  Co.,  162  N.  Y.  597,  57  N.  E.  1119. 

Its  Mauck  T.  Insurance  Co.  (Del.  Super.)  54  AtL  952. 


§§  184-189) 

Time  within  Which  Proofs  of  Loss  must  be  Given. 

The  periods  within  which  proofs  of  loss  must  be  given  vary  in  dif- 
ferent forms  of  policies.  That  specified  in  the  standard  policy  is  sixty 
days.  "Sixty  days  after  the  fire"  means,  however,  sixty  days  after  the 
end  of  the  fire,  and  not  after  its  beginning."*  The  sixty-day  period 
does  not  begin  to  run  until  the  ruins  are  in  such  a  condition  as  to  per- 
mit an  examination  of  the  damaged  goods.^*^  By  the  weight  of  au- 
thority, the  condition  is  satisfied  if  the  proofs  of  loss  are  mailed  withm 
the  specified  period,  even  though  they  may  not  be  received  by  the  m- 
surer  until  after  the  expiration  of  that  period.^"  The  New  York  de- 
cisions, however,  hold  that  the  proofs  must  be  received  within  the  sixty 
days,  it  being  contended  that  the  word  "render,"  used  in  the  standard 
policy,  necessarily  implies  a  delivery."*  The  former  rule  seems  to  be 
more  in  accordance  with  the  analogies  of  the  law  and  the  general  rules 
of  construction  applicable  to  insurance  policies. 

Effect  of  the  Failure  to  Comply  with  These  Conditions. 

These  conditions  are  reasonable  and  valid,  and  substantial  compliance 
with  them  is  undoubtedly  a  condition  precedent  to  the  maintenance  of 
any  action  under  the  policy."'  But  a  different  question  arises  when 
we  come  to  consider  what  is  the  effect  of  the  failure  to  render  proofs 
of  loss  within  the  period  specified.  On  this  point  there  is  much  conflict 
in  the  cases,  which,  however,  is  partly  due  to  variations  in  the  terms  of 
the  different  policies  that  have  been  before  the  courts  for  construction. 
For  purposes  of  clearness  in  examining  the  cases  we  may  well  divide 
them  into  four  classes,  in  accordance  with  the  different  language  used 
in  the  policies  in  describing  the  effect  of  a  failure  to  comply  strictly  with 

these  requirements. 

(1)  Many  policies,  especially  tthe  older  forms,  do  not  attempt  to  im- 
pose any  penalty  in  case  of  failure  to  furnish  proofs  of  loss  as  stipu- 
lated. In  such  cases  it  is  manifest  that  the  obligation  to  furnish  the 
proofs  of  loss  is  but  collateral  to  the  main  contract  of  insurance,  so  that 
a  failure  to  perform  that  obligation  will  not  in  any  wise  affect  the  right 

189  National  Wall  Paper  Co.  ▼.  Associated  Mfrs.'  Mut  Fire  Ins.  Corp.,  175 
N.  Y.  226,  67  N.  B.  440. 

140  Id. 

141  Heusinkveld  t.  Insurance  Co.,  106  Iowa,  229,  76  N.  W.  696;  Pennypack- 
er  V.  Insurance  Co.,  80  Iowa.  56,  45  N.  W.  408,  8  L.  R.  A.  236,  20  Am.  St  Rep. 
395;  Manufacturers'  &  Merchants'  Mut  Ins.  Co.  v.  Zeitinger,  168  lU.  286,  48 
N.  E.  179,  61  Am.  St  Rep.  105;   Badger  v.  Insurance  Co..  49  Wis.  389,  5  N. 

W.  848. 

1*2  Peabody  v.  Satterlee,  166  N.  Y.  174,  59  N.  E.  818,  52  L.  R.  A.  9o6,  re- 
versing the  lower  court  which  had  held  that  mailing  proofs  of  loss  on  the  six- 
tieth day  after  the  fire,  when  they  were  received  the  following  day,  was  a  suffi- 
cient compliance  with  this  condition.    See  36  App.  Div.  426,  55  N.  Y.  Supp.  363. 

i*»In  some  states  these  conditions  are  made  invalid  by  statutory  enact- 
ment   Maryland  Casualty  Co.  v.  Hudgins  (Tex.  Civ.  App.)  72  S.  W.  1047. 


■RBSBI 


502 


THE   STANDARD    PIBB   POLICY, 


(Ch.  13 


of  the  insured  to  enforce  his  claim  against  the  insurer  under  the  policy, 
although  he  in  turn  might  be  subjected  to  an  action  for  breach  of  his 
collateral  agreement.^** 

(2)  Other  policies  contain  an  express  provision  that  a  failure  to  com- 
ply with  the  condition  requiring  proofs  of  loss  within  a  specified  period 
shall  render  the  policy  void.  There  can  be  no  question,  in  cases  arising 
under  such  policies,  that  a  failure  to  furnish  the  proofs  within  the  pe- 
riod agreed  absolutely  defeats  the  rights  of  the  insured  under  the  pol- 
icy."° 

(3)  Some  policies  provide  that  no  action  shall  be  maintained  on  the 
policy  unless  all  of  the  conditions  of  the  policy  have  been  complied  with. 
Such  a  provision  accomplishes  practically  the  same  result  as  the  one 
last  discussed,  by  absolutely  taking  away  any  right  of  action  on  the 
policy,  and  so,  in  effect,  working  a  forfeiture  of  the  policy."' 

Not  a  Condition  Precedent  under  the  Standard  Policy, 

(4)  The  standard  policy  provides  that  no  action  shall  be  sustainable 
on  the  policy  "until  after  full  compliance  by  the  insured  with  all  the 
foregoing  requirements."  In  New  York  and  some  other  states  it  is 
held  that  under  this  provision  a  failure  to  give  the  proofs  of  loss  within 
sixty  days,  as  specified,  operates  as  a  forfeiture  of  the  policy."^  By 
the  great  weight  of  authority,  however,  it  is  held  that  this  condition 
operates  merely  to  suspend  the  right  of  the  insured  to  bring  an  action 
until  sixty  days  shall  have  expired  after  the  furnishing  of  the  proofs  of 
loss."*     In  accordance  with  this  view,  the  specification  of  the  time 

1*4  COLUMBIA  INS.  CO.  v.  LAWRENCE,  10  Pet.  507,  9  L.  Ed.  512;  Spring- 
field  Fire  &  Marine  Ins.  Co.  v.  Brown,  128  Pa.  392,  18  Atl.  396;  Kenton  Ins. 
Co.  V.  Downs,  90  Ky.  236,  13  S.  W.  882. 

i*»  Gould  V.  Insurance  Co.,  90  Mich.  302,  51  N.  W.  455;  German  Ins.  Ob. 
r.  Davis,  40  Neb.  700,  59  N.  W.  698. 

i*«  Gould  V.  Insurance  Co.,  90  Mich.  302,  51  N.  W.  465;  German  Ins.  Co. 
v.  Davis,  40  Neb.  700,  59  N.  W.  698. 

1*7  Quinlan  v.  Insurance  Co.,  133  N.  Y.  356,  81  N.  E.  31,  28  Am.  St.  Rep. 
645;  Blossom  v.  Insurance  Co.,  64  N.  Y.  162;  Cannon  v.  Insurance  Co.,  110 
Ga.  563,  35  S.  E.  775,  78  Am.  St.  Rep.  124. 

1*8  Kenton  Ins.  Co.  v.  Downs,  90  Ky.  236,  13  S.  W.  882;  Orient  Ins.  Co.  v. 
Clark,  22  Ky.  Law  Rep.  1066,  59  S.  W.  863;  Northern  Assur.  Co.  v.  Hanna, 
60  Neb.  29,  82  N.  W.  97;  Tubbs  v.  Insurance  Co.,  84  Mich.  646,  48  N.  W.  296; 
Steele  v.  Insurance  Co.,  93  Mich.  81,  53  N.  W.  514,  18  L.  R.  A.  85;  Rheims  v. 
Insurance  Co.,  39  W.  Va.  672,  20  S.  E.  670;  Flatley  v.  Insurance  Co.,  95  Wis. 
618,  70  N.  W.  828;  Welch  v.  Fire  Ass'n  (Wis.  1904)  98  N.  W.  227;  Niagara 
Fire  Ins.  Co.  v.  Scammon,  100  III.  644;  Carpenter  v.  Insurance  Co.,  52  Hun, 
249,  4  N.  Y.  Supp.  925;  Weiss  v.  Insurance  Oo.,  148  Pa.  349,  23  Atl.  991;  Cov- 
entry Mut  Live  Stock  Ins.  Ass'n  v.  Evans,  102  Pa.  281;  Taber  v.  Insurance 
Co.,  124  Ala.  681,  26  South.  252;  Shell  v.  Insurance  Co.,  60  Mo.  App.  644; 
Sun  Mut.  Ins.  Co.  v.  Mattingly,  77  Tex.  162,  13  S.  W.  1016;  Continental  Fire 
Ins.  Co.  V.  Whltaker  (Tenn.  1904)  79  S.  W.  119;  Indian  River  State  Bank  v. 
Hartford  Fire  Ins.  Co.  (Fla.  1904)  35  South,  228. 


NOTICE  AND  PROOFS  OP  LOSS. 


503 


§§  184-189) 

within  which  the  proofs  must  be  given  is  not  of  the  essence  of  the  con- 
tract, and  the  sole  penalty  for  a  failure  to  make  the  proofs  within  the 
sixty  days  is  to  postpone,  for  the  time  of  the  default,  the  right  of  action 
against  the  insurer.    The  limitation  of  the  time  in  which  an  action  can 
be  brought  to  twelve  months  also  operates  under  this  rule  as  a  final  and 
absolute  limit  within  which  the  proofs  of  loss  must  be  given.     No  ac- 
tion can  be  brought  until  sixty  days  after  the  proofs  are  rendered,  nor 
can  it  be  brought  later  than  twelve  months  after  the  fire.     Consequent- 
ly, in  any  event,  the  proofs  of  loss  must  be  finally  rendered  within  ten 
months  after  the  fire.    This  is  said  to  afford  the  insurer  sufficient  pro- 
tection."® .    . 
There  is  much  to  be  said  in  favor  of  the  New  York  rule,  smce  it  is 
undoubtedly  to  the  interest  of  the  insurer  to  have  prompt  information 
with  regard  to  the  subjects  included  within  the  required  statement  of 
loss,  so  that  if  need  be,  he  may  have  an  opportunity  to  gather  evidence 
to  contest  the  claim  made.     It  is  also  probable  that  the  New  York 
standard  policy,  being  drawn  up  with  reference  to  the  New  York  de- 
cisions, was  intended  by  its  draftsmen  to  require  the  proof  of  loss  to  be 
given  within  the  sixty  days  as  a  condition  precedent  to  any  recovery 
on  the  policy.     Nevertheless,  since  the  rule  of  construction  is  so  well 
settled  that  a  forfeiture  will  never  be  implied  or  enforced  unless  un- 
mistakably intended,  it  would  seem  that  the  construction  given  to  this 
clause  by  the  majority  of  the  courts  is  more  reasonable.     This  view 
appeals  to  the  judicial  mind  the  more  strongly  when  it  is  observed  that 
the  policy  expressly  provides  that  a  breach  of  certain  other  conditions 
shall  avoid  the  policy,  while  it  leaves  forfeiture  for  a  failure  to  give 
proofs  of  loss  within  the  sixty  days  specified  to  a  doubtful  inference. 
Furthermore,  the  New  York  decisions  do  not  show  any  evidence  of  a 
consideration  of  the  reasons  which  have  induced  other  courts  to  de- 
clare this  condition  merely  suspensory,  and  not  precedent;  that  is,  that 
the  forfeiture  is  not  expressly  declared,  but  implied. 
When  Noncompliance  with  These  Conditions  is  Excused, 

It  seems  now  to  be  well  settled,  even  in  those  states  in  which  com- 
pliance with  the  conditions  is  required  as  a  condition  precedent  to  the 
right  to  recover  under  the  policy,  that  a  failure  on  the  part  of  the  in- 
sured to  comply  strictly  with  their  terms  will  be  excused  when  the  cir- 
cumstances were  such  as  to  make  strict  compliance  impossible.  Thus, 
where  the  insured  becomes  insane  or  otherwise  incapable  of  attending 
to  his  business,  and  on  that  account  proofs  of  loss  are  not  given  within 
the  required  time,  the  insurer  will  nevertheless  be  held  liable."®     So, 

i*»  Kenton  Ins.  Co.  t.  Downs,  90  Ky.  236,  13  S.  W.  882. 

150  Woodmen  Ace.  Ass'n  v.  Pratt,  62  Neb.  673,  87  N.  W.  546,  55  L.  R.  A. 
291,  89  Am.  St  Rep.  7T7;  Hayes  v.  Casualty  Co.,  98  Mo.  App.  410,  72  S.  W. 
135. 


Ml- 


604 


THE   STANDARD   FIEB   POLICY, 


(Ch.  13 


when  the  insured  has  died,  and  his  personal  representatives,  at  the  time 
of  the  loss,  had  no  knowledge  of  the  existence  of  the  policy,  delay  in 
furnishing  proofs  of  loss  beyond  the  required  period  is  excused."^  In 
life  insurance,  a  failure  on  the  part  of  the  beneficiaries  to  give  notice 
of  the  death  of  the  insured,  as  required  by  the  policy,  has  been  excused 
when  the  beneficiaries  had  no  knowledge  of  the  existence  of  the  Dol- 
icy."«  ^ 

To  Whom  Notice  and  Proofs  of  Loss  are  to  he  Given. 

The  standard  policy  requires  that  notice  and  proofs  of  loss  shall  be 
given  to  the  company.  Manifestly,  this  can  be  done  only  by  giving 
them  to  some  agent  of  the  company  who  is  authorized  to  receive  them. 
Whether,  in  any  given  case,  the  agent  to  whom  the  notice  and  proofs 
of  loss  may  have  been  given  was  authorized  to  receive  them  on  behalf 
of  the  company,  is  a  matter  of  fact  to  be  determined  by  a  jury  under 
proper  instructions  from  the  court."*  Such  authority  may  be  given 
expressly  or  by  implication.  If  it  in  fact  exists,  the  company  will  be 
bound  by  the  agent's  receipt  of  the  notice,  irrespective  of  what  may  be 
written  in  the  policy."*  As  a  general  thing,  local  agents  are  not  au- 
thorized to  act  in  this  behalf  for  the  company,  but  it  may  be  shown  in 
any  particular  case  that  the  local  agent  was  either  actuallv  or  apparently 
vested  with  such  authority.^ "• 

By  Whom  Given. 

The  terms  of  the  condition  now  under  discussion  require  that  the 
insured  shall  give  the  stipulated  notice  and  proofs  of  loss,  which  shall 
be  sworn  to  by  him.  These  requirements  manifestly  will  not  be  met  by 
a  statement  and  affidavit  of  any  other  person  than  the  insured,  prcK 
vided  it  is  possible  for  them  to  be  given  by  him."«  But  it  is  generally 
held  by  the  courts,  in  spite  of  the  letter  of  the  condition,  that  when  it  is 
impossible  for  the  insured  to  comply  with  these  requirements,  whether 
because  of  his  death  or  absence  or  incapacity,  notice  and  verified  proofs 
submitted  on  behalf  of  the  insured  by  some  reputable  person  interested 

»»i  Fuller  V.  Insurance  Co.,  184  Mass.  12,  67  N.  B.  879. 

"2  McElroy  v.  Insurance  Co.,  88  Md.  137,  41  Atl.  112,  71  Am.  St.  Rep.  400; 
Trippe  V.  Fund  Sec,  140  N.  Y.  23,  35  N.  E.  316,  37  Am.  St.  Rep.  529.  See, 
also,  Kentzler  v.  Accident  Ass'n,  88  Wis.  589,  60  N.  W.  1002,  43  Am.  St  Rep. 
934. 

158  Burlington  Ins.  Co.  v.  Lowery,  61  Ark.  108,  32  S.  W.  383,  54  Am.  St 
Rep.  196;   Farmers'  Mut  Ins.  Co.  v.  Taylor,  73  Pa.  342. 

1"  Travelers'  Ina.  Co.  v.  Edwards,  122  U.  S.  457,  7  Sup.  Ct  1249,  30  L.  Ed. 
1178. 

1"  ERMENTROUT  ▼.  INSURANCE  CO.,  63  Minn.  305,  65  N.  W.  635,  30 
L.  R.  A.  346,  56  Am.  St  Rep.  481 ;   Harnden  v.  Insurance  Co..  164  Mass   382 
41  N.  B.  658.  49  Am.  St  Rep.  467. 

i5«  Graham  v.  Insurance  Co.,  77  N.  Y.  171;  Id.,  12  Hun  (N.  Y.)  446;  Ayres 
T.  Insurance  Co.,  17  Iowa,  176,  85  Am.  Dec.  553. 


,1'^-. 


magistrate's  cebtificate. 


505 


§190) 

in  the  loss  must  be  accepted  by  the  insurer  as  a  sufficient  compliance 
with  the  requirements  of  the  policy."^  But  no  trivial  excuse  for  the  in- 
sured's failure  to  give  personally  the  statement  required,  such  as  for- 
getfulness  or  indisposition,  will  suffice."*  Compliance  must  be  shown 
to  have  been  impossible.^** 

Insured  Not  Estopped  by  Proofs  of  Loss. 

It  is  established  beyond  question  that  the  insured  is  not  estopped  to 
show  that  statements  made  in  the  proofs  of  loss  as  rendered  to  the  in- 
surer are  erroneous,  if  so  on  account  of  a  bona  fide  mistake.^'*^  Such 
mistakes  may  always  be  explained.  Thus,  where  the  plaintiff  stated  in 
the  proofs  given  the  defendant  that  her  husband,  the  insured,  had  died 
by  suicide,  she  was  allowed  to  show  that  her  statement  was  based  upon 
imperfect  knowledge  of  the  facts,  and  to  introduce  evidence  that  the 
insured  came  to  his  death  by  the  accidental  discharge  of  a  gun."^  But 
an  unexplained  statement  in  the  proofs  of  loss  contradicting  a  represen- 
tation made  as  a  warranty  in  the  application  will  be  fatal  to  the  plain- 
tiff's cabe."= 

MAGISTRATE'S  CERTIFICATE. 

130.  Tlie  requirement  of  the  standard  policy  tliat  the  insured,  wlien 
required,  sl&aU  furnish  the  certificate  of  the  nearest  disinter- 
ested magistrate  as  to  the  facts  concerning  the  loss,  is,  by  the 
weight  of  authority,  vaUd,  but  the  tendency  of  aU  courts  is  to 
require  only  substantial,  and  not  Uteral,  compliance  with  its 
requirements.  The  statements  of  the  certificate  are  not  con- 
elusive  upon  the  insured. 


1 57  Thus,  when  the  insured  mortgagor  will  not  give  the  required  proofs 
of  loss,  it  is  the  right  and  duty  of  the  mortgagee,  to  whom  the  insurance  is 
payable,  to  do  so.  Nor  is  he  relieved  of  this  duty  by  the  terms  of  the 
standard  mortgagee  clause,  exempting  him  from  the  consequences  of  the 
mortgagor's  default.  Southern  Home  Building  &  Loan  Ass'n  v.  Home  Ins. 
Co.,  94  Ga.  167,  21  S.  B.  375,  27  L.  R.  A.  ^4,  47  Am.  St  Rep.  147. 

IBS  Fuller  V.  Insurance  Co.,  184  Mass.  12,  67  N.  E.  879,  in  which  it  was  held 
that  the  bankruptcy  of  the  insured  did  not  render  performance  of  the  condi- 
tion impossible. 

"»  Matthews  v.  Insurance  Co.,  154  N.  Y.  449,  48  N.  E.  751,  39  L.  R.  A.  433, 
Gl  Am.  St  Rep.  627;  Bennett  v.  Insurance  Co.,  67  N.  Y.  274;  and  see  Semmes 
v.  Insurance  Co.,  13  Wall.  (U.  S.)  158,  20  L.  Ed.  490. 

leo  Leman  v.  Insurance  Co.,  46  La.  Ann.  1189,  15  South.  388,  24  L.  R.  A. 
589,  49  Am.  St  Rep.  348;  Walther  v.  Insurance  Co.,  65  Cal.  417,  4  Pac  413; 
Supreme  Lodge  Knights  of  Honor  v.  Jaggers,  62  N.  J.  Law,  96,  40  Atl.  783. 

i«i  Supreme  Lodge  K.  P.  v.  Beck,  181  U.  S.  49,  21  Sup.  Gt.  532,  45  L.  Ed. 
741;  Home  Ben.  Ass'n  v.  Sargent  142  U.  S.  691,  12  Sup.  Ct  332,  35  L.  Ed. 
IIGO. 

162  Metropolitan  Life  Ins.  Co.  v.  Rutherford,  98  Va.  195,  35  S.  B.  361,  719. 
Here  the  application  stated  that  the  insured  father  died  of  cholera  morbus 
while  in  the  proofs  of  loss  fistula  was  said  to  be  the  cause  of  his  death. 


■1  I  .iii 


I 


506 


«♦ 


THE    STANDARD    FIRE    POLICY. 


(Ch.  13 


*  *  And  shall  also,  if  required,  furnish  a  certificate  of  the 
magistrate  or  notary  public  (not  interested  in  the  claim  as  a  creditor  or 
otherwise,  nor  related  to  the  insured)  living  nearest  the  place  of  fire, 
stating  that  he  has  examined  the  circumstances  and  believes  the  insured 
has  honestly  sustained  loss  to  the  amount  that  such  magistrate  or  no- 
tary public  shall  certify." 

This  provision,  which  enables  the  insurer  to  require  a  magistrate's 
certificate  to  the  honesty  and  correctness  of  the  insured's  claim,  is  in- 
tended as  another  safeguard  of  the  insurer  against  dishonest  and  fraud- 
ulent claims  of  loss.  It  need  not  be  given  unless  required.  When  the 
insurer  does  elect  to  require  the  certificate,  his  election  must  be  made 
clearly  and  unequivocally  known  to  the  insured,^®*  and  mere  general 
notice  to  the  insured  that  he  will  be  required  to  comply  strictly  with  the 
conditions  in  his  policy  has  been  held  not  to  constitute  sufficient  notice 
that  he  will  be  required  to  furnish  the  magistrate's  certificate.*'* 

The  certificate  must  be  furnished  by  a  magistrate  not  interested  in 
the  claim  as  a  creditor  or  related  to  the  insured.  It  is  held  that  thi- 
does  not  disqualify  a  magistrate  who  may  have  a  mere  contract  claiir 
against  the  insured.  He  must  be  a  creditor  in  the  sense  of  having  some 
interest  in  the  proceeds  of  the  insurance.**"  It  has  also  been  held  th.?' 
a  notary  who  had  married  the  insured's  first  cousin  was  related  to  him 
within  the  terms  of  this  condition.*"  The  courts  are,  however,  not 
inclined  to  be  very  nice  in  measuring  distances,  when  it  is  claimed  that 
the  certificate  is  not  by  the  nearest  magistrate.  If  the  certificate  h.' 
been  secured  in  good  faith,  the  mere  fact  that  the  magistrate  giving  it 
is  found  to  have  lived  a  little  farther  from  the  property  destroyed  than 
another  will  not  render  the  certificate  insufficient.*®' 

This  requirement  of  the  policy  is  generally  held  to  be  valid  and  bind- 
ing, and  the  certificate,  when  required  to  be  furnished  within  a  reason- 
able time,  is  a  condition  precedent  to  the  right  of  action.**'     Some 

i«»  If  the  Insured  obtains  a  magistrate's  certificate,  without  being  request- 
ed to  do  so,  he  thereby  obviates  the  necessity  of  the  insurer's  request.  He 
will  then  be  subject  to  all  the  requirements  necessary  to  an  effective  certifi- 
cate, just  as  if  it  had  been  requested.  JEtna  Ins.  Co.  v.  People's  Bank, 
62  Fed.  222,  10  C.  C.  A.  342,  8  U.  S.  App.  554.  See,  also,  Moyer  v.  Insurance 
Ofl3ce,  176  Pa.  579,  35  Atl.  221,  53  Am.  St.  Rep.  690. 

164  Moyer  v.  Insurance  OflSce,  176  Pa.  579,  35  Atl.  221,  53  Am.  St  Rep.  690. 

16  5  DOLLIVER  V.  INSURANCE  CO.,  131  Mass.  39.  See,  also,  SMITH  v. 
INSURANCE  CO.,  47  Hun  (N.  Y.)  30. 

i«8  iEtna  Ins.  Co.  v.  People's  Bank,  62  Fed.  222,  10  C.  C.  A.  342,  8  U.  S. 
App.  554. 

i«7  Williams  v.  Insurance  Co.  (0.  C.)  39  Fed.  167;  SMITH  v.  INSURANCE 
CO.,  47  Hun  (N.  Y.)  41;  McNally  v.  Insurance  Co.,  137  N.  Y.  389,  33  N.  EI  475. 

i«8  SMITH  V.  HOME  INS.  CO.,  47  Hun  (N.  Y.)  30;  Johnson  v.  Insurance 
Co.,  112  Mass.  49,  17  Am.  St.  Rep.  65;  DOLLIVER  v.  INSURANCE  CO.,  131 
Mass.  39;  Lane  v.  Insurance  Co.,  50  Minn.  227,  52  N.  W.  649,  17  L.  R.  A.  197; 


^•■^ 


§  191) 


LIMITATION  UPON  ACTIONS. 


507 


courts,  however,  hold  that  a  substantial  compliance  with  the  condition 
is  all  that  can  be  required,  and  that,  if  the  nearest  magistrate  will  not 
give  the  certificate,  it  may  be  secured  from  the  one  who  is  next  near- 
est. *••  In  one  state,  at  least,  the  whole  condition  is  held  to  be  void  as 
repugnant  to  the  purposes  of  the  contract.  This  view  is  taken  on  the 
ground  that  the  condition  subjects  the  insured's  right  under  his  contract 
to  the  caprice  of  a  third  party,  over  whom  he  has  no  control.*^** 

Like  the  statements  made  in  the  proofs  of  loss,  those  set  forth  in  the 
magistrate's  certificate  are  not  conclusive  upon  the  insured.  He  may 
subsequently  show  that  statements  certified  to  by  the  magistrate,  wheth- 
er as  to  the  value  of  the  goods  damaged  or  the  circumstances  of  the 
loss,  were  mistaken.*'* 


LIMITATION  UPON  ACTIONS. 

lOl*  The  standard  policy  provides  that  no  action  shall  he  hronght  on 
the  policy  unless  coxumenced  within  twelve  months  next  after 
the  fire.  This  condition  is  valid,  and,  nnless  waived  hy  the  in- 
surer, absolutely  bars  any  action  or  suit  on  the  policy  after  the 
expiration  of  the  time  specified. 

In  those  states  in  which  standard  forms  of  policies  have  been  prescribed 
by  statute,  the  provision  contained  therein  limiting  the  time  within 

Edgerly  v.  Insurance  Co.,  48  Iowa,  644;  COLUMBIA  INS.  CO.  v.  LAW- 
KBNCE,  10  Pet.  507,  9  L.  Ed.  512;  Gilligan  v.  Insurance  Co.,  20  Hun  (N.  Y.) 
95,  affirming  87  N.  Y.  626. 

!•»  Noone  v.  Insurance  Co.,  88  Cal.  152,  26  Pac.  103.  Here  it  was  held  that 
the  certificate  of  the  next  nearest  magistrate  was  sufficient,  if  the  nearest 
magistrate  refused  to  issue  one  because  he  was  employed  by  the  insurance 
company  requiring  the  certificate.  But  in  California  a  statute  has  been  passed 
making  the  next  nearest  magistrate's  certificate  sufficient  if  for  any  good  rea- 
son the  nearest  magistrate  refuses  to  issue  one. 

iTo  German-American  Ins.  Co.  v.  Norris,  100  Ky.  29,  37  S.  W.  267,  66  Am. 
St  Rep.  324.  The  insurer  "insists  very  earnestly  that  the  failure  to  furnish 
the  certificate  of  the  magistrate  when  required  is  a  bar  to"  the  Insured's 
•'right  to  recover,  but  we  do  not  think  that  the  policy,  when  fairly  read  and 
construed,  constitutes  such  failure  a  bar  to  recovery.  It  could  not  be  used 
as  evidence  against  the  insured,  and,  as  there  is  no  law  by  which  the  insured 
could  compel  a  magistrate  to  act  in  the  matter,  It  is  not  reasonable  that  par- 
ties would  undertake  to  procure  the  certificate  of  an  officer  when  there  was 
no  law  by  which  he  could  be  required  to  certify  at  all." 

iTi  Birmingham  Fire  Ins.  Co.  v.  Pulver,  126  111.  329,  18  N.  B.  804,  9  Am.  St 
Rep.  598;  Lebanon  Ins.  Co.  v.  Kepler,  106  Pa.  28;  Miaghan  v.  Insurance  Co., 
24  Hun  (N.  Y.)  58;  Hoffman  v.  Insurance  Co.,  1  Rob.  (N.  Y.)  501;  Id.,  32  N. 
Y.  405,  88  Am.  Dec.  337;  Parmelee  v.  Insurance  Co.,  54  N.  Y.  193;  McMaster 
V.  Insurance  Co.,  55  N.  Y.  222,  14  Am.  Rep.  239;  Commercial  Ins.  Co.  v.  Huck- 
berger,  52  111.  464. 

In  Parrell  v.  Insurance  Co.,  7  Baxt  (Tenn.)  542,  it  was  held  the  statement 
in  the  magistrate's  certificate  as  to  the  value  of  the  property  lost  is  not  con- 
clusive against  the  insurers. 


If 


508 


THE   STANDARD   FIEB   POLICY. 


(Ch.  13 


LIMITATION   UPON  ACTIONS. 


509 


which  an  action  may  be  brought  to  enforce  rights  claimed  under  such 
pohcies,  is  in  effect  a  special  statute  of  limitations  upon  actions  against 
insurance  companies.  As  such  it  has  the  same  standing  as  any  other 
statute  of  limitations,  and  is  necessarily  valid."*  But  even  in  those 
states  in  which  the  standard  form  of  policy  has  not  the  sanction  of  stat- 
ute this  condition  is,  almost  without  dissent,  held  to  be  valid  and  bind- 
ing, provided  the  circumstances  are  not  such  as  to  make  it  unreasona- 
ble ;  as  where,  for  instance,  the  terms  of  an  accident  policy,  taken  in 
connection  with  the  facts  of  the  case,  made  it  absolutely  impossible  that 
any  action  could  have  been  brought  within  the  specified  twelve  months 
after  the  accident."*  Likewise,  it  was  held  by  the  Supreme  Court  that 
the  intervention  of  war  rendered  this  condition  absolutely  inoperative, 
not  m^erely  suspending  it,  as  in  the  case  of  a  proper  statute  of  limita- 
tions. But  with  the  exception  of  such  unusual  cases  the  courts  have 
enforced  the  right  of  the  insurer  to  place  this  limit  upon  actions  upon 
the  policy,  even  where  it  worked  hardship.  Thus,  it  is  held  that  the 
fact  that  the  insured  is  an  infant  does  not  relieve  him  of  the  obligation 
to  bring  his  suit  within  the  twelve  months  stipulated,  and  a  suit  brought 
by  him  after  reaching  majority  is  held  to  be  barred."'  So,  the  mere 
fact  of  instituting,  within  the  twelve  months,  a  suit  which  was  dis- 
missed did  not  prevent  a  subsequent  suit,  instituted  after  the  expira- 
tion of  the  year,  from  being  too  late,  even  though  the  statute  of  the 
state  expressly  provided  that  the  regular  statute  of  limitations  should 
begin  to  run  only  after  the  dismissal  of  such  a  suit."^ 

In  one  state  at  least—Nebraska— this  condition  is  held  to  be  abso- 
lutely void,  as  contrary  to  public  policy."*  Early  cases  in  other  juris- 
dictions  show  a  disposition  on  the  part  of  the  courts  to  disregard  the 
condition,"-  but,  with  the  exception  above  noted,  it  is  believed  that  its 
validity  IS  practically  unquestioned  in  all  of  the  American  states.^** 

"2  Hamilton  v.  Insurance  Co.,  166  N.  Y.  327.  50  N.  a  863,  42  L.  R.  A.  485 
To  the  same  effect,  see  Titus  v.  Poole.  145  N.  Y.  414.  40  N.  E.  228;  Hayden  v 
Pierce.  144  N.  Y.  612.  39  N.  E.  638.  i^ayaen  v. 

173  Friezen  v  Insurance  Co.  (C.  C.)  30  Fed.  352;   Fullam  v.  Insurance  Co.. 

7  Gray  (Mass.)  61,  66  Am.  Dec.  462. 

"4  Denlson  v.  Accident  Ass'n,  59  App.  Div.  294,  69  N.  Y.  Supp.  291. 

1T&  Semmes  v.  Insurance  Co.,  13  Wall.  158,  20  L.  Ed.  490 

"6  Mead  v.  Insurance  Co.  (Kan.)  75  Pac.  475,  64  L.  R.  A    79 

ITT  RIDDLESBARGER  v.  INSURANCE  CO..  7  Wall.  (U.  S.)  386,  19  L.  Ed 

257.    See,  also.  Ward  v.  Insurance  Co.  (Miss.)  33  South.  841;    Howard  Ins 

Co.  y.  Hocking,  130  Pa.  170,  18  Atl.  614. 
ITS  Miller  v.  Insurance  Co.,  54  Neb.  121,  74  N.  W.  416.  69  Am.  St  Rep  70ft- 

Omaha  Fire  Ins.  Co.  v.  Drennan.  56  Neb.  623,  77  N.  W.  67 

179  Westchester  Fire  Ins.  Co.  v.  Dodge,  44  Mich.  420,  6  N.  W   865-   Lon<» 

371^7rAm^'De''c  ^^'^  ^^  ^""^  ^^"^  ^'  ^®'   ^^"""^^  ^'  ^""^"^^"^^  ^-  ^  ^^^a" 

180  RIDDLESBAR(5ER  v.  INSURANCE  CO..  7  Wall.  386,  19  L.  Bd    257- 
Provident  Fund  Soc  y.  Howell,  110  Ala.  508,  18  South.  311;   Universal*  Mut 


§191) 

IVhen  the  Period  Begins  to  Run. 

Some  of  the  older  forms  of  policies  provided  that  no  action  shall  be 
brought  within  twelve  months  "after  loss."  In  considering  the  condi- 
tion so  worded,  probably  a  majority  of  the  courts  came  to  hold  that  the 
specified  period  did  not  begin  to  run  until  a  right  of  action  accrued  un- 
der the  terms  of  the  policy,  the  word  "loss"  being  construed  as  "lia- 
bility." ^^^  The  standard  policy  substitutes  the  expression  "next  after 
the  fire."  This  would  seem  so  clearly  to  indicate  the  intention  that  the 
period  of  limitation  should  begin  to  run  immediately  upon  the  happen- 
ing of  the  fire,  irrespective  of  the  time  when  the  right  of  action  accrues, 
that  one  is  surprised  to  find  it  held  otherwise  in  some  jurisdictions. |" 
It  is  believed,  however,  that  by  the  overwhelming  weight  of  authority 
an  action  commenced  later  than  twelve  months  after  the  occurrence  of 
the  fire  will  be  barred.^** 

Fire  Ins.  Co.  v.  Weiss,  106  Pa.  20;  Farmers'  Mut.  Fire  Ins.  Co.  v.  Barr.  94 
Pa.  345;  Spare  v.  Insurance  Co.  (C.  C.)  17  Fed.  5G8;  Chandler  v.  Insurance 
Co  21  Minn.  85,  18  Am.  Rep.  385;  Mix  v.  Insurance  Co.,  9  Hun  (N.  Y.)  399; 
Wilkinson  V.  Insurance  Co.,  72  N.  Y.  499,  28  Am.  Rep.  166;  Moore  v.  Insur- 
ance Co.,  72  Iowa,  414,  34  N.  W.  183;  Vette  v.  Insurance  Co.  (C.  C.)  30  Fed. 
668;  Spare  v.  Insurance  Co.  (C.  C.)  17  Fed.  568;  Thompson  v.  Insurance  Co. 
(C  C.)  25  Fed.  296;  Virginia  Fire  &  Marine  Ins.  Co.  v.  Wells,  83  Va.  736,  3 
S  B.  349;  Same  v.  Aiken,  82  Va.  424;  Tasker  v.  Insurance  Co.,  58  N.  H.  469; 
Chambers  v.  Insurance  Co.,  51  Conn.  17,  50  Am.  Rep.  1;  McElroy  v.  Insurance 
Co.,  48  Kan.  200,  29  Pac.  478;    Killips  v.  Insurance  Co.,  28  Wis.  472,  9  Am. 

Rep.  506.  „^  ^    _^    ,_-- 

181  Steel  V.  Insurance  Co.,  154  U.  S.  518,  14  Sup.  Ct  1153,  38  L.  Bd.  1064. 
affirming,  by  a  divided  court,  same  case,  7  U.  S.  App.  325,  51  Fed.  715,  2  C.  C. 
A  463;  Hay  v.  Insurance  Co.,  77  N.  Y.  235,  244,  33  Am.  Rep.  607;  City  of 
New  York  v.  Hamilton  Fire  Ins.  Co.,  39  N.  Y.  45,  100  Am.  Dec.  400;  Chandler 
V.  Insurance  Co.,  21  Minn.  85,  18  Am.  Rep.  385;  Vette  v.  Insurance  Co.  (C.  C.) 
30  Fed  668;  Barber  v.  Insurance  Co.,  16  W.  Va.  658,  37  Am.  Rep.  800;  Mur- 
dock  V.  Insurance  Co.,  33  W.  Va.  407,  10  S.  E.  777,  7  L.  R.  A.  572;  Owen  v. 
Insurance  Co.,  87  Ky.  574,  10  S.  W.  119;  Spare  v.  Insurance  Co.  (C.  C.)  17 
Fed.  568;  German  Ins.  Co.  v.  Fairbank,  32  Neb.  750,  49  N.  W.  711,  29  Am.  St 
Rep.  459;  Ellis  v.  Insurance  Co.,  64  Iowa,  507,  20  N.  W.  782;  Miller  v.  Insur- 
ance Co.,  70  Iowa,  704,  29  N.  W.  411;   Steen  v.  Insurance  Co.,  89  N.  Y.  315, 

42  Am.  Rep.  297.  „      .  , 

182  Friezen  v.  Insurance  Co.  (C.  C.)  30  Fed.  352;  Firemen's  Fund  Ins.  Co. 
V.  Buckstaff,  38  Neb.  150,  56  N.  W.  697,  41  Am.  St.  Rep.  727;  German  Ins.  Co. 
of  Freeport  v.  Davis,  40  Neb.  700,  59  N.  W.  698;  Hong  Sling  v.  Insurance  Co.. 
8  Utah,  135,  30  Pac.  307;  Case  v.  Insurance  Co.,  83  Cal.  473,  23  Pac.  534,  8 
L.  R.  A.  48;  Read  v.  Insurance  Co.,  103  Iowa,  307,  72  N.  W.  665,  64  Am.  St. 
Rep.  180;  Hocking  v.  Insurance  Co.,  130  Pa.  170,  18  Atl.  614.  Here  it  was 
said  that  the  equitable  construction  of  the  clause  "twelve  months  next  after 
the  fire  shall  have  occurred"  is  twelve  months  after  a  right  of  action  shall 

have  accrued 

188  HART  V.  INSURANCE  CO.,  86  Wis.  81,  56  N.  W.  333.  21  L.  R.  A.  745. 
39  Am.  St  Rep.  880;  Thompson  v.  Insurance  Co.  (C.  C.)  25  Fed.  296;  Owen 
V.  Insurance  Co.,  87  Ky.  571,  10  S.  W.  119,  in  which  the  insured  was  allowed 
to  bring  his  suit  on  Monday  because  the  last  day  allowed  him  in  the  policy 


ii' 


.K 


510 


THE   STANDARD   FIEB   POLICY, 


(Ch.  13 


Condition  may  be  Waived, 

Like  any  other  condition  of  the  policy,  this  limitation  upon  the  right 
to  bring  an  action  may  be  waived  by  the  insurer.  Any  conduct  on  his 
part  by  which  he  knowingly  induced  the  insured  to  postpone  bringing 
action,  in  the  hope  of  a  promised  settlement,  will  estop  the  insurer  to 
claim  the  benefit  of  the  condition. ^•* 


fell  on  Sunday.  McElhone  v.  Benefit  Ass'n,  2  App.  D.  G.  397,  22  Wash.  Law 
Rep.  157;  King  v.  Insurance  Co.,  47  Hun  (N.  Y.)  1;  State  Ins.  Co.  v.  Mees- 
man,  2  Wash.  St  459,  27  Pac.  77,  26  Am.  St.  Rep.  870;  Virginia  Fire  &  Ma- 
rine Ins.  Co.  V.  Wells,  83  Va.  736,  3  S.  E.  349;  McElroy  v.  Insurance  Co.,  48 
Kan.  200,  29  Pac.  478;  State  Ins.  Co.  v.  Stoffels,  48  Kan.  205,  29  Pac.  479; 
Hart  V.  Insurance  Co.,  86  Wis.  77,  56  N.  W.  332,  21  L.  R.  A.  743,  39  Am.  St 
Rep.  877. 

184  MICKEY  V.  INSURANCE  CO.,  35  Iowa,  174,  14  Am.  Rep.  494. 

"It  would  be  contrary  to  Justice  for  the  insurance  company  to  hold  out  the 
hope  of  an  amicable  adjustment  of  the  loss,  and  thus  delay  the  action  of  the 
insured,  and  then  be  permitted  to  plead  this  very  delay,  caused  by  its  course 
of  conduct  as  a  defense  to  the  action  when  brought"  Thompson  v.  Insur- 
ance Co.,  136  U.  a  287,  10  Sup.  Ct  1019,  34  L.  Ed.  408;  Killips  v.  Insurance 
Co.,  28  Wis.  472,  9  Am.  Rep.  506;  Martin  v.  Insurance  Co.,  44  N.  J.  Law,  485, 
43  Am.  Rep.  397;  Allemania  Fire  Ins.  Co.  v.  Peck,  133  111.  220,  24  N.  E.  538^ 
23  Am.  St.  Rep.  610;  Firemen's  Fund  Ins.  Co.  v.  Western  Refrigerating  Co ' 
162  111.  322.  44  N.  H.  746;  Illinois  Live  Stock  Ins.  Co.  v.  Baker,  153  111  240 
38  N.  E.  627;  HOME  INS.  &  BANKING  CO.  v.  MYER,  93  111.  271;  Bonnert 
V.  Insurance  Co.,  129  Pa.  558,  18  Atl.  552,  15  Am.  St  Rep.  739;  Hand  v.  In- 
surance Co.,  57  Minn.  519,  59  N.  W.  538;  Grant  v.  Insurance  Co.,  5  Ind.  23, 
61  Am.  Dec.  74;  Phenix  Ins.  Co.  v.  Had  Bila  Hora  Lodge,  41  Neb.  21,  59  n! 
W.  752;  Dwelling  House  Ins.  Co.  v.  Brodle,  52  Ark.  11,  11  S.  W.  1016,  4  L.  B. 
A.  458;  Horst  v.  Insurance  Co.,  73  Tex.  67,  11  S.  W.  148;  Black  v.  Insurance 
Co.,  31  Wis.  74;  Eggleston  v.  Insurance  Co.,  65  Iowa,  308,  21  N.  W.  652;  Blsh 
V.  Insurance  Co.,  69  Iowa,  184,  28  N.  W.  653. 


§192) 


VERMS   OF   THE   LIFE  FOLICY. 


1^11 


CHAPTER  XIV. 

TERMS  OF  THE  LIFE  FGLIOZ. 

102.    In  General. 

193.  Designation  of  Beneficiary. 

194.  Statement  of  Age. 

195-196.  Suicide— When  not  Excepted  In  the  Policy, 

197-199.  Suicide— When  Excepted  in  the  Policy. 

200-201.  Death  In  Violation  of  Law. 

202-204.  Assignment 

20S.  Incontestable  Clausa 


r?1 


IN  GENERAL. 
192.  There  If  no  itanclard  or  generally  aeoepted  form  of  life  poliey* 

The  terms  of  life  insurance  policies  differ  so  greatly  that  no  effort 
has  ever  been  made  to  prepare  a  standard  form  to  be  used  by  all  in- 
surers, as  was  seen  to  be  the  case  in  fire  insurance.  Nor  has  practice 
developed  a  uniform  instrument,  as  in  the  case  of  the  Lloyd  policy  in 
general  use  among  marine  insurers.  The  very  nature  of  the  business 
of  life  insurance  necessitates  this  great  variation  among  the  forms  of 
policies  used.  The  purposes  for  which  Hfe  insurance  is  procured  are 
many  and  various,  and  policies  prepared  by  the  insurers  for  carrying 
into  effect  the  desires  of  persons  seeking  insurance  must  necessarily 
vary  accordingly.  The  older  forms  of  life  policies  were  very  verbose 
and  perplexing  documents,  filled  with  numerous  conditions,  printed  in 
fine  type,  that  the  insured  found  much  difficulty  in  reading,  and  more 
difficulty  in  tmderstanding  when  read.  The  tendency  at  the  present 
day,  however,  among  insurance  companies  of  the  best  standing,  is  to 
simplify  the  policy  as  much  as  possible,  inserting  only  such  conditions 
as  are  imperatively  necessary  to  the  safe  conduct  of  the  business.  But 
even  in  these  simpler  forms  are  to  be  found  many  terms  and  conditions 
setting  forth  various  elective  benefits  to  the  insured  or  to  the  bene- 
ficiaries after  the  maturity  of  the  policy.  These  terms  are  often  diffi- 
cult of  construction,  but  they  vary  so  greatly  in  the  numerous  kinds  of 
insurance  issued  that  it  will  be  impracticable  to  attempt  any  discussion 
of  the  cases  construing  them,  and  no  safe  rule  could  be  laid  down  that 
would  have  any  general  application. 

Again,  in  considering  the  construction  of  life  insurance  policies,  it 
must  be  remembered  that  all  contracts  made  by  mutual  associations  em- 
brace as  constituent  parts  thereof  the  provisions  of  the  charters  and  by- 
laws of  these  associations.  These  vary  almost  infinitely,  so  that  any 
general  discussion  of  their  construction,  if  confined  to  the  limited  space 


^  , 


a 


.  \ 


I 


I 


512 


TERMS    OF    THE    LIFE    POLICY. 


(Ch,U 


permissible  in  such  a  treatise  as  this,  would  be  of  little  value.  There- 
fore, disregarding  the  many  varying  special  conditions  and  terms  that 
may  be  found  in  life  policies,  we  shall  content  ourselves  with  a  discus- 
sion of  those  rules  of  construction  which  have  been  laid  down  by  the 
courts  in  determining  the  scope  and  effect  of  the  few  primary  conditions 
of  life  insurance  contracts  to  be  found  in  practically  all  policies. 

The  scope  of  such  a  discussion  is  much  narrowed  by  the  fact  that 
many  of  the  general  principles  of  insurance  law  already  treated  of  find 
ready  application  in  determining  rights  under  life  policies,  and  also  be- 
cause many  of  the  principles  of  construction  laid  down  in  the  preceding 
chapters  as  applying  to  fire  policies  have  equal  application  to  life  poli- 
cies, such  as,  for  instance,  the  requirement  of  proofs  of  loss,  or  the  con- 
dition as  to  the  authority  of  agents  of  the  insurer  to  affect  rights  ac- 
quired under  the  policy.* 

DESIGNATION  OF  BENEFICIARY. 

193*  Words  used  in  designating  the  beneficiaries  of  a  life  policy  will 
not  be  given  their  technical  significance,  bnt  -will  be  construed 
broadly,  in  order  that  the  benefit  of  the  insurance  shall  be  re- 
ceived by  those  intended  by  the  insured  as  the  objects  of  his 
bounty. 

In  a  former  chapter  we  found  it  necessary  to  consider  to  some  extent 
the  construction  of  words  used  in  designating  beneficiaries  under  the 
life  policy.*  It  is  now  advisable  to  consider  with  more  detail  the  rules 
which  guide  the  courts  in  determining  who  are  entitled  to  take  the  ben- 
efit of  insurance  under  the  expressions  used  in  policies  designating  ben- 
eficiaries. 

First,  we  must  observe  that,  in  interpreting  the  words  used  by  the 
insured  to  indicate  the  person  whom  he  desires  to  be  the  object  of  his 
bounty,  it  is  necessary  for  the  court  not  only  to  consider  the  whole 
purpose  of  the  contract  as  appearing  from  all  of  its  terms,  and  from  the 
regulations  of  mutual  associations  when  the  insurance  is  granted  by 
such  bodies,  but  also  to  consider  all  the  circumstances  surrounding  the 
parties  at  the  time  of  making  the  contract  In  many  respects  the  des- 
ignation of  persons  who  are  to  take  an  insurance  fund  at  the  death  of 
the  insured  is  similar  to  that  of  devisees  or  legatees  under  a  will,  and 
the  same  rule  of  construction  should  be  applied.*    It  should  be  the  one 

« That  the  rule  that  all  doubts  as  to  the  meaning  of  a  policy  are  to  be  re- 
solved in  favor  of  the  insured  applies  with  especial  force  to  life  policies  after 
the  death  of  the  insured.  See  Mutual  Benefit  Life  Ins.  Co.  v.  First  Nat  Bank, 
69  S.  W.  1.  24  Ky.  Law  Bep.  580. 

a  Ante.  p.  388. 

s  Du^all  V.  Goodson,  79  Ey.  224;  Buss  r.  Supreme  Council,  110  Lt.  088,  84 
South.  607. 


§iy3) 


DESIGNATION  OF  BENEFICIARY. 


513 


aim  of  the  courts  to  carry  out  the  intention  of  the  insured  so  far  as  ma- 
be  possible  within  the  bounds  of  the  language  used.  An  ordinary  per- 
son attempting  to  designate  the  objects  of  his  bounty,  whether  in  a  will 
or  insurance  policy,  is  not  thoroughly  skilled  .in  the  law  or  acquainted 
with  the  technical  meaning  of  legal  terms.  Hence  we  derive  a  general 
rule  that  the  words  used  in  designating  a  beneficiary  will  not  be  con- 
strued in  their  technical  significance,  but  in  accordance  with  the  sense 
in  which  they  were  used.*  Thus  the  words  "heirs"  or  "legal  heirs"  will 
not  ordinarily  be  construed  as  indicating  merely  the  heirs  at  law,  but 
rather  that  class  of  persons  who  would  take  the  personalty  of  the  in- 
sured in  case  he  died  intestate.^  Therefore  it  is  generally  held  that  the 
widow  of  the  deceased  is  entitled  to  take  under  a  policy  payable  to  his 
"heirs"  or  "legal  heirs,"  as  well  as  the  children  of  the  deceased.*  If, 
however,  the  terms  of  the  policy,  read  as  a  whole,  show  an  intention  to 
use  the  term  "heirs"  in  its  technical  sense,  the  children  alone  will  take 
under  such  a  policy,  to  the  exclusion  of  the  widow.''     So,  by  the  better 

4  Wf^ltei  V.  Hensel,  42  Minn.  204,  44  N.  W.  57.  In  Pace  v.  Pace,  19  Fla. 
438,  the  words  "for  the  benefit  of  the  estate  of  the  insured,"  by  the  aid  of 
extrinsic  evidence,  were  construed  to  mean  that  the  policy  was  for  the  benefit 
of  a  minor  child  of  the  insured,  and  not  payable  to  his  administrator.  See, 
also,  Loos  V.  Insurance  Co.,  41  Mo.  538. 

6  Lament  v.  Grand  Lodge  (C.  C.)  31  Fed.  177;  Hubbard,  Price  &  Co.  v.  Tur- 
ner, 93  Ga.  752,  20  S.  E.  640,  30  L.  R.  A.  593;  Tompkins  v.  Levy,  87  Ala.  263, 
6  South.  346,  13  Am.  St  Rep.  42;  Janda  v.  Union,  71  App.  Div.  150,  75  N.  Y. 
Supp.  654;  Johnson  v.  Knights  of  Honor,  53  Ark.  255,  13  S.  W.  794,  8  L.  R. 
A.  732;  Britton  v.  Supreme  Council  of  Royal  Arcanum,  46  N.  J.  Eq.  102,  18 
Atl.  675,  19  Am.  St  Rep.  376,  in  which  the  insured's  mother,  who  was  depend- 
ent upon  him,  was  held  entitled  to  the  fund,  the  insured  having  left  neither 
wife  nor  child.  Mullen  v.  Reed,  64  Conn.  240,  29  Atl.  478,  24  L.  R.  A.  664. 
42  Am.  St.  Rep.  174;  Bishop  v.  Grand  Lodge,  112  N.  Y.  627,  20  N.  E.  562; 
Hubbard,  Price  &  Co.  v.  Turner,  93  Ga.  752,  20  S.  E.  640,  30  L.  R.  A.  593.  In 
this  case  the  brother  of  the  assured  was  said  to  be  the  beneficiary  if  the  as- 
sured died  leaving  no  wife  or  child,  "heir"  being  construed  as  meaning  his 
next  of  kin  according  to  the  statute  of  distribution.  See,  also.  Northwestern 
Masonic  Aid  Ass'n  v.  Jones,  154  Pa.  99,  26  Atl.  253,  35  Am.  St.  Rep.  810; 
Walsh  V.  Walsh,  66  Hun  (N.  Y.)  297,  20^N.  Y.  Supp.  933;  Gauch  v.  Insurance 
Co.,  88  111.  251,  30  Am.  Rep.  554. 

•  Lyons  v.  Yerex,  100  Mich.  214,  58  N.  W.  1112,  43  Am.  St  Rep.  452 ;  Shultz 
V.  Insurance  Co.,  59  Minn.  308,  61  N.  W.  331;  Wilbum  v.  WUbum,  83  Ind.  55. 
In  this  case  the  third  wife  of  the  insured  was  given  one-twelfth  of  the  amount 
of  the  insurance,  the  other  eleven-twelfths  being  divided  among  the  eleven 
children  of  the  insured.  The  court  reached  this  conclusion  in  construing  the 
phrase  "legal  heirs."  See,  also,  Leavitt  v.  Dunn,  56  N.  J.  Law,  309,  28  Atl. 
590,  44  Am.  St  Rep.  402.  In  Walsh  v.  Walsh,  66  Hun  (N.  Y.)  297,  20  N.  Y. 
Supp.  933,  the  insured's  wife  was  allowed  to  take  a  share  of  the  policy  with 
the  brothers  and  sisters  of  the  insured,  as  heirs.  Hanson  v.  Association,  59 
Minn.  123,  60  N.  W.  1091;  Lawwill  v.  Lawwill,  29  111.  App.  643;  Alexander 
V.  Association,  126  111.  558,  18  N.  E.  556,  2  L.  R.  A.  161 ;  Young  Men's  Mut 
Life  Ass'n  v.  Pollard,  3  Ohio  Cir.  Ct  R.  577. 

T  Phillips  V.  Carpenter,  79  Iowa,  600,  44  N.  W.  898 ;  Johnson  y.  Knights  of 
Vance  Ins. — 33 


i: 


514 


TERMS   OF  THE   LIFE   POLICY. 


(Ch.U 


authority,  a  policy  payable  to  the  "legal  representatives*'  of  the  insured 
is  payable,  not  to  his  personal  representatives,  but  to  such  as  would  be 
his  distributees  in  case  of  intestacy.®  But  here,  also,  other  terms  of 
the  contract  may  show  that  the  phrase  was  intended  to  be  used  in  the 
sense  of  "personal  representatives,"  in  which  case  the  fund  becomes 
payable  to  the  estate  of  the  insured,  and  is  subject  to  his  debts.* 

Insurance  for  Benefit  of  Children. 

Much  litigation  has  arisen  in  determining  what  persons  are  entitled 
to  take  an  insurance  fund  made  payable  to  the  "children"  of  the  insured. 
Ordinarily  the  term  includes  only  the  descendants  of  the  insured  in  the 
first  generation,^**  not  grandchildren,  but  in  several  cases  grandchildren 
have  been  allowed  to  take  imder  such  designations  when  it  was  reason- 
able to  infer,  from  a  reading  of  the  whole  contract,  that  such  was  the 
intention  of  the  insured.^*  So  children  bom  after  the  issue  of  the  pol- 
icy are  allowed  to  take  equally  with  those  then  in  existence.^'  An 
adopted  child  is  likewise  included  among  the  beneficiaries  so  desig- 
nated,*' but  not  an  illegitimate  child,  though  recognized  as  such.**  In- 
surance made  payable  to  "my  wife  and  children"  is  for  the  benefit  of  all 

Honor,  63  Ark.  255,  13  S.  W.  794,  8  L.  R.  A.  732;  Meams  v.  Ancient  Order, 
22  Ont  34 ;  Gauch  v.  Insurance  Co.,  88  111.  251,  30  Am.  Rep.  554. 

8  Rose  V.  Wortham,  95  Tenn.  505,  32  S.  W.  458,  30  L.  R.  A.  609;  Schultz  v. 
Insurance  Co.,  59  Minn.  308,  61  N.  W.  331;  Murray  v.  Strang,  28  111.  App. 
608;  Mutual  Life  Ins.  Go.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877,  29  L. 
Ed.  997 ;  Hodge's  Appeal  (Pa.)  9  Ins.  Law  J.  709 ;  Griswold  v.  Sawyer,  125 
N.  Y.  411,  26  N.  B.  464. 

•  People  V.  Phelps,  78  111.  147;  Sulz  v.  Association,  145  N.  Y.  563,  40  N.  B. 
242,  28  L.  R.  A.  379. 

10  Small  V.  Jose,  86  Me.  120,  29  Atl.  976;  Continental  Life  Ins.  Co.  v.  Webb, 
54  Ala.  688;  Russell  v.  Russell,  64  Ala.  500;  United  States  Trust  Co.  v.  Mu- 
tual Benefit  Life  Ins.  Co.,  115  N.  Y.  152,  21  N.  B.  1025;  Martin  v.  Insurance 
Co.,  73  Me.  25;  Winsor  v.  Association,  13  R.  I.  149. 

"  Duvall  V.  Goodson,  79  Ky.  224.  In  Continental  Life  Ins.  Co.  ▼.  Palmer, 
42  Conn.  60, 19  Am.  Rep.  530,  the  court  said  that  as  soon  as  a  policy  was  issued 
it  became  property,  the  title  of  which  vested  in  the  beneficiaries,  and  on  the 
death  of  one  of  the  beneficiaries  his  interest  passed  to  his  heirs.  In  this  case 
his  heirs  were  his  children,  they  being  the  grandchildren  of  the  Insured. 

12  Scull  V.  Insurance  Co.,  132  N.  C.  30,  43  S.  E.  504,  60  L.  R.  A.  615,  95 
Am.  St.  Rep.  615;  Roquemore  v.  Dent,  135  Ala.  292,  33  South.  178,  93  Am.  St 
Rep.  33;  Thomas  v.  Leake,  67  Tex.  471,  3  S.  W.  703;  Ricker  v.  Insurance  Co., 
27  Minn.  193,  6  N.  W.  771,  38  Am.  Rep.  289.  See,  also.  Virgin  v.  Marwick, 
97  Me.  578,  55  AtL  520.  But  see  Connecticut  Mut.  life  Ins.  Co.  Y.  Baldwin, 
15  R.  I.  106,  23  Atl.  105,  in  which  the  court  said  that  at  the  time  the  policy 
was  issued  it  vested  a  right  In  the  insured's  wife  and  children  then  In  being. 

i»  Virgin  v.  Marwick,  97  Me.  578,  65  Atl.  520;  Martin  v.  Insurance  Co.,  73 
Me.  25. 

1*  But  It  was  held  in  Hanley  v.  Supreme  Tent,  38  Misc.  Rep.  161,  77  N.  Y. 
Supp.  246,  that  illegitimate  children  described  as  "adopted  children"  would 
bt  allowed  to  take  the  fund. 


I 


§193) 


DESIGNATION  OF  BENEFICIARY. 


515 


children  of  the  insured,  whether  by  the  named  wife  or  those  of  anoth- 
er; "  but  if  the  term  "our  children"  is  used,  the  insurance  passes  only 
to  the  issue  of  the  insured  by  the  wife  named  in  the  policy.^* 

Insurance  Payable  to  Insured's  "Wife," 

When  the  regulations  of  the  mutual  association  allow  insurance  for 
the  benefit  of  the  wife,  this  does  not  permit  insurance  for  the  benefit  of 
a  woman  with  whom  the  insured  is  living  as  a  wife;  "  but  it  has  been 
held  that  where  an  insurance  company  paid  a  sum  due  under  a  benefit 
certificate,  by  its  terms  payable  to  a  certain  woman  designated  therein 
as  wife  of  the  insured,  proof  that  the  woman  receiving  the  money  was 
not  really  the  wife  of  the  insured  did  not  render  the  insurer  liable  to 
pay  the  sum  a  second  time  to  the  real  wife  of  the  insured."  So,  when 
the  by-laws  of  a  mutual  association  allowed  certificates  to  issue  for  the 
benefit  of  various  specified  persons  and  "their  dependents,"  it  has  been 
held  that  insurance  made  payable  to  the  "affianced  wife"  of  the  insured 
could  be  collected  by  her  if  she  was  in  fact  dependent  upon  the  insur- 
ance,** but  otherwise  not.*" 

Insurance  Payable  to  the  Family  of  the  Insured. 

The  rather  vague  term  "family"  is  frequently  used  in  benefit  certifi- 
cates to  indicate  the  recipient  of  the  fund.  In  deciding  whether  a  par- 
ticular person  claiming  a  share  of  the  fund  is  of  the  family  of  the  in- 
sured, the  court  will  consider  whether  that  person  was  so  regarded  by 
the  insured.  If  he  was  so  regarded,  he  will  be  allowed  to  participate, 
although  in  no  way  related  to  the  insured.  Thus,  where  a  young  lady 
had  lived  for  many  years  in  the  same  house  with  an  old  man,  who  sup- 
ported her  as  would  a  father,  it  was  held  that  she  was  a  part  of  his  fam- 
ily.** So  a  widowed  mother,  or  other  dependent  relatives  residing 
with  the  insured,  are  within  the  meaning  of  this  term."  Public  policy 
forbids,  however,  that  the  funds  should  become  payable  to  the  mistress 

i»  Ricker  v.  Insurance  Co.,  27  Minn.  193,  6  N.  W.  771,  38  Am.  Rep.  289; 
Stigler's  Ex'x  v.  Stigler,  77  Va.  163. 

i«  Evans  v.  Opperman,  76  Tex.  293,  13  S.  W.  312. 

IT  Keener  v.  Grand  Lodge,  38  Mo.  App.  543.  One  who  marriee  a  man,  ig- 
norant of  the  fact  that  he  has  a  wife  living,  is  entitled  to  the  amount  due 
upon  a  life  benefit  certificate  made  payable  to  her  by  the  deceased,  as  against 
the  lawful  wife.  Crosby  v.  Ball,  4  Ont  Law  Rep.  496.  And  the  mother  of 
illegitimate  children  may  be  made  beneficiary  where  the  father  contracts  to 
support  them.    Brown  v.  Mansur,  64  N.  H.  39,  5  Atl.  768. 

18  Kulp  V.  Brant,  162  Pa.  222,  29  Atl.  729. 

i»  McCarthy  v.  Supreme  Lodge,  153  Mass.  314^  26  N.  E.  868, 11  L.  R.  A.  144. 
25  Am.  St  Rep.  637. 

20  Palmer  v.  Welch,  132  111.  141,  23  N.  B.  412.  See,  also.  Supreme  Council 
V.  Perry,  140  Mass.  580,  5  N.  E.  634. 

«i  Carmichael  v.  Association,  51  Mich.  494^  16  N.  W.  871. 

22  See  Folmer's  Appeal,  87  Pa,  133;  Carmichael  ▼.  Association.  61  Mich. 
494,  16  N   W.  871. 


I 


516 


TERMS   OF   THE    LIFE   POLICY. 


(Ch.  14 


of  the  insured,  even  though  he  may  have  maintained  a  family  and  have 
lived  with  her.^^ 

These  illustrations  will  serve  sufficiently  to  indicate  in  what  manner 
the  courts  apply  the  general  rule  above  stated.  There  are  numerous 
cases  presenting  other  phrases  for  construction,  but  as  a  general  rule 
each  case  stands  upon  its  own  footing,  and  the  construction  to  be  placed 
upon  the  words  used  is  governed  by  all  the  terms  of  the  contract,  con- 
sidered as  a  whole, 

STATEMENT  OF  AGE. 

194.  A  misstatement  of  the  age  of  the  insured  is  a  material  misrepre- 

sentation, whicli,  in  tlie  absence  of  a  provision  in  tlie  policy  to 
the  contrary,  xirill  avoid  the  insurance.  Modem  life  policies 
usually  contain  a  provision  saving  the  policy  from  forfeiture  in 
case  of  such  a  uiistake.  ^ 

Modern  insurance  policies  ordinarily  contain  a  term  of  this  kind: 
"In  case  the  age  of  the  insured  shall  have  been  misstated,  the  amount 
payable  hereunder  shall  be  that  sum  which  the  premium  paid  would 
have  provided  for  had  the  age  been  stated  correctly  in  the  application." 
This  is  an  eminently  just  and  reasonable  provision.  Without  it  the 
least  mistake  made  by  the  insured  in  stating  his  age,  whether  due  to  in- 
advertence or  forgetfulness,  would  absolutely  avoid  the  policy,  even 
though  there  was  no  intention  on  the  part  of  the  insured  to  defraud  the 
company.**  A  person's  age  is  a  fact  material  to  the  risk,  so  that,  un- 
der the  familiar  doctrine  that  an  innocent  material  misrepresentation 
avoids  the  insurance  contract,  the  insured  might  be  deprived  of  the 
protection  of  his  policy  under  circumstances  of  peculiar  hardship. 

SUICXDE-WHEir  NOT  EXCEPTED  IK  THE  POLICY. 

195.  By  the  ii^eight  of  authority,  suicide  is  not  by  implication  excepted 

from  the  risks  assumed  by  the  insurer,  unless  the  policy  ivas 
taken  out  with  an  intention  to  conunit  suicide  and  thus  defraud 
the  Insurer.  This  rule  applies  especially  to  insurances  for  the 
benefit  of  another  than  the  insured. 
106*  In  the  federal  courts,  and  in  the  courts  of  several  states,  suicide 
of  the  insured  is  held  to  avoid  the  policy,  on  the  double  ground 
of  an  in&plied  exception  to  the  risk,  and  of  public  policy  pro« 
hibiting  insurance  against  suicide. 

When  the  Insured  is  Sane, 

It  seems  to  be  now  settled  by  the  clear  weight  of  authority  in  this 
country  that  the  self-destruction  of  the  insured,  whether  it  be  deliber- 

««  Keener  ▼.  Grand  Lodge,  38  Mo.  App.  544. 

«*  iBTNA  LIFE  INS.  CO.  v.  FRANCE,  91  U.  a  510,  23  L.  Ed.  401;  Dolan 
T.  Association,  173  Mass.  197,  53  N.  E.  398. 


§§  195-196)      SUICIDE — WHEN  NOT  EXCEPTED  IN  THE  POLICY.  517 

ately  done  while  sane,  or  irresponsibly  inflicted  while  insane,  is  one  of 
the  risks  assumed  by  the  insurer,  unless  it  is  by  express  terms  except- 
ed.*'' A  different  view,  however,  was  taken  by  the  Supreme  Court  in 
the  recent  important  case  of  Ritter  v.  Mutual  Life  Ins.  Co.*'  In  this 
case  one  Runk,  already  heavily  insured,  became  a  defaulter  to  a  large 
amount.  Subsequently  to  such  default  he  procured  additional  insurance 
to  a  large  amount,  so  that  the  aggregate  sum  of  his  policies  at  the  time 
of  his  death  amounted  to  $500,000.  There  was  clear  evidence  that 
Runk  took  his  own  life  while  perfectly  sane,  with  the  intention  of  ma- 
turing his  policies  in  order  to  make  good  his  default.  By  reason  of  a 
failure  of  the  insurance  company  to  comply  with  the  law  of  Pennsyl- 
vania requiring  copies  of  the  application  to  be  attached  to  the  policies, 
the  conditions  therein  against  suicide  were  not  allowed  to  be  shown  in 
evidence.  Under  these  facts  there  was  squarely  presented  to  the  Su- 
preme Court  the  question  whether  an  insurance  company  is  liable  for 
the  death  of  the  insured  by  suicide  when  the  policy  contains  no  pro- 
vision with  reference  to  self-destruction.  The  court,  in  a  powerful 
opinion  by  Mr.  Justice  Harlan,  affirmed  the  decision  of  the  lower  court, 
holding  the  insurer  not  liable.  This  decision  was  based  upon  two 
grounds :  (1)  That  there  is  implied  in  every  contract  of  life  insurance 
a  condition  that  the  insured  shall  not  voluntarily  and  intentionally  in- 
crease the  risk  assumed  by  the  insurer;  therefore  the  intentional  self- 
destruction  of  the  insured,  while  sane,  amounts  to  a  violation  of  this 
implied  condition,  in  accordance  with  the  same  principle  that  holds  a 
fire  policy  to  be  avoided  when  the  insured  property  is  destroyed  by  the 
intentional  act  of  the  person  insured.  (2)  That  an  agreement  to  insure 
a  person  against  his  wrongful  act  of  self-destruction,  even  though  ex- 
pressly set  forth,  would  be  contrary  to  public  policy,  and  therefore  void. 
The  New  York  Court  of  Appeals,  in  a  recent  decision,*^  thus  states  the 
first  ground  upon  which  the  Ritter  Case  is  based :  "It  is  an  inherent 
and  fundamental  part  of  every  such  contract  that  the  insured  shall  not 
mtentionally  take  his  own  life.     No  act  so  contrary  to  good  morals  and 

28  PATTERSON  v.  INSURANCE  CO.,  100  Wis.  118»  75  N.  W.  980,  42  L.  R. 
A.  253,  69  Am.  St  Rep.  899;  Supreme  Conclave  Improved  Order  of  Hepta- 
sophs  V.  Miles,  92  Md.  613,  48  Atl.  845,  84  Am.  St.  Rep.  528 ;  Eastabrook  v.  In- 
surance Co.,  54  Me.  224,  89  Am.  Dec.  743;  Grand  Lodge  Independent  Order 
of  Mutual  Aid  v.  Wieting,  168  111.  408,  48  N.  E.  59,  61  Am.  St.  Rep.  123;  Kerr 
V.  Association,  39  Minn.  174,  39  N.  W.  312,  12  Am.  St  Rep.  631;  Schultz  v. 
Insurance  Co.,  40  Ohio  St  217,  48  Am.  Rep.  676;  John  Hancock  Mut.  Life 
Ins.  Co.  V.  Moore,  34  Mich.  46;  Connecticut  Mut  Life  Ins.  Co.  v.  Groom,  86 
Pa.  92,  27  Am.  Rep.  689;  Darrow  v.  Society,  116  N.  Y.  537,  22  N.  E.  1093,  6 
L.  R.  A.  495,  15  Am.  St  Rep.  430. 

26  RITTER  V.  MUTUAL  LIFE  INS.  CO.,  169  U.  S.  139,  18  Sup.  Ct  300,  42 
L.  Ed.  693. 

27  Shipman  y.  Protected  Home  Circle,  174  N.  Y.  398,  67  N.  E.  83,  63  L.  B. 
A.  347. 


518 


TERMS   OF   THB    LIFB   POLICY* 


(Ch.  U 


!     ( 


i! 


the  usual  course  of  human  nature  should  be  held  to  be  within  the  con- 
templation of  the  parties  to  a  contract  for  life  insurance,  unless  it  is 
dearly  and  unequivocally  expressed." 

There  is  much  in  the  reasoning  of  the  court  in  the  Ritter  Case  to 
commend  the  rule  there  adopted,  which  is  established  in  the  English 
and  in  a  few  of  the  American  courts;  *®  but  in  a  majority  of  the  cases 
that  have  been  decided  since  the  rendering  of  the  opinion  in  the  Ritter 
Case,  that  case  has  either  been  repudiated  or  distinguished,  it  being 
generally  considered  that  that  state  of  mind  which  induces  suicide,  if  it 
arises  after  the  inception  of  the  policy,  is  one  of  the  risks  assumed  by 
the  insurer.*' 

In  all  jurisdictions  it  is  recognized  that  a  policy  procured  by  a  person 
with  intent  to  commit  suicide  is  characterized  by  fraud  in  its  inception, 
and  is  therefore  voidable  at  the  option  of  the  insurer.*®  By  statute,  in 
one  state  at  least,  it  has  been  expressly  enacted  that  suicide  of  the  in- 
sured shall  not  be  a  defense  to  an  action  on  the  policy,  unless  it  be 
proved  that  the  policy  was  procured  with  an  intention  to  commit  sui- 
cide.*^ The  constitutionality  of  this  statute  has  been  established  be- 
yond question,  both  by  the  state  and  the  federal  supreme  courts." 

«« AMICABLE  SOCIETY  v.  HOLLAND,  4  Bligh  (N.  S.)  194-211;  BOR- 
RADAILE  V.  HUNTER,  5  Man.  &  G.  639;  Clift  v.  Schwabe,  3  C.  B.  437; 
Breasted  v.  Trust  Co.,  8  N.  Y.  299,  59  Am.  Dec.  482 ;  Bradley  v.  Insurance  Co., 

45  N.  Y.  422,  6  Am.  Rep.  115 ;  Smith  v.  Society,  123  N.  Y.  85,  25  N.  E.  197,  9  L. 
R.  A.  616;  Shipman  v.  Protected  Home  Circle,  174  N.  Y.  398,  67  N.  E.  83,  63 
L.  R.  A.  347;  Mooney  v.  Ancient  Order,  24  Ky.  Law  Rep.  1787,  72  S.  W.  288; 
Supreme  Commandery  of  Knights  of  Golden  Rule  v.  Ainsworth,  71  Ala.  436, 

46  Am.  Rep.  332. 

»» In  Morton  v.  Supreme  Council,  100  Mo.  App.  76,  73  S.  W.  259,  the  court 
thus  expresses  this  view  of  the  question:  "Moreover,  self-destruction  always 
indicates,  if  not  insanity,  at  least  an  irresponsible  state  of  mind,  and  may 
well  be  considered  a  part  of  the  risk  assumed,  if  not  specially  excluded. 
For  this  reason  the  doctrine  in  question  is  not  welcomed  by  all  courts,  and 
seemingly  not  by  those  of  this  state,  which  hold  that  a  company  doing  a  life 
insurance  business  takes  a  risk  on  an  insured  person's  life  subject  to  all  his 
human  passions  and  frailties.  Harper's  Adm'r  v.  Insurance  Co.,  19  Mo.  506; 
McDonald  v.  Triple  Alliance,  57  Mo.  App.  87."  Campbell  v.  Supreme  Con- 
clave, 66  N.  J.  Law,  274,  49  Atl.  550,  54  L.  R.  A.  576. 

30  Smith  V.  Society,  123  N.  Y.  85,  25  N.  E.  197,  9  L.  R.  A.  616.  In  RITTER 
V.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct.  300,  42  L.  Ed.  693,  It  was  held 
that  taking  out  policies  requiring  annual  premium  payments  much  greater 
than  the  insured's  income  was,  in  view  of  a  previously  expressed  intention 
to  commit  suicide,  sufficient  proof  of  a  fraudulent  intent  at  the  time  of  pro- 
curing the  policies.  Parker  v.  Insurance  Co.,  108  Iowa,  117,  78  N.  W.  826; 
Supreme  Conclave  Improved  Order  of  Heptasophs  v.  Miles,  92  Md.  613,  48 
Atl.  845,  84  Am.  St  Rep.  528. 

81  The  Missouri  statute  reads  as  follows  (Rev.  St.  1889,  §  5855):    **In  all 


««  Knights  Templars'  &  Masons'  Life  Indemnity  Co.  v.  Jarman,  187  U.  S. 
197,  23  Sup.  Ct  106,  47  L.  Ed.  139. 


^.§  195-196)      SUICIDE — WHEN  NOT  EXCEPTED  IN  THE  POLICY.  619 

/  Vhen  the  Policy  is  Payable  to  a  Third  Person, 

In  applying  the  doctrine  that  suicide  is  an  implied  exception  to  the 
risk  assumed  by  the  life  insurer,  many  courts  make  a  distinction  be- 
tween policies  payable  to  the  estate  of  the  insured  and  those  payable  to 
some  third  person  other  than  the  insured  as  beneficiary.  Some  of  those 
states,  holding  that  suicide  of  the  insured  defeats  the  policy  of  the  first 
class,  on  the  ground  that  to  hold  otherwise  would  be  allowing  the  per- 
sonal representatives  of  the  insured,  who  stand  in  his  shoes,  to  reap  the 
benefit  of  his  wrongful  act,  have  decided  that  the  beneficiary  may  re- 
cover in  spite  of  the  suicide  of  the  insured.*'  This  latter  view  is  based* 
upon  the  theory  that  the  interest  of  the  beneficiary  becomes  vested  im- 
mediately upon  the  valid  issue  of  the  policy,  and  cannot  be  subject  to 
be  defeated  by  any  act  of  the  insured  to  which  the  beneficiary  is  not  a 
party.**  Such  an  exception  to  the  operation  of  the  rule  in  favor  of  the 
beneficiary  is  certainly  not  justified  by  the  reasoning  of  the  court  in  the 
Ritter  Case,  and  has  been  denied  in  a  recent  case  in  the  federal  Circuit 
Court.**    Further,  there  seems  to  be  no  good  reason  why  the  bene- 

suits  upon  policies  of  insurance  on  life,  hereafter  issued  by  any  company  do- 
ing business  in  this  state,  it  shall  be  no  defense  that  the  insured  committed 
suicide,  unless  it  shall  be  shown  to  the  satisfaction  of  the  court  or  jury  try- 
ing the  cause  that  the  insured  contemplated  suicide  at  the  time  he  made  his 
application  for  the  policy,  and  any  stipulation  in  the  policy  to  the  contrary 
shall  be  void." 

S3  Fitch  V.  Insurance  Co.,  59  N.  Y.  557,  17  Am.  Rep.  372;  PATTERSON 
V.  INSURANCE  CO.,  100  Wis.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  69  Am. 
St.  Rep.  899;  SEILER  v.  ASSOCIATION,  105  Iowa,  87.  74  N.  W.  941,  43  L. 
R.  A.  537;  Shipman  v.  Protected  Circle,  174  N.  Y.  308,  67  N.  E.  83,  63  L. 
R.  A.  347;  Darrow  v.  Society,  116  N.  Y.  537,  22  N.  E.  1093,  6  L.  R.  A.  495,  15 
Am.  St  Rep.  430;  Morris  v.  Insurance  Co.,  183  Pa.  563,  39  Atl.  52;  Kerr  v. 
Association,  39  Minn.  174,  39  N.  W.  312,  12  Am.  St.  Rep.  631;  Grand  Lodge 
Independent  Order  of  Mutual  Aid  v.  Wieting,  168  111.  408,  48  N.  E.  59,  61 
Am.  St.  Rep.  123.    Contra,  Hopkins  v.  Assurance  Co.  (C.  C.)  94  Fed.  729. 

»*  Hence  the  doctrine  is  of  no  avail  to  the  beneficiary  under  a  mutual  ben- 
efit certificate  seeking  to  recover  for  the  suicidal  death  of  the  insured,  since 
the  rights  of  such  beneficiary  are  not  vested.  Shipman  v.  Protected  Circle, 
174  N.  Y.  398,  67  N.  E.  83,  63  L.  R.  A.  347.  But  see,  contra,  Parker  v.  Associa- 
tion, 108  Iowa,  117,  78  N.  W.  826. 

«B  In  Hopkins  v.  Assurance  Co.  (C.  C.)  94  Fed.  729,  McPherson,  J.,  in  refer- 
ence to  Morris  v.  Assurance  Co.,  183  Pa.  563,  39  Atl.  52,  said:  "With  much 
respect  for  the  opinion  of  that  court,  we  are  constrained  to  believe  that  this 
view  of  the  contract  was  not  sufficiently  considered,  for  it  is  not  discussed, 
and  the  decision  appears  to  rest  mainly  upon  the  ground  that  the  insured 
cannot  defeat  the  gift  to  the  beneficiary  by  his  own  fraudulent  conduct 
afterwards.  It  seems  to  us  that  this  begs  the  question.  The  beneficiary 
does  not  receive  a  gift  of  policy  against  suicide,  for  the  contract  does  not 
cover  death  by  such  an  act,  and  therefore  the  insured  does  not  take  away 
what  he  did  not  and  could  not  give.  But,  whatever  weight  should  be  al- 
lowed to  this  case  in  the  courts  of  the  state,  we  are  bound  to  follow  the  de- 
cision in  RITTER  v.  INSURANCE  CO.,  and  this  is  founded  upon  the  princl- 


/ 


520 


TERMS   OF   THE   LIFE   POLICY. 


(Ch.  14 


•J 


i 


1  ^ 


ficiary's  rights  under  the  policy  should  not  be  defeated  by  the  insured's 
violation  of  the  implied  condition  against  suicide,  as  well  as  by  his  de- 
fault in  the  payment  of  premiums,  or  his  violation  of  any  other  condi- 
tion of  the  contract. 

When  the  Insured  is  Insane, 

It  is  manifest  that  an  insane  act  of  self-destruction  is  not  subject  to 
any  of  the  rules  that  have  been  stated  above  as  applicable  to  the  inten- 
tional suicide  of  a  sane  person.  It  is  therefore  a  settled  rule  in  all  ju- 
risdictions that,  in  the  absence  of  express  conditions  to  the  contrary, 
the  suicide  of  an  insured  while  insane  does  not  discharge  the  insurer 
from  his  Hability  on  his  contract.'®  Such  insanity  is  one  of  the  diseases 
to  which  the  insurer  must  have  known  that  the  insured  was  liable,  and 
the  unwitting  act  of  self-destruction  is  as  much  the  consequence  of  that 
disease  as  if  some  vital  organ  were  thereby  fatally  affected.** 


STJICIDB-^rHEN  EXCEPTED  IN  THE  POLICY. 

197.  A  mere  exception  of  death  by  suicide  is  oonstn&ed  to  inclnde  only 

eases  of  self-destmction  while  sane. 

198.  Within  this  mle,  in  accordance  with  the  American  cases,  the  in- 

sured is  deenied  to  be  insane  when  he  is  in  such  a  mental  con- 
dition as  not  to  understand  the  moral  quality  of  his  act.  Under 
the  English  rule  the  insured  is  considered  insane  only  xirhen  he 
is  unable  to  understand  the  physical  consequences  of  his  act. 

199.  SAKE  OB  INSANE— When  the  policy  excludes  death  by  suicide, 

sane  or  insane,  it  is  held  by  the  weight  of  authority  that  any  in- 
tentional act  of  self-destruction  by  the  insured,  will  discharge 
the  insurer  front  liability. 

Suicide  Excepted. 

Where  the  policy  contains  a  clause  excepting  from  among  the  risks 
assumed  by  the  insurer  "death  by  suicide,"  or  words  of  similar  import, 
it  is  universally  held  by  the  courts  that  the  exception  refers  only  to  sui- 
cide of  the  insured  while  sane,  and  has  no  application  to  his  self-de- 
struction due  to  the  misfortime  of  insanity.** 


pie  that  recovery  cannot  be  had  because  the  company  has  not  insured  against 
this  particular  risk." 

36  Grand  Lodge  Independent  Order  of  Mutual  Aid  y.  Wieting,  168  111.  408, 
48  N.  E.  59,  61  Am.  St.  Rep.  123;  John  Hancock  Mut.  Life  Ins.  Co.  v.  Moore, 
34  Mich.  46;  Connecticut  Mut  Life  Ins.  Co.  v.  Groom,  86  Pa.  92,  27  Am. 
Rep.  689;  Schultz  v.  Insurance  Co.,  40  Ohio  St.  217,  48  Am.  Rep.  676;  Breast- 
ed v.  Trust  Co.,  8  N.  Y.  299,  59  Am.  Dec.  482. 

87  John  Hancock  Mut  Life  Ins.  Co.  v.  Moore,  34  Mich.  46;  Grand  Lodge 
Independent  Order  of  Mutual  Aid  v.  Wieting,  168  111.  408,  48  N.  E.  59,  61 
Am.  St  Rep.  123. 

38  Blackstone  v.  Insurance  Co.,  74  Mich.  592,  42  N.  W.  156,  3  L.  R.  A.  486; 
ACCIDENT  INS.  CO.  v.  CRANDAL^  120  U.  S.  527,  7  Sup.  Ct  685,  30  L.  Ed. 


§§  197-199)      SUICIDE— WHEN  EXCEPTED  IN  THE  POLICT.  521 

What  Constitutes  Insanity. 

The  construction  of  this  and  similar  clauses  has  given  rise  to  much 
litigation,  in  the  course  of  which  there  have  developed  two  rules  for 
determining  what  constitutes  insanity,  within  the  rule  that  self-destruc- 
tion by  the  insured  while  insane  does  not  violate  this  condition. 

English  Rule. 

The  English  courts,  followed  by  those  of  Massachusetts  and  New 
York,  ha/e  established  the  rule  that  one  committing  suicide  shall  be 
deemed  to  have  been  sane  when  at  the  time  of  the  act  of  self-destruc- 
tion he  understood  the  physical  consequences  which  would  result  from 
his  violent  acts,  and  desired  that  these  consequences  should  be  death.*' 
In  accordance  with  this  rule,  the  insured's  appreciation  of  the  moral 
turpitude  of  his  act  is  material  only  as  affording  evidence  of  his  knowl- 
edge of  the  physical  consequences. 

The  American  Rule. 

The  Supreme  Court  of  the  United  States,  followed  by  a  great  ma- 
jority of  the  American  courts,  has  laid  down  a  different  rule,  which 
may  be  properiy  stated  in  the  language  of  Mr.  Justice  Hunt  in  the  lead- 
ing case  of  Mutual  Life  Ins.  Co.  v.  Terry :  *•    "We  hold  the  rule  in 


740.  In  this  case  the  court  said  that  neither  self-kilUng,  suicide,  dying  by  his 
own  hand,  nor  self-inflicted  injuries  can  be  predicated  on  the  act  of  an  insane 
person,  as  in  either  case  it  is  not  his  act  Knickerbocker  Life  Ins.  Co.  v. 
Peters  42  Md.  414;  Hathaway's  Adm'r  v.  Insurance  Co.,  48  Vt  336;  Meach- 
am  V. 'insurance  Co.,  120  N.  Y.  237,  24  N.  B.  283;  SchefCer  v.  Insurance  Co., 
25  Minn.  534;  Life  Association  v.  Waller,  57  Ga.  533;  Bastabrook  v.  Insurance 
Co.,  54  Me.  224,  89  Am.  Dec.  748;  Phillips  v.  Insurance  Co.,  26  La.  Ann.  404, 
21  Am.  Rep.  549.  But  see  Cooper  v.  Insurance  Co.,  102  Mass.  227,  3  Am.  Rep. 
451,  in  which  it  was  held  that  the  provision  in  a  policy  excepting  from  the  risk 
assumed  the  death  of  the  Insured  caused  by  his  own  hand  operated  to  exempt 
the  insurers  from  liability,  even  if  the  suicide  was  committed  while  the  insured 
was  insane.  To  the  same  effect,  see  Nimick  v.  Insurance  Co.,  3  Brewst  (Pa.) 
502,  Fed.  Cas.  No.  10,266. 

»•  BORRADAILE  v.  HUNTER,  5  Man,  &  G.  639,  44  E.  C.  L.  335 ;  Cooper  v. 
Insurance  Co.,  102  Mass.  227,  3  Am.  Rep.  451 ;  Van  Zandt  v.  Insurance  Co.,  65 
N  T.  169,  173,  14  Am.  Rep.  215;  Dean  v.  Insurance  Co.,  4  Allen  (Mass.)  96; 
Nimick  V.'  Insurance  Co.,  3  Brewst  (Pa.)  502,  Fed.  Cas.  No.  10,266;  Weed  v. 
Insurance  Co.,  70  N.  Y.  561.    See,  also.  Equitable  Life  Assur.  Soc  v.  Paterson, 

41  Ga.  338,  5  Am.  Rep.  535. 

*o  MUTUAL  LIFE  INS.  CO.  v.  TERRY,  15  Wall.  (U.  S.)  580,  21  L.  Ed.  236. 
See,  also,  Connecticut  Mut  Life  Ins.  Co.  v.  Akens,  150  U.  S.  468,  14  Sup.  Ct 
155,  37  L.  Ed.  1148;  RITTER  v.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup. 
Ct.  300  42  L.  Ed.  693;  Grand  Lodge  Independent  Order  of  Mutual  Aid  v. 
Wieting,  168  111.  408,  48  N.  E.  59,  61  Am.  St.  Rep.  123;  BIGELOW  v.  INSUR- 
ANCE CO.,  93  U.  S.  284,  23  L.  Ed.  918;  ACCIDENT  INS.  00.  v.  CRANDAL, 
120  U.  S.  527,  7  Sup.  Ct  685,  30  L.  Ed.  740;  Connecticut  Mut  Life  Ins.  Co. 
V.  Lathrop,  111  U.  S.  612,  4  Sup.  Ct.  533,  28  L.  Ed.  536;  Manhattan  Ufe  Ins. 
Co.  V.  Broughton,  109  U.  S.  121,  3  Sup.  Ct.  99,  27  L.  Ed.  878;  Charter  Oak  Life 
Ins.  Co.  V.  Rodel,  95  U.  S.  232,  24  L.  Ed.  433;   Michigan  Mut  Life  Ins.  Co.  ▼. 


522 


TBBMS   OF   THB    LIFB   POLICY. 


(Ch.  14 


5§  197-199)      SUICIDE — WHEN  EXCEPTED  IN  TBE  POUGT. 


523 


I 


t 


^ 


question  to  be  this :  If  the  assured,  being  in  the  possession  of  his  or- 
dinary reasoning  faculties,  from  anger,  pride,  jealousy,  or  a  desire  to 
escape  from  the  ills  of  life,  intentionally  takes  his  own  life,  the  proviso 
attaches,  and  there  can  be  no  recovery.  If  the  death  is  caused  by  the 
voluntary  act  of  the  insured,  he  knowing  and  intending  that  his  death 
shall  be  the  result  of  his  act,  but  when  his  reasoning  faculties  are  so  far 
impaired  that  he  is  not  able  to  understand  the  moral  character,  the  gen- 
eral nature,  consequences,  and  effect  of  the  act  he  is  about  to  commit, 
or  when  he  is  impelled  thereto  by  an  insane  impulse  which  he  has  not 
the  power  to  resist,  such  death  is  not  within  the  contemplation  of  the 
parties  to  the  contract,  and  the  insurer  is  liable." 


tt 


» 


Suicide,  Sane  or  Insane,* 

In  order  to  escape  the  operation  of  the  liberal  rule  established  by  the 
Supreme  Court  as  to  what  constitutes  insane  suicide,  later  policies  have 
uniformly  included  a  condition  against  suicide,  "sane  or  insane."  This 
has  been  held  to  be  valid  and  enforceable.**  There  can  certainly  be  no 
reason  why  the  insurer  should  not  decline  to  assume  the  risk  incident 
to  the  violence  of  insanity ;  but  consistently  with  the  general  rule  of  the 
courts  to  construe  the  insurance  policy  in  such  a  way  as  to  avoid  a  for- 
feiture and  to  enforce  the  contract,  if  possible,  the  courts  generally  hold 
that  this  condition  does  not  include  accidental  death,  even  though  the 
act  of  the  insured  may  have  been  the  unintended  means  of  causing  that 
death.**  Some  courts  have  even  gone  so  far  as  to  hold  that  where  an 
insured  person  becomes  so  violently  insane  as  to  make  his  destructive 
acts  merely  those  of  a  raving  maniac,  and  not  due  to  any  exercise  of 
volition,  the  condition  is  not  violated,  and  the  insurer  is  liable.*'    By 


Naugle,  130  Ind.  79,  29  N.  B.  393;  Knickerbocker  Life  Ins.  Co.  y.  Peters,  42 
Md.  414;  Grand  Lodge  Independent  Order  of  Mutual  Aid  v.  Wleting,  168  111. 
408,  48  N.  E.  59,  61  Am.  St.  Rep.  123;  Mutual  Benefit  Life  Ins.  Oo.  v.  Da  vies' 
Elx'r,  87  Ky.  641,  9  S.  W.  812;  Blackstone  v.  Insurance  Co.,  74  Mich.  592,  42 
X.  W.  156,  3  L.  R.  A.  486;  Mutual  Life  Ins.  Co.  v.  Walden  (Tex.  Civ.  App.) 
26  S.  W.  1012;  New  Home  Ass'n  v.  Hagler,  29  111.  App.  437;  Suppiger  v.  As- 
sociation, 20  111.  App.  595;  Connecticut  Mut  Life  Ins.  Co.  v.  Moore,  1  Flip. 
3C3,  Fed.  Cas.  No.  9,755. 

41  BIGELOW  V.  INSURANCE  CO.,  93  U.  S.  284,  23  L.  Ed.  918;  Salentlne 
V.  Insurance  Co.  (C.  C.)  24  Fed.  159;  Union  Mut  Life  Ins.  Oo.  v.  Payne,  106 
Fed.  172,  45  C.  O  A.  193;  Dennis  v.  Insurance  Co.,  84  Cal.  570,  24  Pac.  120; 
Sparks  v.  Indemnity  Co.,  61  Mo.  App.  109;  Union  Cent.  Life  Ins.  Co.  v.  Hol- 
lowell,  14  Ind.  App.  611,  43  N.  E.  27;  Tritschler  v.  Association,  180  Pa.  205, 
36  Atl.  734;  Sargeant  v.  Insurance  Co.,  189  Pa.  341,  41  Atl.  351;  Keefer  v. 
Modern  Woodmen,  203  Pa.  131,  52  Atl.  164. 

*2  Union  Mut.  Life  Ins.  Oo.  v.  Payne,  105  Fed.  172,  45  O.  O.  A.  193;  Mutual 
Benefit  life  Ins.  Co.  v.  Daviess'  Bi'r,  87  Ky.  541,  9  S.  W.  812;  Keels  v.  As- 
sociation (0.  C.)  29  Fed.  198. 

♦8  Supreme  Lodge  Order  of  Mutual  Protection  v.  Gelbke,  198  111.  365,  64  N. 
B.  1058,  reversing  100  111.  App.  190;  Mutual  Benefit  Life  Ina.  Oo.  ▼.  Daviess' 
Ex'r,  87  Ky.  541,  9  S.  W.  812. 


the  weight  of  authority,  however,  any  destructive  act  of  an  insane  man, 
«ven  though  its  physical  consequences  were  not  known  or  intended, 
constitutes  a  breach  of  condition.**  This  would  seem  clearly  to  be  the 
sound  construction  of  the  condition. 

Presumptions. 

Self-destruction  is  so  contrary  to  the  law  of  nature  and  the  ordinary 
rule  of  conduct  that  it  is  never  presumed.**  The  insurer  setting  up 
suicide  in  defense  must  clearly  establish  such  facts  as  will  exclude  any 
reasonable  hypothesis  of  accidental  death.**  On  the  other  hand,  if  the 
plaintiff  desires  to  show  that  a  death  proved  to  be  suicidal  was  due  to 
the  insanity  of  the  insured,  the  burden  rests  upon  him  to  prove  the  ex- 
istence of  such  insanity,  which  will  never  be  presumed.*^ 

44  BIGELOW  y.  INSURANCE  CO.,  93  U.  S.  284,  23  L.  Ed.  918;  Streeter  ▼. 
Society,  65  Mich.  201,  31  N.  W.  780,  8  Am.  St.  Rep.  883;  Brower  v.  Supreme 
Lodge,  74  Mo.  App.  495;  Dennis  v.  Insurance  Co.,  84  Cal.  570,  24  Pac.  120; 
Sparks  v.  Indemnity  Co.,  61  Mo.  App.  109;  Union  Cent  Life  Ins.  Co.  v.  Hol- 
Jowell,  14  Ind.  App.  611,  43  N.  E.  277;  Sabin  v.  Union,  90  Mich.  177,  51  N. 
W.  202. 

4»  Supreme  Lodge  K.  P.  v.  Beck,  181  U.  S.  49,  21  Sup.  Ot.  532,  46  L.  Ed.  741; 
Home  Benefit  Ass'n  v.  Sargent,  142  U.  S.  691,  12  Sup.  Ct  332,  35  L.  Ed.  1160; 
TRAVELERS'  INS.  CO.  v.  McCONKEY,  127  U.  S.  661,  8  Sup.  Ct  1360,  32 
L.  Ed.  308;  Union  Mut  Life  Ins.  Co.  v.  Payne,  105  Fed.  172,  45  O.  C.  A.  193; 
Connecticut  Mut  Life  Ins.  Co.  v.  McWhirter,  78  Fed.  444,  19  C.  a  A.  519; 
Supreme  Lodge  K.  P.  y.  Beck,  94  Fed.  751,  36  C.  C.  A.  467 ;  Keels  v.  Associa- 
tion (C.  C.)  29  Fed.  198.  "The  love  of  life  is  ordinarily  a  sufficient  Inducement 
for  its  preservation,  and,  In  the  absence  of  proof  that  death  resulted  from 
other  than  natural  causes,  suicide  will  not  be  presumed."  Hale  v.  Invest- 
ment Co.,  61  Minn.  516,  63  N.  W.  1108,  52  Am.  St  Rep.  616.  Mutual  Life  Ins. 
Co.  V.  Wiswell,  56  Kan.  756,  44  Pac.  996,  35  L.  R.  A.  258;  Walcott  v.  Insur- 
ance Co.,  64  Vt  221,  24  Atl.  992,  33  Am.  St  Rep.  923;  Agen  v.  Insurance  Co., 
105  Wis.  217,  80  N.  W.  1020,  76  Am.  St.  Rep.  905;  Games  v.  Association,  106 
Iowa,  281,  76  N.  W.  683,  68  Am.  St  Rep.  306;  Dennis  v.  Insurance  Co.,  84 
Cal.  570,  24  Pac.  120;   Inghram  v.  Union,  103  Iowa,  395,  72  N.  W.  559. 

*8Boynton  v.  Association,  105  La.  202,  29  South.  490,  52  L.  R.  A.  687; 
Keels  V.  Association  (C.  C.)  29  Fed.  198;  Leman  v.  Insurance  Co.,  46  La.  Ann. 
1189,  15  South.  388,  24  L  R.  A.  589,  49  Am.  St  Rep.  348;  Mutual  Life  Ins. 
Co.  V.  Wiswell,  56  Kan.  756,  44  Pac.  996,  35  L.  R.  A.  258.  "Upon  evenly 
balanced  testimony,  the  law  assumes  innocence  rather  than  crime."  Wal- 
cott V.  Insurance  Co.,  64  Vt  221,  24  Atl.  992,  33  Am.  St  Rep.  923.  Agen  v. 
Insurance  Co.,  105  Wis.  217,  80  N.  W.  1020,  76  Am.  St  Rep.  905;  Stephenson 
V.  Association,  108  Iowa,  637,  79  N.  W.  459;  Travelers'  Ins.  Co.  v.  Nitter- 
house,  11  Ind.  App.  165,  38  N.  B.  1110;  Dennis  v.  Insurance  Co.,  84  Cal.  570, 
24  Pac.  120;  Inghram  v.  Union,  103  Iowa,  395,  72  N.  W.  559;  MUTUAL  LIFE 
INS.  00.  V.  SIMPSON  (Tex.  Civ.  App.)  28  S.  W.  837. 

4T  Waters  v.  Insurance  Co.  (C.  O.)  2  Fed.  892;  MUTUAL  LIFE  INS.  CO.  v. 
TERRY,  15  Wall.  580,  21  L.  Ed.  236;  TRAVELERS'  INS.  00.  v.  McCONKEY, 
127  U.  S.  661,  8  Sup.  Ct  1360,  32  L.  Ed.  308;  Knickerbocker  Life  Ins.  Co.  v. 
Peters,  42  Md.  414;  Continental  Ins.  Co.  v.  Delpeuch,  82  Pa.  226;  Phadei?- 
hauer  v.  Insurance  Co.,  7  Heisk.  (Tenn.)  567,  19  Am.  Rep.  623;  Moore  v.  In- 
surance Co.,  1  Flip.  363,  Fed.  Cas.  No.  9,755;  Dickerson  T.  Insurance  Co.,  200 
lU.  270,  65  N.  E.  691. 


\  i 


524 


I 


i 


TEEMS   OF   THE    LIFE   POLICY, 


DEATH  IN  VIOLATION  OF  LAW. 


(Ch.  14 


200.  The  insurer  Is  not  liable  for  the  death  of  the  insured  at  the  hand* 

of  the  law,  even  thonch  snch  risk  is  not  expressly  excepted  i« 
the  policy. 

201.  An  exception,  in  the  policy,  of  death  because  of  violation  of  law, 

includes  only  those  cases  in  which  death  ensues  as  the  proxi- 
mate result  of  the  criminal  act  of  the  insured.  By  the  weight 
of  authority  it  does  not  include  suicide,  or  death  in  violation  of 
a  merely  civil  right* 

Death  at  the  Hands  of  the  Law. 

Most  policies  of  life  insurance  contain  a  clause  exempting  the  insurer 
from  liability  for  the  death  of  the  insured  in  consequence  of  the  known 
violation  of  any  law  or  at  the  hands  of  justice.  It  has  been  held,  how- 
ever, by  both  the  Supreme  Court  of  the  United  States  *•  and  the  Eng- 
lish House  of  Lords,**  that,  even  in  the  absence  of  such  an  exception, 
the  insurer  could  not  be  required  to  pay  in  case  the  insured  came  to  his 
death  by  the  execution  of  a  legally  imposed  sentence. 

The  Supreme  Court  of  the  United  States,  in  the  case  of  Burt  v. 
Union  Cent.  Life  Ins.  Co.,»<»  has  carried  this  principle  even  further  than 
this.  In  that  case  the  insured  was  executed  for  the  murder  of  his  wife. 
The  assignees  of  the  policy  brought  suit  against  the  insurance  com- 
pany, claiming  payment  on  the  ground  that  the  insured  had  been  un- 
justly sentenced  and  executed,  since  he  was  not  guilty  of  the  crime  with 
which  he  was  charged.  The  lower  court  declined  to  receive  any  evi- 
dence upon  this  point,  and  its  ruling  was  sustained  by  the  Supreme 
Court,  not  on  the  ground  that  the  question  was  res  adjudicata,  but  be- 
cause to  allow  proof  that  the  insured  had  been  unjustly  executed,  and 
thereby  to  render  the  msurer  liable  on  his  policy,  would  be  tantamount 
to  construing  a  contract  as  insurance  against  the  miscarriage  of  jus- 
tice, which  would  be  contrary  to  public  policy. 

Death  in  Known  Violation  of  Law. 

This  condition  is  evidently  inserted  in  the  life  policy  for  the  purpose 
of  exempting  the  insurer  from  the  largely  increased  risk  of  death  as- 
sumed by  any  person  violating  a  criminal  law.  This  purpose  the  courts 
keep  m  mind  in  construing  such  clauses.  It  is  held  that  the  clause  ap- 
plies only  to  cases  involving  the  violation  of  a  criminal  law,  and  not 
merely  the  invasion  of  a  civil  right.  This  is  well  illustrated  by  the 
famous  case  of  CluflF  v.  Mutual  Ben.  Life  Ins.  Co.,"  which  was  four 

♦8  Burt  V.  Insurance  Co.,  187  U.  S.  362,  23  Sup.  Ct.  139,  47  L.  Ed.  216.    Contra 
McDonald  v.  Order  of  Triple  Alliance,  57  Mo.  App.  87. 

*»  AMICABLE  SOCIETY  v.  BOLLAND,  4  Bligh,  N.  S.  194, 

»o  187  U.  S.  362,  23  Sup.  Ct  139,  47  L.  Bd.  216. 

•1  Cluff  T.  Insurance  Co.,  13  AUen  (Mass.)  30a    See  same  case,  99  Mass.  Sib. 


DEATH  IN   VIOLATION   OF  LAW. 


525 


§§  200-201) 

times  tried  in  Massachusetts,  being  twice  before  the  Supreme  Court  of 
that  state.  A  case  involving  the  same  facts  and  a  similar  policy  sub- 
sequently came  before  the  Court  of  Appeals  of  New  York.  In  this 
case  Cluff,  the  insured,  meeting  an  alleged  debtor  on  the  public  road, 
demanded  payment.  This  being  refused,  Cluff  attempted  to  seize  the 
horses  then  in  the  possession  of  the  debtor.  Being  greatly  incensed  by 
this  act,  the  latter  shot  and  instantly  killed  the  insured.  It  was  held 
by  the  Supreme  Court  of  Massachusetts  that  although  Cluff  was  vio- 
lating the  law  in  seizing  another  person's  property,  yet,  since  it  was  not 
done  with  a  criminal  intent,  the  law  violated  was  merely  a  rule  of  civil 
conduct,  and  not  within  the  contemplation  of  the  parties  to  the  contract 
of  insurance,  which  contained  the  usual  clause  exempting  the  insurer 
from  loss  in  consequence  of  the  violation  of  law.  In  the  New  York 
court  **  a  judgment  for  the  defendant  was  reversed  on  the  ground  that 
the  lower  court  should  have  submitted  to  the  jury  the  question  whether 
the  wrongful  act  of  Cluff  was  the  proximate  cause  of  the  insured's 
death." 

Suicide  not  a  "Violation  of  Law." 

By  the  weight  of  authority  it  is  held  that  the  suicide  of  the  insured  is 
not  a  violation  of  this  clause,  within  the  contemplation  of  the  parties.'** 
This  is  clearly  correct  in  those  jurisdictions  in  which  the  common-law 
crimes  have  been  abolished  and  suicide  is  not  included  within  the  list  of 
statutory  crimes.  But  the  conclusion  is  not  so  easily  reached  in  those 
states  in  which  the  common-law  crimes  are  still  recognized.  Suicide 
was  undoubtedly  a  crime  at  common  law,  but  it  has  generally  been  held 
that,  even  though  suicide  may  still  be  technically  a  common-law  crime, 
it  will  not  be  regarded  as  a  crime  within  the  meaning  of  this  clause  of 
the  insurance  policy,  since  no  punishment  can  be  imposed  for  its  com- 
mission." In  a  recent  New  York  case,"  however,  a  contrary  conclu- 
sion was  reached. 


1: 


»«  Bradley  v.  Insurance  Co.,  45  N.  Y.  422,  6  Am.  Rep.  115. 

68  In  Lehman  v.  Indemnity  Co.,  158  N.  Y.  689.  53  N.  E.  1127,  affirming  7 
App.  Div.  424,  39  N.  Y.  Supp.  912,  it  was  held  that  the  act  of  the  insured  in 
walking  along  a  railway  track,  though  forbidden  by  law,  was  not  a  "viola- 
tion of  law,"  within  the  meaning  of  this  clause,  when  the  railway  company 
had  impliedly  licensed  such  act. 

8*  Kerr  v.  Association,  39  Minn.  174,  39  N.  W.  312,  12  Am.  St.  Rep.  631; 
PATTERSON  v.  INSURANCE  CO.,  100  Wis.  118,  75  N.  W.  980,  42  L,  R.  A. 
253,  69  Am.  St  Rep.  899.  So  in  New  York,  where  common-law  crimes  have 
been  abolished.  Darrow  v.  Society,  116  N.  Y.  537.  22  N.  E.  1093.  6  L.  R.  A. 
495.  15  Am.  St  Rep.  430;  Royal  Circle  v.  Achterrath,  204  111.  549,  68  N.  E. 
492,'  63  L.  R.  A.  452.  But  see  Shipman  v.  Home  Circle,  174  N.  Y.  398,  67  N. 
E  83  63  L  R.  A.  347.  in  which  it  was  held  otherwise  under  Pen.  Code,  §  172. 

86  PATTERSON  v.  INSURANCE  CO.,  100  Wis.  118.  75  N.  W.  980,  42  L.  R. 
A.  253,  69  Am.  St  Rep.  899. 

••  Shipman  v.  Home  Circle,  174  N.  Y.  398,  67  N.  E.  83,  63  L.  R.  A.  347, 


II 


526 


TERMS   OF   THB   LIFE   POLICY. 


(Ch.  U 


§§  202-204) 


ASSIGNMENT. 


527 


• ' 


i    ^ 


'I 


The  Unlawful  Act  must  be  Proximate  Cause  of  Death, 

It  is  not  sufficient  to  exempt  the  insurer  from  liability  that  the  insured 
should  meet  his  death  while  violating  the  law.  The  death  must  have 
ensued  in  consequence  of  that  violation."  In  the  language  of  the  court 
m  a  recent  Tennessee  case :  "  "In  order  to  defeat  a  recovery  because 
of  such  provision,  there  must  appear  a  connecting  link  between  the  un- 
lawful act  and  the  death.  It  is  not  sufficient  that  there  was  an  unlawful 
act  committed  by  the  insured,  and  that  death  occurred  during  the  time 
he  was  engaged  in  its  commission.  There  must  be  some  causative  con- 
nection between  the  act  which  constituted  the  violation  of  the  law  and 
the  death  of  the  insured.  *  *  *  The  provision  of  the  policy  ex- 
cluding liability  for  injury  received  by  the  insured  while  committing  an 
unlawful  act  refers  to  such  injuries  as  may  happen  as  the  necessary  or 
natural  consequences  of  the  act,  as  its  probable  and  to  be  anticipated 
consequences,  and  the  reference  to  injuries  received  'in  consequence  of 
any  unlawful  act'  is  to  those  injuries  which  arise  out  of  or  flow  natural- 
ly from  the  act  committed,  as  its  effect  or  resulting  consequence." 

In  a  recent  decision  by  the  Supreme  Court  of  the  United  States  it 
was  held  that  where  a  man  was  killed  by  the  accidental  discharge  of  a 
gun  while  he  was  engaged  in  a  wrongful  and  violent  attempt  to  recover 
possession  of  his  wife,  who  had  rightfully  left  him,  the  company  should 
be  held  liable  for  the  death  of  the  insured,  since  there  was  no  causative 
connection  between  the  wrong  he  contemplated  and  the  cause  of  his 
death."  So  it  was  held  that  the  suicide  of  an  insured,  committed  in  or- 
der to  escape  arrest  for  a  crime  perpetrated,  was  not  the  proximate 
result  of  the  crime,  and  therefore  not  within  this  clause  of  the  policy.«<> 
But  while  the  death  of  the  insured  must  be  due  proximately  to  the 
violation  of  law,  it  need  not  be  directly  due  to  that  cause.  Thus  it  has 
been  held  that  when  the  insured  came  to  his  death  by  reason  of  a  col- 
lision that  took  place  during  a  horse  race  that  was  being  run  contrary  to 

•T  Conboy  v.  Accident  Ass'n,  17  Ind.  App.  62,  46  N.  E.  363,  60  Am.  St.  Rep. 
154;  Accident  Ins.  Co.  v.  Bennett,  90  Tenn.  256,  16  S.  W.  723,  25  Am.  St  Rep 
685;  Goetzman  v.  Insurance  Co.,  3  Hun  (N.  Y.)  515;  Bradley  v.  Insurance 
Co.,  45  N.  Y.  422,  6  Am.  Rep.  115;  BLOOM  v.  INSURANCE  CO.,  97  Ind.  478, 
49  Am.  Rep.  469;  Jones  v.  Accident  Ass'n,  92  Iowa,  653,  61  N.  W.  485;  Trav- 
elers' Ins.  Co.  v.  Seaver,  19  Wall.  531,  22  L.  Ed.  155;  MURRAY  v.  INSUR- 
ANCE CO.,  96  N.  Y.  614,  48  Am.  Rep.  658.  But  see  Griffin  v.  Western  Ass'n 
20  Neb.  620,  31  N.  W.  122,  57  Am.  Rep.  848,  where  it  was  held  that,  al- 
though the  insured  was  killed  while  making  his  escape  after  having  robbed 
a  bank,  he  was  not  killed  while  violating  the  law,  his  act  of  robbing  the  bank, 
which  was  in  violation  of  the  law,  having  been  consummated,  and  according- 
ly the  policy  was  not  avoided. 

»»  Accident  Ins.  Co.  v.  Bennett,  90  Tenn.  256,  16  S.  W.  723,  25  Am.  St  Rep. 
685. 

••  Supreme  Lodge  K.  P.  v.  Beck,  181  U.  S.  49,  21  Sup.  Ct.  532,  45  L.  Ed.  741 
••  Kerr  v.  Ben^t  Ass'n.  39  Minn.  174.  89  N.  W.  812,  12  Am.  St  Rep.  631. 


law,  the  insurer  was  not  liable.**  Likewise  it  has  been  held  that  when 
the  insured  was  accidentally  killed  while  returning  from  a  hunting  ex- 
pedition, in  which  he  had  unlawfully  engaged  on  Sunday,  the  insurer 
was  exempted  under  the  clause  in  question.*'  But  where  such  a  Sun- 
day sportsman  met  an  accidental  death  after  returning  from  the  hunt 
and  while  at  a  friend's  house,  the  violation  of  law  was  considered  not  to 
be  the  cause  of  his  death.*'  Under  this  clause  the  insurer  was  likewise 
discharged  when  the  insured  died  by  reason  of  a  criminal  operation  to 
which  she  had  submitted,**  and  also  when  an  insured  was  killed  by  the 
husband  of  a  woman  upon  whom  he  was  committing  an  assault  and 
battery.* •  There  seems  to  be  some  difference  of  opinion  whether  the 
insurer  is  liable  when  the  insured  is  killed  while  retreating  from  an 
altercation  in  which  he  had  wrongfully  engaged.  The  better  view 
would  seem  to  be  that  death  under  such  circumstances  is  proximately 
caused  by  the  illegal  altercation.** 

ASSIGNMENT. 

202.  Xn  tlie  abience  of  any  oondition  in  the  policy  prol&ibitins  assig:n- 

Tuent,  a  validly  issued  life  policy  may  be  freely  assigned,  irre- 
jpective  of  the  consent  of  the  insurer. 

203.  Life  policies  nsnally  provide  that  no  assignment  thereof  shall  be 

valid  unless  indorsed  upon  the  policy  by  the  insurer,  or  unless 
notice  in  writing  is  given  to  the  insurer.  Failure  to  comply 
with  such  requirenients  has  no  effect  whatever  upon  the  validity 
of  the  assignment,  nor  does  it  deprive  the  assignee  of  any  of  his 
equitable  rights  against  the  insurer.  An  assignment  in  accord- 
ance with  the  condition  of  the  policy  in  effect  constitutes  the 
assignee  a  party  to  the  contract,  which  he  may  enforce  in  an 
action  at  law. 

204.  It  seen&s  that  a  condition  avoiding  the  policy  in  case  of  assign- 

ment without  consent  of  the  insurer  is  valid  and  enforceable. 

The  insurer  does  not  look  to  the  character  of  the  insured  to  such  an 
extent  when  he  insures  his  life  as  when  he  insures  his  property.  He 
naturally  looks  to  the  insured's  reputation  for  honesty  and  carefulness, 
when  insuring  his  property,  as  largely  affecting  the  risk,  but  in  the  case 
of  life  insurance  the  character  of  the  insured  does  not  affect  to  any  con- 

•»  Travelers*  Ins.  Co.  v.  Seaver,  19  Wall.  531,  22  L.  Ed.  155. 

•2  Duran  v.  Insurance  Co.,  63  Vt  437,  22  Atl.  530,  13  L.  B.  A.  637,  25  Am. 
St  Rep.  773. 

•»  Prader  v.  Accident  Ass'n,  95  Iowa,  149,  63  N.  W.  601. 

•*  Hatch  V.  Insurance  Co.,  120  Mass.  550,  21  Am.  Rep.  541. 

•5  BLOOM  V.  INSURANCE  CO.,  97  Ind.  478,  49  Am.  Rep.  469. 

««  MURRAY  V.  INSURANCE  CO.,  96  N.  Y.  614,  48  Am.  Rep.  65a  But  see 
Harper's  Adm'r  v.  Insurance  Co.,  19  Mo.  506;  Griffin  t«  Western  Ass'n,  20 
Neb.  620,  31  N.  W.  122,  57  Am.  Rep.  848. 


■II 


»•• 


'i  I 


528 


TBRMS   OF   THE    LIFE    POLICY. 


(Ch.  14 


siderable  degree  the  character  of  the  risk.  A  dishonest  man  can  be 
relied  upon  to  protect  his  own  Hfe  with  quite  as  much  diligence  as  an 
honest  man.  Such  being  the  case,  the  reasons  which  preclude  an  as- 
signment of  a  fire  policy  without  the  consent  of  the  insurer  do  not 
operate  in  the  case  of  life  insurance.  By  the  great  weight  of  authority, 
a  Hfe  insurance  policy,  if  once  validly  issued,  is  subject  to  assignment 
as  any  other  chose  in  action,  unless  such  assignment  is  prohibited  by 
the  contract.'^  It  should  be  borne  in  mind,  however,  that  any  assign- 
ment of  a  life  policy  that  is  intended  as  an  evasion  of  the  rule  of  law 
prohibiting  wager  policies  is  absolutely  void.** 

Assignm>ent  by  Parol  Valid, 

No  writing  is  requisite  for  a  valid  assignment,  unless  prescribed  by 
the  poHcy.*'  Any  evidence  showing  an  intention  to  presently  assign 
will  be  sufficient  to  establish  the  assignment.  No  manual  delivery  is 
accessary  J*    Even  when  the  contract  prescribes  that  assignments  must 


4 
'If ' 


•T  New  York  Mut  Life  Ina.  Co.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877, 
29  L.  Ed.  997;  In  re  Dobbel's  Estate,  104  Cal.  432,  38  Pac.  87,  43  Am.  St.  Rep. 
123;  Morris  v.  Banking  Co.,  109  Ga.  12,  34  S.  B.  378^  46  L.  R.  A.  506;  State 
V.  Tomlinson,  16  Ind.  App.  662,  45  N.  B.  1116,  59  Am.  St.  Rep.  335;  Hewlett 
V.  Home  for  Incurables,  74  Md.  350,  24  Atl.  324,  17  L.  R.  A.  449;  In  re  Turcan, 
L.  R.  40  Ch.  Div.  5;  Murphy  v.  Red,  64  Miss.  614,  1  South.  761,  60  Am.  Rep. 
68;  AMICK  v.  BUTLER,  111  Ind.  578,  12  N.  E.  518,  60  Am.  Rep.  722;  MU- 
TUAL LIFE  INS.  CO.  V.  ALLEN,  138  Mass.  24,  52  Am.  Rep.  245;  Davis  v. 
Brown,  159  Ind.  644,  65  N.  B.  908;  Steele  v.  Gatlin,  115  Ga.  929,  42  S.  E.  253, 
59  L.  R.  A.  129.  But  in  many  jurisdictions  an  assignment  of  a  life  policy  to 
one  having  no  Insurable  interest  is  void  as  against  public  policy,  and  the  fact 
that  the  laws  of  the  insurance  company  allow  such  assignment  does  not  vali- 
date it  Price  v.  Supreme  Lodge,  68  Tex.  361,  4  S.  W.  633 ;  and  see  cases  cited 
ante,  p.  416.  In  Helmetag's  Adm'r  v.  Miller,  76  Ala.  183,  52  Am.  Rep.  316, 
it  was  held  that  an  insurance  policy  could  not  be  assigned  to  one  having  no 
interest  in  the  life  of  the  insured,  and  an  assignment  of  the  policy  as  collateral 
security  was  void  beyond  the  amount  of  the  debt 

«8  New  York  Mut.  Life  Ini.  Co.  v.  Armstrong,  117  U.  S.  591,  6  Sup.  Ct.  877, 
20  L.  Ed.  997;  CLEMENT  v.  INSURANCE  CO.,  101  Tenn.  22,  46  S.  W.  561, 
42  L.  R.  A.  247,  70  Am.  St  Rep.  650;  STEINBACK  v.  DIEPENBROCK,  158 
N.  Y.  24,  52  N.  E.  662,  44  L.  R.  A.  417,  70  Am.  St  Rep.  427;  Franklin  Life 
Ins.  Co.  V.  Hazzard,  41  Ind.  116,  13  Am.  Rep.  313 ;  Roller  v.  Moore's  Adm'r,  86 
Ya.  542,  10  S.  E.  241,  6  L.  R.  A.  136;  Alabama  (Jold  Life  Ins.  Co.  v.  Mobile 
Mut.  Ins.  Co.,  81  Ala.  329,  1  South.  561;  Ruth  v.  Katterman,  112  Pa.  251,  3 
Atl.  833. 

69  Hani  v.  Insurance  Co.,  197  Pa.  276,  47  Atl.  200,  80  Am.  St.  Rep.  819; 
O'Brien  v.  Insurance  Co.,  57  Hun,  589,  11  N.  Y.  Supp.  125;  Travelers'  Ins. 
Co.  V.  Healey,  86  Hun,  524,  33  N.  Y.  Supp.  911;  Macauley  v.  Bank,  27  S.  O. 
215,  3  S.  E.  193. 

TO  Colbum's  Appeal,  74  Conn.  463,  51  Atl.  139,  92  Am.  St  Rep.  231.  See 
Richardson  v.  White,  167  Mass.  58,  44  N.  B  1072;  McDonough  v.  Insurance 
Co.,  38  Misc.  Rep.  625,  78  N.  Y.  Supp.  217;  Chamberlain  v.  Williams,  62  111. 
App.  423;  Hurlbut  v.  Hurlbut,  49  Hun,  180,  1  N.  Y.  Supp.  854.  But  the  exe- 
cution of  an  assignment  by  a  son  to  his  mother,  without  consideration. 


g§  202-204) 


ASSIGNMENT. 


529 


%^     *; 


be  written  on  the  policy  by  the  insurer,  a  parol  assignment  will  never- 
theless be  valid  as  between  assignor  and  assignee. 

Assignment  Prohibited  by  Policy, 

Modern  policies  usually  contain  a  condition  to  the  effect  that  no  as- 
signment will  be  valid  until  notice  is  given  to  the  insurer.''^  Older 
forms  sometimes  contain  the  harsh  provision  that  the  assignment  of  a 
policy  without  the  consent  of  the  insurer  shall  render  it  void.  While 
such  a  provision  will  receive  little  favor  at  the  hands  of  the  courts  in 
the  way  of  construction,  yet,  if  violated,  it  seems  the  court  must  give  it 
full  effect  in  accordance  with  its  terms.''* 

The  ordinary  provision,  however,  prohibiting  an  assignment  without 
proper  notice  to  the  insurer,  is  construed  to  be  intended  merely  for  the 
benefit  of  the  insurer,  and  cannot  affect  the  rights  between  the  assignor 
and  the  assignee."'*  The  assignee  will  nevertheless  take  an  equitable 
title  to  the  proceeds  of  the  policy,  which  the  insurer  may  recognize,  if 
he  so  desires,  and  discharge  his  liability  by  making  payment  to  such  as- 
signee Indeed,  it  seems  probable  that  the  only  effect  of  such  a  condi- 
tion ill  the  life  policy  is  to  give  the  insurer  a  right  to  decline  payment  to 
an  assignee  claimant  until  the  condition  has  been  complied  with.''*  It 
is  doubtful,  however,  whether  the  insurer,  after  receiving  actual  notice 
of  the  assignment,  even  though  not  in  accordance  with  the  requirements 
of  the  condition,  would  be  justified  in  making  payment  to  the  assignor 
O!  his  personal  representatives. 

An  assignment  made  in  compliance  with  the  conditions  of  the  policy, 
and  therefore  with  the  consent  of  the  insurer,  in  effect  constitutes  the 
assignee  a  party  to  the  contract,  so  as  to  entitle  him  to  bring  a  suit  on 
the  policy  m  his  own  name.""  Of  course,  however,  his  rights  under  the 
policy  could  not  be  greater  than  those  of  his  assignor,  unless  the  assign- 
ment was  made  under  such  circumstances  as  to  constitute  a  waiver  of 
previously  existing  grounds  of  forfeiture. 

though  made  according  to  the  requirements  of  the  company,  will  not  be 
valid  without  delivery  as  against  a  subsequent  assignee  for  value.  See 
Weaver  v.  Weaver,  182  111.  287,  55  N.  E.  338,  74  Am.  St  Rep.  173. 

Ti  In  Iowa  such  prohibitions  against  assignments  are  void  by  statute.  See 
Crocker  v.  Hogin,  103  Iowa,  243,  72  N.  W.  411. 

T2  Unity  Mut.  Life  Assur.  Ass'n  v.  Dugan,  118  Mass.  219;  Stevens  v.  War- 
ren, 101  Mass.  564.  See,  also,  dicta  in  MerriU  v.  Insurance  Co.,  103  Mass. 
245,  252,  4  Am.  Rep.  548,  and  Hewins  v.  Baker,  161  Mass.  320,  37  N.  E.  441. 

T3  Mut.  Protection  Ins.  Co.  v.  Hamilton,  5  Sneed  (Tenn.)  269;  Hogue  ▼ 
Provision  Co.,  59  Minn.  39,  60  N.  W.  812;  Hewins  v.  Baker,  161  Mass.  320,  37 
N.  E.  441.  See,  especially,  the  opinion  in  New  York  Life  Ins.  Co.  v.  Flack, 
8  Md.  341,  56  Am.  Dec.  742. 

T*  See  Hewins  v.  Baker,  161  Mass.  320,  37  N.  B.  441. 

T»  Tremblay  v.  Insurance  Co.,  97  Me.  547,  55  Atl.  509,  94  Am.  St  Rep.  t21 ; 
Southern  Fertilizer  Co.  v.  Reames,  105  N.  C.  283,  11  S.  E.  467. 
Tancb  Ins.— 34 


t  ti 


A 


530 


TERMS   OF   THE    LIFE    POLICY. 


(Ch.  14 


I* 


INCONTESTABLE  GLAXTSE. 

205.  Tlie  Incontestable  clanse  applies  only  to  snoh  defenses  as  arise 
before  loss,  and  does  not  affect  those  conditions  to  be  performed 
after  tbe  death  of  the  insured.  The  clanse  is  valid,  and  all 
such  defenses  as  are  not  expressly  excepted  in  the  clanse  are 
barred  to  the  insurer,  except— 

Ca)  Lack  of  insurable  interest  in  the  person  procuring  the  insurance, 
rendering  the  contract  illegal  in  its  inception. 

(b)  Fraud  in  the  procurement  of  the  insurance,  entitling  the  insurer 
to  rescind  the  entire  contract.  This  exception  is  sound  in  prin- 
ciple, but  is  denied  by  the  weight  of  authority. 

The  incontestable  clause,  now  so  popular  in  life  insurance  contracts, 
IS  an  anomaly  in  contract  law,  and  the  decisions  of  the  courts  in  deter- 
mining its  effect  upon  the  conditions  of  the  contract  are  quite  as  anom- 
alous as  the  condition  itself.  In  most  policies  there  are  certain  excep- 
tions expressly  made  to  the  operation  of  this  incontestable  clause,  the 
most  frequent  one  being  the  payment  of  premiums,  as  where  it  is  pro- 
vided that  after  a  certain  period  "this  policy  shall  be  incontestable,  pro- 
vided all  premiums  that  have  become  due  shall  have  been  paid."  Other 
forms  except  fraud  in  the  procurement,  and  suicide.''*  Where  one  of 
these  expressly  excepted  conditions  has  been  violated,  there  is  no  diffi- 
culty in  determining  that  the  insurer  is  not  liable,  but  great  difficulty  is 
encountered  in  determining  the  effect  of  the  breach  of  a  condition  not 
excepted  from  the  operation  of  the  incontestable  clause,  but  yet  distinct- 
ly set  forth  as  one  of  the  terms  of  the  contract.  If  one  were  allowed 
to  theorize  unreservedly  in  the  matter,  he  would  reach  the  conclusion 
that  the  statement  in  the  contract  that  the  contract  was  incontestable 
should  mean  merely  that  the  msurer  had  estopped  himself  to  deny  the 
validity  of  the  contract  as  executed,  and  not  the  operation  of  the  terms 
of  the  contract  as  written.  In  accordance  with  such  a  view,  the  insurer 
would  not  be  allowed  to  deny  the  valid  existence  of  the  policy  as  a 
subsisting  contract  of  insurance,  unless  it  had  been  procured  by  actual 
fraud,  but  he  would  not  be  precluded  from  insisting  that  the  confessedly 
valid  contract  should  operate  in  accordance  with  its  written  terms. 

T«  In  Fitch  V.  Insurance  Co.,  59  N.  Y.  570,  17  Am.  Rep.  372,  the  court  said: 
"A  company  cannot  be  permitted  in  the  same  papers  to  say  to  the  insured,  to 
induce  him  to  enter  into  the  contract,  that  nothing  but  fraud  or  intentional 
misstatements  shall  avoid  his  policy,  or  that  payment  will  be  contested  only 
in  case  of  fraud,  and,  when  the  claim  for  payment  is  presented,  to  set  up 
in  defense  a  merely  technical  breach  of  warranty  in  relation  to  some  trivial 
matter."  See,  also,  Wood  v.  Dwarris,  11  Exch.  493,  25  L.  J.  Exch.  (N.  S.)  129 ; 
Kline  v.  Benefit  Ass'n,  111  Ind.  462,  11  N.  E.  620,  60  Am.  Rep.  703.  Here  it 
was  held  that  nonpayment  of  premium  was  no  defense  against  a  beneficiary 
where  the  policy  and  application  recited  payment,  and  the  policy  contained  a 
clause  providing  that  it  was  incontestable  except  for  fraud. 


§205) 


INCONTESTABLE   CLAUSE. 


531 


Thus  we  should  expect  to  find  that  such  a  defense  as  an  innocent  mis- 
representation or  breach  of  warranty  would  not  be  good  under  the  in- 
contestable clause,  but  that  suicide,  when  expressly  prohibited  by  a  term 
of  the  contract,  would  afford  a  good  defense ;  but  such  is  certainly  not 
the  result  of  the  cases  so  far  as  decided.  The  courts  seem  inclined  to 
construe  the  clause  as  an  agreement  on  the  part  of  the  insurer  not  to 
contest  his  ultimate  liability  to  pay  the  sum  specified,  whereas  the  in- 
surer merely  binds  himself  not  to  contest  the  policy.  It  is  well  settled 
that  under  the  incontestable  clause  the  insurer  is  precluded  from  set- 
ting up  the  suicide  of  the  insured  in  defense,  even  when  the  policy  ex- 
pressly stipulates  that  the  insurer  will  not  be  liable  in  case  of  death  by 
suicide; "  yet  it  is  held  that  the  incontestable  clause  will  not  prevent  a 
failure  on  the  part  of  the  party  in  interest  to  furnish  proofs  of  loss,  or 
to  bring  his  action  within  the  stipulated  time,  from  defeating  his  rights 
under  the  contract.''^  In  view  of  these  authorities,  we  may  sav  that 
the  law,  so  far  as  it  is  expressible  on  this  subject,  is  as  follows : 

The  incontestable  clause  precludes  the  insurer  from  setting  up  in  his 
defense  the  breach  of  any  condition  that  operates  prior  to  the  loss  in- 
sured against,  but  it  does  not  affect  the  operation  of  conditions  con- 
cerning matters  after  loss. 

Lack  of  Insurable  Interest 

Even  the  incontestable  clause  cannot  abrogate  the  fundamental  rule 
of  public  policy  prohibiting  speculation  in  human  life  and  the  making 

"Royal  Circle  v.  Achterrath,  204  111.  649,  68  N.  B.  492,  63  L.  R.  A  452- 
Mareck  v.  Life  Ass'n,  62  Minn.  39,  64  N.  W.  68,  54  Am.  St  Rep.  613 ;   Simpson 
V  Insurance  a>.,  115  N.  C.  393,  20  S.  E.  517;   Goodwin  v.  Assurance  Ass'i  97 
Iowa,  226,  66  N.  W.  157,  32  L.  R.  A.  473,  59  Am.  St.  Rep.  411;   Supreme  Coim 
of  Honor  v.  Updegrafl  (Kan.  1904)  75  Pac.  477.    In  PATTERSON  y   INSUR- 
ANCE CO.,  100  Wi«.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  69  Am.  St  Rep.  8^ 
it  is   said:    "The  fact  that  insurance  companies   have  almost  universally 
deemed  it  necessary  to  insert  in  their  policies  provisions  exempting  them  from 
liability  in  case  of  suicide.  *sane  or  insane,'  may,  perhaps,  also  be  consid- 
ered as  showing  the  general  trend  of  opinion  upon  the  subject  in  insurance 
circles;  but,  whether  this  deduction  is  to  be  properly  drawn  or  not,  we  think 
it  certain  that  the  fact  that  life  insurance  policies  universally  contain  this 
provision  is  of  weight  in  determining  the  construction  to  be  placed  upon  a 
policy  which  omits  all  specific  reference  to  suicide,  and  also  ostentatiously 
contains  a  clause  providing  that  it  shall  be  absolutely  incontestable  for  any 
cause  save  for  nonpayment  of  premiums  or  misstatement  of  age      What 
would  an  applicant  for  insurance  be  entitled  to  think  was  the  meaning  of 
such  a  policy,  when  presented  to  him,  garnished  with  the  usual  and  custom- 
ary commendations  of  the  average  solicitor  of  insurance?    Certainly  he  would 
not  think  that  its  legal  effect  was  the  same  as  that  of  a  policy  containing  the 
usual  provisions  against  suicide,  sane  or  insane."     See,  also,  Murray  v    In- 
surance Co.,  22  R.  I.  524,  48  Atl.  800,  53  L.  R.  A.  742;  Mutual  Reserve  Fund 
life  Ass'n  v.  Payne  (Tex.  Civ.  App.)  32  S.  W.  1063.    It  Is  clear  that  such  a 
doctrme  will  not  be  countenanced  by  the  federal  Supreme  Court     See  BIT- 
TER V.  INSURANCE  CO.,  169  U.  S.  139,  18  Sup.  Ct  300,  42  L.  Ed.  683. 
»•  Brady  v.  Insurance  Co.,  168  Pa.  645,  32  Atl.  108, 


v 


532 


TERMS   OF   THE    LIFE   POLICY. 


(Ch.  U 


§205) 


INCONTESTABLE  CLAUSE. 


533 


:•,* 


of  wagering  contracts  of  insurance.  Therefore  it  is  well  settled  that 
a  policy  of  insurance  issued  to  one  having  no  insurable  interest  in  the 
life  insured  is  not  made  valid  by  the  insertion  of  an  incontestable  clause 
in  such  a  thoroughly  vicious  contract.'^' 

fraud  in  the  Procurement  of  the  Contract, 

Since  it  is  a  fundamental  rule  of  law  that  fraud  vitiates  consent,  it 
would  seem  to  be  almost  axiomatic  that  an  agreement  made  by  the  in- 
surer not  to  contest  the  validity  of  the  contract,  if  procured  by  actual 
fraud,  could  be  rescinded  by  the  insurer.  If  the  fraudulently  procured 
agreement  not  to  contest  can  be  rescinded,  there  would  seem  to  be  no 
reason  why  the  insurer  should  be  bound  by  such  an  agreement  con- 
tained in  a  policy  that  was  procured  by  fraud.  But,  however  clear  this 
question  may  seem  on  principle,  the  majority  of  the  courts  before  whom 
it  has  come  for  decision,  in  their  jealous  zeal  to  hold  the  insurer  to  the 
full  measure  of  his  liability  as  assumed,  have  held  that  the  insurer,  by 
the  incontestable  clause,  has  waived  in  advance  his  right  to  contest  the 
validity  of  the  policy  on  the  ground  of  fraud  in  its  procurement,®®  as 
if  such  a  previous  waiver  would  not  also  be  invalid  when  induced  by 
fraud.  While  there  is  some  authority  for  the  view  indicated  here  as 
preferable  on  principle,®^  there  can  be  little  doubt  that  the  doctrine  that 
the  incontestable  clause  precludes  the  defense  of  original  fraud  in  pro- 
curing the  contract  will  ultimately  become  a  settled  rule  in  the  law  of 
life  insurance. 

In  Kentucky  it  has  been  held  that  under  the  incontestable  clause  the 

Tt  CLEMENT  v.  INSURANCE  CO.,  101  Tenn.  22,  46  S.  W.  561,  42  L.  R.  A. 
247,  70  Am.  St.  Rep.  650;  Anctil  v.  Insurance  Co.  [1899]  A.  C.  609,  affirming 
same  case,  28  Can.  Sup.  Ct  103;  People's  Mut  Ben.  Soc.  v.  Templeton,  16 
Ind.  App.  126,  44  N.  E.  809.  Contra,  WRIGHT  v.  BENEFIT  ASS'N,  118  N. 
Y.  237,  23  N.  B.  186,  6  L.  R.  A.  731,  16  Am.  St  Rep.  749  (dictum). 

«o  WRIGHT  v.  BENEFIT  ASS'N,  118  N.  Y.  237,  23  N.  B.  186,  6  L.  R.  A. 
731,  16  Am.  St  Rep.  749,  Woodruff,  Ins.  Cas.  264;  PATTERSON  v.  IN- 
SURANCE CO.,  100  Wis.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  69  Am.  St  Rep. 
899;  CLEMENTS  v.  INSURANCE  CO.,  101  Tenn.  22,  46  S.  W.  561,  42  L.  R. 
A.  247,  70  Am.  St  Rep.  650;  Massachusetts  Ben.  Life  Ass'n  v.  Robinson,  104 
Ga.  256,  30  S.  E.  919,  42  L.  R.  A.  261;  Franklin  Ins.  Co.  v.  Villeneuve,  25 
Tex.  Civ.  App.  356,  60  S.  W.  1014;  Bates  v.  Insurance  Ass'n,  68  Hun,  144,  22 
N.  Y.  Supp.  626,  affirmed  in  142  N.  Y.  677,  37  N.  E.  824.  See,  also.  Teeter  v. 
Insurance  Ass'n,  11  App.  Div.  259,  42  N.  Y.  Supp.  119;  Vetter  v.  Life  Ass'n, 
29  App.  Diy.  72,  51  N.  Y.  Supp.  393;  Brady  v.  Insurance  Co.,  168  Pa.  645,  32 
Atl.  102. 

•1  WELCH  V.  INSURANCE  CO.,  108  Iowa,  224,  78  N.  W.  853,  50  L.  R.  A. 
774,  Woodruff,  Ins.  Cas.  267;  New  York  Life  Ins.  Co.  v.  Weaver  (Ky.)  70  S. 
W.  628.  Some  cases  make  a  distinction  between  policies  made  incontestable 
from  date  and  those  incontestable  after  the  lapse  of  a  specified  time.  Fraud 
in  the  procurement  it  is  said,  is  a  good  defense  as  to  the  former,  but  not  as 
to  the  latter.  See  Massachusetts  Beo.  Life  Ass'n  v.  Robinson,  supra;  Blisi^ 
Ini.  (2d  Ed.)  8S  254^  255w 


insurer  will  not  be  allowed  to  show  in  defense  that  the  insured  came 
to  his  death  in  consequence  of  a  violation  of  law.'*  But  it  is  probable 
that  death  at  the  hands  of  justice  would  afford  the  insurer  a  valid  de- 
fense in  spite  of  the  incontestable  clause.'* 

8«  Sun  Life  Ins.  Co.  v.  Taylor,  108  Ky.  408,  56  S.  W.  668,  04  Am.  SL  Rep. 

B88. 
•8  See  Burt  v.  Insurance  Co.,  187  U.  S.  181,  23  Sup.  Ot  362,  47  L.  Bd.  216. 


63^ 


MARINE    INSUBANCSl. 


(Ch.  15 


§§  207-208)      MARINE  POLICIES  AND  THEIR  CONSTRUCTION. 


535 


I 


208. 
207-208. 

209. 

210. 

211. 
212-213. 
214-217. 

218. 
•      219. 

220. 

221. 

222. 
223-224. 
226-227. 

228. 

22a 


CHAPTER  XV, 

MARINE  INSURANCa 

Scope  of  This  Chapter. 

Marine  Policies  and  Their  Construction. 

Insurable  Interest— Lost  or  not  Lost 

Property  Covered  by  the  Insurance. 

Commencement  and  Duration  of  Risk. 

What  Risks  are  Assumed— Proximate  Causes  of  Loaa, 

Implied  Exceptions. 

Perils  of  the  Sea. 

Barratry. 

Thefts. 

Captures,  Arrests,  RestralntB. 

Jettison. 
Particular  and  General  Average  Losseii 
The  Insurer's  Liability- Total  Losn 

Abandonment. 

Sue  and  Labor  Clause. 

SCOPE  OP  THIS  CHAPTER. 


206.  Tlie  pnrpose  of  thim  chapter  is  to  set  forth  in  ontline  only  those 
rules  of  law  peculiar  to  marine  insurance.  Such  rules  and  prin- 
ciples as  are  equally  applicable  to  other  kinds  of  insurance  will 
not  be  further  discussed. 

Most  of  the  rules  of  law  applicable  to  the  contract  of  marine  insur- 
ance are  equally  applicable  to  other  kinds  of  insurance.  These  have 
already  been  fully  discussed,  and  need  not  be  further  considered.  Fur- 
thermore, some  of  the  rules  peculiar  to  marine  insurance,  such  as  that 
avoidmg  the  insurance  in  case  of  the  innocent  nondisclosure  of  a  ma- 
terial fact,  have  also  been  considered  in  preceding  chapters  of  this  work. 
These,  also,  will  receive  no  further  attention. 

There  are,  however,  certain  well-settled  rules  of  law  that  have  been 
established  by  the  courts  as  applicable  only  to  the  contract  of  marine 
insurance,  which  are  so  essentially  peculiar  to  this  branch  of  insurance 
law  as  not  to  have  been  mentioned  heretofore.  The  statement  of  these 
rules  is  the  purpose  of  this  chapter. 

MABINE  POLICIES  AND  THEIR  CONSTRUCTIOIT. 

207.  In  the  United  States  there  is  no  form  of  marine  poUoy  prescHbed 
by  law^  but  a  conTentional  form  is  in  general  use.  In  England 
the  Lloyd's  policy  is  the  standard  form. 

808.  The  same  rules  of  construction  apply  to  the  marine  poUey  as  to 
other  poUcies,  save  that  the  customs  of  merchants  are,  perhaps, 
given  more  weight  in  determinins  the  meaning  of  the  marino 
policy. 


The  Form  of  the  Marine  Contract 

In  the  absence  of  statute,  there  is  no  reason  why  a  contract  of  ma- 
rine insurance  should  not  be  made  by  parol  as  well  as  any  other  insur- 
ance contract.  Such  parol  insurances  are,  however,  very  infrequent, 
the  custom  of  merchants  requiring  a  written  instrument.  In  England 
every  marine  insurance  is  required  by  statute  to  be  in  writing,^  and  in 
the  Continental  countries  the  codes  of  commerce  usually  require  all 
such  contracts  to  be  in  writing,  and  to  comply  in  form  with  many  pre- 
scribed details.  In  England  the  time-honored  and  judicially  berated 
Lloyd's  policy  is  prescribed  by  statute  as  the  standard  form,'  but  in 
the  United  States  no  attempt  has  been  made  to  establish  a  standard 
marine  policy.  While,  therefore,  in  this  country  the  forms  of  policies 
used  may  vary  with  the  desires  of  the  parties,  and  do  so  vary  some- 
times, yet  general  usage  has  developed  a  conventional  form  which  ia 
seldom  departed  from.  This  policy  follows  the  general  lines  of  the 
ancient  Lloyd's,  with  the  addition  of  the  more  modern  "memorandum 
clause."  This  conventional  policy  will  be  found  set  out  in  the  ap- 
pendix. 

Rules  of  Construction, 

It  is  not  possible  or  advisable  to  attempt,  within  the  limits  of  thi- 
work,  a  statement  of  the  rules  of  construction  as  applied  by  the  court- 
to  each  of  the  provisions  of  these  policies.  It  is  sufficient  to  say  that 
the  general  rules  of  construction  heretofore  discussed  as  applying  to 
contracts  of  fire  and  life  insurance  also  apply  to  marine  insurance. 
There  is,  however,  one  seeming  peculiarity  of  construction  that  should 
be  noticed  in  connection  with  sea  policies;  that  is,  the  great  weight 
g^ven  to  usage  in  arriving  at  the  intention  of  the  parties  to  the  contract. 
More  than  any  other  insurance  contract,  the  marine  policy  is  a  contract 
of  the  law  merchant,  and  it  is  to  be  expected  that  the  vital  principle  of 
that  system  of  law,  the  custom  of  merchants,  should  be  potent  in  fixing 
the  rights  of  the  parties."  Every  established  usage  pertinent  to  the  in- 
surance contracted  for  is  said  to  be  written  into  the  policy,*  but,  of 
course,  it  cannot  operate  to  contradict  or  vary  the  clear  meaning  of  an 
express  term  of  the  policy.' 

Assignments. 

The  force  of  custom  in  determining  the  rights  of  parties  to  a  con- 
tract of  marine  insurance  is  well  illustrated  by  the  rule  as  to  assign- 

1  See  54  &  55  Vict  c.  39,  §  93  (1)  [1891]. 

•  35  Geo.  Ill,  c.  63,  and  30  Vict.  c.  23.  It  Is  recognized  as  the  standard 
form  in  the  marine  insurance  bill  of  1899. 

»  See  Universe  Ins.  Co.  of  Milan  v.  Merchants'  Marine  Ins.  CJo.  11897]  1  Q. 
a  205,  2  Q.  B.  93,  and  1  Am.  Ins.  (7th  Ed.)  §  55. 

*  Preston  v.  Greenwood,  4  Doug.  28,  per  Lord  Mansfield. 

8  See  this  subject  very  ably  and  fully  discussed  in  1  Duer,  Ins.  p.  158  et 
■eq.    Also  see  1  Am.  Ins.  §  56. 


536 


MARINE   INSURANCE. 


(Ch.  15 


II  < 

! 

I 


f 


ments.  It  being  the  custom  of  merchants  selling  property  covered  by 
marine  insurance  to  assign  their  policies  to  the  purchasers,  a  rule  of  law 
has  been  established  to  the  effect  that  the  insurer  remains  bound  to  the 
assignee,  even  though  he  may  not  have  consented  to  the  assignment/ 
unless  such  assignment  was  expressly  prohibited  by  the  policyj 

INSURABLE  INTEREST— LOST  OR  NOT  LOST. 

209.  Am  wltH  other  inanranoes,  marine  insurance  is  invalid  unless  sup- 
ported by  an  insurable  interest  in  the  insured,  except  in  tbe  one 
case  when  insurance  is  taken  upon  a  ship  or  cargo  «*lost  or  not 
lost."  In  such  a  case  the  insurer  can  be  compelled  to  pay,  even 
thoush  the  subject  of  the  insurance  had  been  totaUy  destroyed 
before  the  making  of  the  contract. 

In  the  seventeenth  and  eighteenth  centuries  the  custom  of  making 
wager  sea  policies,  bearing  on  their  faces  the  words  "Interest  or  no  in- 
terest," or  others  of  similar  import,  became  prevalent,  and  such  insur- 
ances were,  unfortunately,  held  valid  by  the  courts.'  This  vicious 
practice  was  broken  up  by  the  statute  of  19  Geo.  II,  c.  37  (1746),  and  the 
rule  of  law  has  since  become  well  settled  everywhere  that  marine  in- 
surance can  be  valid  only  when  protecting  a  real  interest  in  the  insured. 
The  principles  upon  which  the  presence  of  an  insurable  interest  is  de- 
termined have  already  been  discussed. 

''Lost  or  not  Lost." 

In  accordance  with  the  general  rule  of  insurance  law,  the  insured 
must  have  an  insurable  interest  at  the  time  of  the  policy's  inception, 
or  one  that  arises  thereafter.  That  is  to  say,  there  can  be  no  valid 
msurance  unless  there  is  something  to  insure.  When  one  insures  a 
ship,  which,  without  the  knowledge  of  either  insurer  or  insured,  is  al- 
ready lost,  it  is  plain  that  the  contract  never  becomes  binding,  and  the 
msurer  must  restore  the  premium.  But  it  is  held  that  if  the  insurer  ex- 
pressly agrees,  under  such  circumstances,  that  he  will  be  bound  in  any 
event,  even  though  the  vessel  be  already  lost,  the  contract  is  binding 
and  the  insurer  must  pay,  though  it  be  proved  that  the  insured  had 
nothing  to  insure  when  the  contract  was  made.  By  the  same  token 
the  insurer  is  entitled  to  retain  the  premium  paid,  even  though  the 
ship  lay  safe  in  harbor  at  the  time  the  contract  was  made,  and  the 
insurer  was  never  put  to  his  risk.»    The  intention  of  the  parties  that 

•  Sparkes  y.  Marshall,  2  Bing.  N.  C.  761;   Earl  v.  Shaw,  1  Johns.  Gas.  (N. 
X.)  314,  1  Am.  Dec.  117. 

f  See  Alexander  v.  Insurance  Co.,  51  N.  T.  253 

-.  *  ^^  «  ^^""^^^^  ^  Strange,  1250  (1746).    And  see  Keith  v.  Protection  Ins. 
Co.,  10  L.  R.  Ir.  51. 

•  People  v.  Dlmick,  107  N.  Y.  13,  14  N.  B.  178.    Of  course,  it  would  be  oth- 
erwise  if  the  vessel's  safety  were  known  to  the  insurer.    Id. 


PROPERTY   COVERED   BY    THE   INSURANCB. 


537 


insurance  shall  be  retroactive  is  usually  indicated  by  the  use  of  the 
phrase  "lost  or  not  lost,"  although  any  other  words  clearly  showing 
such  an  intention  will  be  sufficient** 


PROFERTT  COVERED  BY  THE  INSURANCE. 

210.  Tl&r  insurance  covers  any  property,  coming  reasonably  ^thin  ike 
words  of  description  nsed,  that  may  be  exposed  to  the  perils  in- 
sured against.  By  express  agreement  freight  or  passenger 
money  to  be  earned  by  the  vessel,  or  profits  to  be  made  on  the 
eargo,  niay  be  inclnded. 

It  is  manifest  that  a  marine  policy  may  cover  any  property  interests 
that  may  become  subject  to  perils  of  the  sea,  barring  illegality  in  the 
venture.  Whether  any  given  loss  by  sea  perils  is  covered  by  insur- 
ance depends  wholly  upon  the  question  whether  the  parties  have  so 
contracted ;  that  is,  upon  the  construction  of  language  used  in  describ- 
ing the  subjects  of  the  insurance.  In  construing  such  language  the 
courts  are  guided  by  the  same  rules  of  construction  heretofore  consid- 
ered, more  weight,  however,  being  given  to  usage. 

The  formal  words  of  description  printed  in  the  ordinary  American 
marine  policy  are,  "The  body,  tackle,  apparel,  and  other  furniture  of 
the  good  ship,  or  upon  all  kinds  of  lawful  goods  and  merchandise 
laden  or  to  be  laden  upon  the  good  ship,  or  upon  the  freight,"  etc.  The 
wording  of  the  Lloyd's  form  is  slightly  different.  These  general' terms 
may  be  enlarged  or  modified  by  the  terms  written  in  the  policy  specific- 
ally descriptive  of  the  interests  intended  to  be  protected,  the  written 
terms,  of  course,  prevailing  over  the  printed  words. 

It  is  clear  that  insurance  upon  the  "ship"  alone  would  cover  not 
only  her  hull,  but  also  all  those  things  essential  to  her  navigation,^** 
as  her  tackle  and  stores,  or,  if  a  steamer,  her  engines  and  machinery, 
and  the  coal  in  her  bunkers;  ^*  but  it  is  customary  to  mention  specific- 
ally these  several  parts  of  the  ship  as  being  insured.  So  the  provisions 
stored  on  board  for  the  ship's  crew  are  included  under  the  term  "furni- 
ture," ^'  as  are  the  various  cloths  and  other  appliances  necessary  to  the 
proper  carriage  of  grain,  when  the  policy  was  upon  a  vessel  engaged 
in  the  grain  trade.^*  But  the  outfit  of  a  whaler  used  in  capturing 
whales,  and  in  preparing  and  storing  oil  and  other  products,  is  held 


10  See  Mercantile  Mut.  Ins.  Co.  v.  Folsom,  18  Wall.  237,  21  L.  Ed.  827. 

11  But  insurance  on  a  ship  in  the  course  of  construction  does  not  include 
the  materials  intended  to  be  incorporated  in  it.  Mason  t.  Insurance  Co.,  12 
Gill  &  J.  (Md.)  468;  Hood  v.  Insurance  Co.,  11  N.  Y.  532. 

12  Roddick  v.  Insurance  Co.  [1895]  1  Q.  B.  842. 
"Brough  V.  Whitmore,  4  Term    R.  206. 

1*  Hogarth  v.  Walker  [1900]  2  Q.  B.  283. 


538 


MARINE    INSURANCE. 


(Ch.  15 


not^to  be  covered  by  a  policy  upon  the  ship's  "body,  tackle,  apparel," 

"Goods  and  Merchandise," 

Under  the  term  "goods  and  merchandise"  are  included  all  articles 
laden  upon  the  ship  for  mercantile  purposes,  but  not  those  on  board  for 
other  reasons.  Therefore  these  general  words  do  not  apply  to  the 
clothes  of  the  officers  and  crew,^«  nor  to  the  provisions  intended  for 
consumption  on  a  passenger  vessel,"  nor  to  bills  and  notes  that  are 
being  transported  from  one  country  to  another."  But  it  seems  that 
coin,  precious  metals  and  stones,  when  transported  as  merchandise,  can 
be  protected  under  this  general  expression.  ^«»  Live  stock  and  supplies 
for  feeding  them  are  not  covered  by  insurance  upon  the  vessel's  "car- 
go, It  being  customary  to  describe  such  shipments  specifically. 
Goods  on  Deck. 

By  an  exception  implied  from  the  usage  to  stow  all  goods  and  mer- 
chandise below  decks  on  sea-going  vessels,  goods  stowed  on  deck  are 
not  covered  by  insurance  upon  "goods  and  merchandise  laden  upon" 
any  vessel,"  unless  it  is  expressly  stipulated  that  the  goods  are  to  be 
so  carried,  or  there  is  a  custom  to  that  effect  known  to  the  insurer." 
Freight  Money. 

The  freight  covered  by  the  ordinary  sea  policy  is  something  more 
than  the  interest  indicated  ordinarily  by  the  use  of  the  word  "freight " 
It  means,  broadly,  the  benefit  which  is  to  accrue  to  the  owner  of  the 
vessel,  from  its  use  in  the  voyage  contemplated ; "  or,  to  use  Lord 

nh^^i'^^M^f^^SS  ^  ?""";•  *  ^  ^^^'  ^^'  "  =•  ^'  ^  187;  Macy  y.  Insurance 
U).,  l3o  Mass.  328;    Lewis  v.   Insurance  Co.,   131   Mass.  364-    Hoskina  v 

239.    And  see  Phil.  Ins.  §§  496,  497. 

!•  R<^s  y.  Thwaltes,  1  Parker,  23.  The  same  rule  would  apply  to  the  per- 
sonal  eff^ts  of  passengers,  unless  shipped  as  a  part  of  the  cargo.  Wilkinson 
V.  Hyde,  3  C.  B.  (N.  S.)  30 ;  Duflf  v.  Mackenzie,  3  C.  B.  (N  S  ^  16  91  in  p  t    ift 

"  Brown  v.  Stapylton,  4  Bing.  122.  '  **  ^-  ^-  ^^-  »•)  lb,  91  B.  a  L.  16. 

185,'9^TU"3?3''^^^'  ^^''*'  ^'''^'  ^''"  ^  ^"^^  ^^'   ^^^°'®'*  ^'  ^^  2  ^*°«- 

c2'tZ'^T}r\^>!'\^^  ^J^""?!^'  ^^  ^^°^  ^'  ^^  399;  Seton  y.  Insurance 
^a^^  J^'?'^  ^^^'  ^^-  ^^'-  ^^-  12.675;  De  Costa  v.  Firth,  4  Burr. 
1966,  Wolcott  v.  Insurance  Co.,  4  Pick.  (Mass.)  429 

20  Wolcott  y  Insurance  Co.,  4  Pick.  (Mass.)  429;  Allegre's  Adm'rs  y.  Insur- 
er n*""  \T  t ':  1.™-^  ''^'  2^  ^^-  ^-  ^24;  Id.,  8  Gill  &  J.  (Md.I  m!^ 
Am  Dec.  536.  But  If  live  stock  is  the  usual  cargo  carried  as  a  trade  \lZ 
the  insurance  is  made  with  a  view  to  cover  It,  It  will  be  included  under  the 
head  of  cargo.  Chesapeake  Ins.  Co.  v.  AUgre's  Heh«,  2  Gill  &  J.  (Md.)  164- 
Allegre's  Adm'rs  v.  Insurance  Co.,  supra. 

«i  Backhouse  v.  Kipley,  1  Parker,  24;   Ross  y.  Thwaltes,  Id,  23. 

2«  De  Costa  v.  Edmunds,  4  Camp.  142. 

«•  Winter  y.  Haldimand,  2  Barn.  &  Adol.  649;   FORBES  v.  ASPINALL^  18 


§  210) 


PROPERTY  COVERED  BY  THE  INSURANCE. 


539 


Tenterden's  expression,  "the  benefit  derived  from  the  use  of  the 
ship."  ^*  Therefore  the  freight  money  assured  to  the  shipowner  may 
be  (1)  freight,  in  its  ordinary  acceptation,  to  be  earned  and  payable 
upon  the  completion  of  the  voyage;  or  (2)  the  hire  of  the  vessel,  pay- 
able by  the  charterer;  or  (3)  the  benefit  accruing  to  the  owner  from 
the  use  of  his  vessel  in  the  way  of  profits  upon  his  own  goods  car- 
ried.** While  freight  money  is  earned  only  with  the  completion  of 
the  voyage,  and  then  properly  payable,  it  is  well  settled  that  advances 
of  freight  money  are  covered  by  a  policy  on  freight  *®  issued  to  a 
charterer. 

Freight  will  not  be  considered  within  the  protection  of  a  marine 
policy  unless  expressly  insured  eo  nomine. 

Passage  Money, 

Passage  money,  unlike  freight,  is  customarily  payable  in  advance; 
nor,  in  the  absence  of  statute,  can  it  be  recovered  if  the  vessel  is  lost 
before  the  completion  of  the  passage.*^  Under  such  circumstances 
the  passenger  can  clearly  insure  his  advances  of  passage  money.**  So, 
if  the  passage  money  becomes  payable  only  upon  the  completion  of 
the  voyage,  the  shipowner  may  insure  it,  as  well  as  freight  so  payable. 
But  insurance  upon  freight  does  not  cover  passage  money.** 

Fronts. 

.As  already  explained,*®  inchoate  profits  of  a  voyage  may  be  in- 
sured in  either  an  open  or  a  valued  policy.*^  In  Great  Britain  it  is 
held,  however,  that  no  recovery  can  be  had  for  profits,  on  either  valued 
or  open  policy,  unless  proof  is  adduced  that  some  profit  would  have 
been  earned  had  the  voyage  been  successfully  made.**    In  the  United 


East,  323,  325 ;  Devaux  v.  J' Anson,  5  Blng.  N.  C.  519,  35  E.  C.  L.  207 ;  Flint 
V.  Flemyng,  1  Barn.  &  Adol.  45.  It  includes  freight  on  cargo  contracted  for  or 
to  be  shipped  on  the  way,  as  well  as  that  already  on  board  when  the  vessel 
leaves  its  port.    Stillwell  v.  Insurance  Co.,  2  Mo.  App.  22. 

2*  Flint  V.  Flemyng,  1  Barn.  &  Adol.  48. 

2B  Flint  V.  Flemyng,  1  Barn.  &  Adol.  48.  See  also  Devaux  y.  J* Anson,  5 
Bing.  N.  C.  519,  35  E.  C.  L.  207. 

2«  Trayes  v.  Worms,  19  C.  B.  (N.  S.)  177;  Allison  v.  Insurance  Co.,  1  App. 
Cas.  209;  Hall  v.  Janson,  4  El.  &  Bl.  509;  Bobbins  y.  Insurance  Co.,  1  Hall, 
363. 

27  And  usually  no  obligation  to  return  passage  money  is  imposed  upon  the 
shipowner  or  master  of  a  ship  by  his  contract  with  the  passenger.  See  Glllan 
V.  Sempkln,  4  Camp.  241 ;  Gibson  v.  Bradford,  4  El.  &  Bl.  586,  24  Law  J.  Q.  B. 
159. 

28  See  1  Am.  Ins.  (7th  Ed.)  §  235. 

«»  Denoon  v.  Insurance  Co.,  L.  R.  7  0.  P.  341,  41  L.  J.  C.  P.  162. 

•0  See  ante,  p.  120. 

•lEyre  v.  Grover,  3  Camp.  276,  16  East,  218.  No  insurable  Interest  In 
profits  of  a  cargo  exists  if  they  have  not  been  contracted  for  at  the  time  of 
the  loss.    Knox  v.  Wood,  1  Camp.  543. 

sa  Eyre  y.  Grover,  3  Camp.  276,  16  East,  218;   Hodgson  t.  Same^  6  East, 


540 


MARINE   INSURANCE. 


(Ch.  15 


^211) 


COMMENCEMENT  AND  DURATION   OF  RISK. 


541 


States,  however,  no  such  proof  is  required  in  the  case  of  a  valued 
policy.** 

COMMENCEMENT  AND  DURATION  OP  RISK. 

211.  The  beginnine  of  the  risk  assnmed,  and  its  duration,  depend  alto- 
eether  npon  the  agreement  of  the  parties  as  expressed  in  the 
policy,  and  interpreted  in  the  light  of  the  circumstanoes  and 
nsages  with  reference  to  which  the  contract  was  made. 

In  deciding  whether  a  given  loss  occurred  during  the  currency  of 
the  policy  under  which  the  plaintiff  makes  his  claim,  it  is  merely  neces- 
sary for  the  courts  to  discover  the  contractual  intentions  of  the  parties 
to  the  policy.  When  a  time  policy  is  involved,  the  questions  as  to 
whether  the  insurance  was  in  force  at  the  time  of  loss  are  not  ordinarily 
different  from  those  already  considered  in  connection  with  fire  policies. 
But  the  construction  of  the  words  used  to  indicate  the  commencement 
and  termination  of  the  risk  assumed  under  voyage  policies  presents 
some  new  considerations. 

The  American  form  of  policy  referred  to  above  contains  the  fol- 
lowing language:  "Beginning  the  adventure  upon  the  said  goods 
and  merchandise  from  and  immediately  following  the  loading  thereof 

on  board  of  the  said  vessel  at aforesaid,  and  so  shall  continue 

and  endure  until  the  said  goods  and  merchandise  shall  be  safely  landed 

^}  aforesaid."     The  Lloyd's  form  defines  the  termination  of 

the  voyage  for  which  a  ship  is  insured  thus :     "Until  she  hath  moored 
at  anchor  twenty-four  hours  in  good  safety ;  and  upon  the  goods  and 
merchandises  until  the  same  be  there  discharged  and  safely  landed." 
"At  and  From," 

A  voyage  policy  upon  a  vessel  and  cargo  is  generally  described  as 
beginning  "at  and  from"  one  designated  port  to  another,  as  "at  and 
xrom  New  York  to  Lisbon,"  such  words  being  written  in  the  policy 
immediately  before  the  words  above  quoted  from  the  printed  form 
A  policy  running  "from"  one  port  to  another  attaches  only  at  the 
moment  of  sailing,"  while  a  policy  "at  and  from"  attaches  while  the 

316.    Proof  must  also  be  given  that  the  goods  were  exposed  to  the  dangers 
of  the  sea  at  some  time. 

•8  It  is  conclusively  presumed  that  profit  would  have  been  realized  had  the 
goods  arrived  safely,  and  upon  this  the  valuation  in  the  policy  attaches. 
Patapsco  Ins.  Co.  v.  Coulter,  3  Pet  222,  7  L.  Ed.  659. 

8*  Pittegrew  v.  Pringle,  3  Bam.  &  Adol.  514,  23  E.  O.  L.  136;  Tasker  v 
Cunningham,  1  Bligh,  87;  Murray  v.  Insurance  Co.,  4  Johns  (N  Y)  443- 
Maryland  Ins.  Co.  v.  Bosslere.  9  Gill  &  J.  (Md.)  121.  In  Mey  v.  Insurance 
Co.,  3  Brev.  (S.  C.)  329,  a  ship  was  insured  from  Amsterdam,  it  being  cus- 
tomary for  vessels  of  the  insured  kind  to  take  on  part  of  their  cargo  at  Am- 
sterdam and  the  rest  at  Pexel,    Tlie  vessel,  after  being  fully  laden    was 


vessel  still  lies  in  the  port  of  departure.  The  time  at  which  a  policy 
"at  and  from"  attaches  to  the  vessel  in  the  initial  port  depends  upon 
the  conditions  under  which  she  is  lying  there : 

(1)  If  the  vessel  arrives  at  the  designated  port  in  the  course  of  a 
voyage,  or  at  that  port  as  a  destination,  preparatory  to  beginning  from 
there  another  voyage,  then  the  policy  attaches  as  soon  as  she  is  within 
the  harbor,^"  provided  she  arrives  a  ship,  and  not  merely  a  wreck.^® 
But  if  the  vessel  cripples  into  the  harbor  in  such  a  condition  as  not 
to  be  able  to  keep  afloat  until  repairs  are  made,  the  policy  will  not 
be  deemed  to  have  attached.  Thus,  in  Parmeter  v.  Cousins,^ ^  a  vessel 
insured  "at  and  from  St.  Michaels"  arrived  at  that  island  in  such  a 
leaky  condition  that  she  was  kept  afloat  only  by  continuous  pumping. 
After  having  lain  at  anchor  more  than  twenty-four  hours,  she  was 
blown  out  to  sea  and  wrecked.  It  was  held,  Lord  Ellenborough  de- 
livering the  opinion,  that  the  vessel  had  never  been  safely  "at"  St.  Mi- 
chaels, and  that  the  policy  never  attached. 

(2)  But  a  voyage  policy  at  and  from  a  vessel's  home  port,  in  which 
she  has  bee-j  lying  for  a  considerable  time,  without  reference  to  the 
voya*^-^  insured,  will  attach  only  when  preparations  for  the  voyage  in 
qu.:sticn  hC'Vo  been  actually  begun.*' 

rerirt.'ncHjn  of  the  Voyage. 

Ship  and  cargo  are  protected  by  the  insurance  from  the  beginning 
to  the  end  of  the  voyage  insured,  regardless  of  accidental  delays  by 
reason  of  the  vessel's  being  laid  up  for  repairs  or  being  frozen  in,'* 

lotf*.  while  lying  at  Pexel.  The  insurer  was  held  liable,  the  vessel  having 
<iomiiienced  her  voyage  when  she  left  Amsterdam. 

85  Motteux  V.  Assurance  Co.,  1  Atk.  545;  Bell  v.  Bell,  2  Camp.  475;  Smith 
V.  Surridge,  4  Esp.  25;  Patrick  v.  Ludlow,  3  Johns.  Cas.  (N.  Y.)  10,  2  Am. 
Dec.  130;  Snyder  v.  Insurance  Co.,  95  N.  Y.  196,  47  Am.  Rep.  29;  Seamans 
V.  Loring,  1  Mason,  127,  Fed.  Cas.  No.  12,583.  But  see  Vallance  v.  Dewar,  1 
Camp.  503 ;  Ougier  v.  Jennings,  1  Camp.  505,  note.  In  case  a  policy  is  made  to 
commence  "at  and  from"  an  island,  it  attaches  the  moment  of  the  vessePs 
arrival  in  any  port  of  the  island.  Warre  v.  Miller,  4  Barn.  &  C.  538,  10  E.  C. 
L.  405;  Camden  v.  Cowley,  1  W.  Bl.  417;  Cruikshank  v.  Janson,  2  Taunt  301. 

86  She  must  be  in  such  a  seaworthy  condition  as  to  be  able  to  lie  in  the 
harbor  safely.  St.  Paul,  etc.,  Ins.  Co.  v.  Troop,  26  Can.  Sup.  Ct  5.  See, 
also,  PARMETER  v.  COUSINS,  2  Camp.  235;  Haughton  v.  Empire  Marine 
Ins.  Co.,  L.  R.  1  Exch.  206,  4  Hurl.  &  C.  41,  12  Jur.  N.  S.  376.  The  arrival  in 
safety  requisite  for  the  commencement  of  a  risk  refers  to  physical  safety 
only,  and  not  to  political  safety.    Bell  v.  Bell,  2  Camp.  475. 

87  2  Camp.  235;  Richards,  Ins.  Cas.  535.  But  the  policy  will  attach  to  a 
damaged  vessel  immediately  upon  her  arrival  at  the  designated  port,  if  her 
injuries  are  not  fatal.    Haughton  v.  Insurance  Co.,  L.  R.  1  Exch.  206. 

88  Seamans  v.  Loring,  1  Mason,  127,  Fed.  Cas.  No.  12,583;  Snyder  v.  In- 
surance Co.,  95  N.  Y.  196,  47  Am.  Rep.  29;  Taylor  v.  Lowell,  3  Mass.  347,  3 
Am.  Dec.  141;  Kemble  v.  Bowne,  1  Caines  (N.  Y.)  75;  Grant  ▼•  Sing* 
4  Esp.  175.    See  Hughes,  Admiralty,  p.  69. 

•»  See  Delahunt  v.  Insurance  Co.,  97  N.  Y.  537. 


!- 


542 


. 


if" 


MARINE   INSURANCE. 


(Ch.  15 


or  in  the  case  of  the  cargo,  even  when  it  is  necessarily  transshipped,  or 
taken  from  the  vessel  and  stored  in  a  warehouse.**     Ordinarily  it  is 
agreed  that  the  risk  shall  be  terminated  after  the  vessel  shall  have 
been  moored  in  the  harbor  of  her  destination  for  twenty-four  hours  in 
good  safety     The  expression  "good  safety"  has  reference  not  only  ta 
physical  safety,  but  also  to  political  safety."     Thus,  where  an  Eng- 
lish vessel  was  delayed  by  an  embargo  laid  by  the  French  authorities 
within  twenty-four  hours  after  her  arrival,  the  insurer  was  held  liable 
for  losses  sustained  by  the  shipowner."     In  order  that  the  vessel 
sha     be  moored  in  good  safety  physically,  it  is  not  necessary  that  she 
sha     come  to  her  moorings  wholly  uninjured,  but  merely  that  she 
shal    be  in  such  condition  as  will  permit  her  to  discharge  her  car^o 
safely  and  keep  afloat  until  repaired."     But  if  she  had  received  her 
death  wound  when  she  came  into  port,  the  insurer  will  be  liable  even 
though  her  death  struggle  may  have  lasted  longer  than  twenty-four 


WHAT  RISKS  ABE  ASSUMED-PROXIMATE  CAUSES  OP  LOSS. 

212.  The  in.^er  assume.  UablUty  for  aU  lo.se.  proximately  can.ed  by 

tbe  peril.  in.nred  aeain.t. 

213.  PROXIMATE  CAUSE-When  .everal  eau.e.  contributed  to  the 

lo..  ■nffered,  tbat  one  i.  deemed  to  be  proximate,  within  the 

!!T'^A  '^*'  *•  •***•**  ****^*'  ^^^^'^  "*  ^  "motion  the  force 
that,  without  the  intervention  of  any  new  and  independent 
agency,  brought  about  the  lo..  complained  of. 

What  risks  have  been  assumed  by  the  insurer  is,  of  course,  a  question 
of  contract  and  construction.     As  enumerated  in  the  customary  marine 

/L^I^^^J""^  T*  ^"^^^^^^e  Co-  23  Mo.  553,  66  Am.  Dec.  687.    But  a  delay 
of  twelve  days  In  toansportetlon  of  goods  occasioned  by  waiting  for  necessary 
repairs    will  not  Justify  their  transshipment  In  another  vessel.     See,  also 
Mahnckrodt  v.  Insurance  Co.,  1  Mo.  App.  205. 

*i  Horneyer  v.  Lushington,  15  East,  46,  3  Camp.  85.  See  Lockyer  v  Of- 
fley,  1  Term  a  252.  in  which  a  vessel  was  taken  from  its  owner,  nearly  a 
month  after  arriving  in  port,  for  having  smuggled.  The  insurer  was  not  ifeld 
liable,  as  the  vessel  was  said  to  have  been  in  port  twenty-four  hours  in  safe- 
ty.    See,  also,  Mariatiqui  v.  Insurance  Co.,  8  La.  65,  28  Am.  Dec   129 

*«  See  Minett  v.  Anderson,  Peake,  211. 

"  Lidgett  V.  Secretan,  L.  R.  5  C.  P.  190;  Annen  v.  Woodman,  3  Taunt  299- 
Meigs  ;•  Insurance  Co..  2  Cush.  (Mass.)  439;  Dickey  v.  Insurance  oi.,  11 
Johns.  ^.  Y.)  3o8.  But  see  Bill  v.  Mason,  6  Mass.  313,  in  which  it  was  held 
that,  when  a  ship  has  been  twenty-four  hours  at  the  usnal  place  of  anchor- 
age, the  insurer  was  relieved  from  liability,  although  her  cargo  conld  not  have 
been  safely  landed  at  any  time  within  the  twenty-four  hours.  It  was  said 
that  she  was  "lafe."  within  the  meaning  of  the  policy.  untU  she  suffered  a 
loss  insured  against  *^  •"«  ouuerea  a 

**  SHA  WE  V.  FELTON,  2  East,  109. 


§§  212-213)     WHAT  RISKS  ASSUMED — ^PROXIMATE  CAUSES  OF  LOSS.       543 

« 

policy,  they  ^e  "perils  ♦  *  ♦  of  the  seas,  men-of-war,  fires,  en- 
emies, pirates,  rovers,  thieves,  jettisons,  letters  of  mart  and  counter- 
mart, reprisals,  takings  at  sea,  arrests,  restraints  and  detainments  of 
all  kings,  princes,  or  people,  of  what  nation,  condition,  or  quality  so- 
ever, barratry  of  the  master  and  mariners,  and  all  other  perils,  losses, 
and  misfortunes  that  have  or  shall  come  to  the  hurt,  detriment,  or 
damage  of  the  said  goods  and  merchandises,  or  any  part  thereof." 

In  accordance  with  a  familiar  rule  of  construction,  the  general  term 
"all  other  perils"  is  confined  in  its  application  to  perils  of  a  kind  similar 
to  those  specifically  enumerated;  that  is,  to  perils  of  the  sea.** 

To  these  risks  thus  generally  assumed  there  are  certain  exceptions, 
either  expressly  stated  in  the  policy  under  the  form  of  warranties,  or 
implied  from  the  custom  of  the  business.  These  implied  exceptions 
are  also  termed  "implied  warranties,"  and  are  to  be  presently  dis- 
cussed as  such. 

Proximate  Cause  of  Loss, 

The  insurer  is  liable  for  any  loss  or  injury  to  the  insured  venture 
proximately  caused  by  one  of  the  perils  specified,  or  by  a  peril  of  simi- 
lar kind.  The  principle  determining  what  is  the  proximate  cause  of 
a  loss  suffered  is  ultimately  the  same  in  marine  insurance  as  that 
already  discussed  as  obtaining  in  connection  with  fire  policies.  But 
the  extreme  difficulty  found  sometimes  to  exist  in  applying  established 
rules  to  marine  losses  renders  expedient  a  brief  consideration  of  the 
matter  in  this  connection. 

It  frequently  happens  that  a  marine  disaster  is  attributable  to  the 
joint  action  of  several  causes,  some  within  and  some  without  the 
terms  of  the  policy.  In  such  cases  the  liability  of  the  insurer  depends 
upon  whether  the  proximate  cause  of  the  loss  was  a  peril  assumed  or 
one  excepted,  and  this  question  is  to  be  decided  by  properly  applying 
the  rule  stated  in  the  black-letter  text  above.*'  Thus,  in  the  oft-cited 
case  of  lonides  v.  Insurance  Co.,*^  a  cargo  of  coffee  was  insured 

*»  De  Peau  v.  Russcl,  1  Brev.  (S.  C.)  441,  2  Am.  Dec.  676;  Moses  v.  Insur- 
ance Co.,  1  Duer  (N.  Y.)  159.  Lord  Bramwell,  in  THAMES,  &  M.  INS.  CO.  v. 
HAMILTON,  12  App.  Cas.  492,  said  that  the  phrase  would  Include  "every  ac- 
cidental circumstance,  not  the  result  of  ordinary  wear  and  tear,  delay,  or 
the  act  of  the  assured,  happening  in  the  course  of  the  navigation  of  the  ship, 
and  incidental  to  the  navigation,  and  causing  loss  to  the  subject-matter  of 
insurance."    See,  also,  CULLEN  v.  BUTLEIR,  5  Maule  &  S.  461. 

*«  See  Howard  Fire  Ins.  Co.  v.  Norwich  &  N.  Y.  Transp.  Co.,  12  Wall.  194, 
20  L.  Ed.  379,  In  which  the  rule  Is  thus  stated:  "When  there  is  no  order  of 
succession  in  time,  when  there  are  two  concurrent  causes  of  a  loss,  the  pre- 
dominating, efficient  one  must  be  regarded  as  the  proximate,  when  the  dam- 
age done  by  each  cannot  be  distinguished.  •  •  •  And  certainly  that  cause 
which  set  the  other  In  motion,  and  gave  to  it  Its  efficiency  for  harm  at  the 
time  of  the  disaster,  must  rank  as  predominant" 

4  7 14  C.  B.  (N.  S.)  259  (108  E.  C.  L.  259).  See  Hughes,  Adm.  p.  75,  where  this 
and  other  cases  are  examined. 


J\ 


544 


MARINE   INSURANCE. 


(Ch.  15 

"warranted  free  from  all  consequences  of  hostilities,"  during  the  Ameri- 
can Civil  War.  The  light  on  Cape  Hatteras  having  been  extinguished 
by  the  Confederates  for  military  reasons,  the  captain  of  the  vessel 
4nissed  his  reckoning  in  rounding  that  cape,  and  ran  his  ship  ashore, 
Adhere  the  whole  ship's  company  were  taken  prisoners.  A  small  por- 
uon  of  the  coifee  was  saved  by  Federal  salvors,  who  could  have  saved 
inore  but  for  the  interference  of  the  Confederate  forces.  It  was  held 
that  the  proximate  cause  of  the  vessel's  disaster  was  running  ashore, 
and  not  the  hostile  extinguishing  of  the  light.  Therefore  the  insurer' 
vvas  liable  for  all  of  the  coffee  lost  directly  through  the  stranding  of 
.he  vessel,  but  not  for  that  part  which  might  have  been  saved  but  for 
the  hostile  action  of  the  Confederates.  As  to  the  latter  loss,  the  hos- 
tilities excepted  from  the  operation  of  the  policy  were  the  proximate 
cause. 

If  the  effects  produced  by  concurrent  causes  are  distinguishable,  the 
loss  may  be  apportioned.  Thus,  in  a  leading  case,"  a  steamer  was 
protected  by  a  policy  against  loss  by  fire,  but  not  against  damage  by 
collision.  The  steamer  came  into  collision  with  a  schooner,  receiving  a 
cut  below  the  water  line,  which  admitted  the  water  rapidly.  When  the 
water  reached  the  furnace,  steam  was  formed,  which  by  its  explosive 
force  scattered  burning  coals  among  inflammable  materials.  The  vessel 
rapidly  burned,  and  sank  in  deep  water.  It  was  proved  that  the  dam- 
age due  to  the  collision  alone  was  not  sufficient  to  have  caused  the 
vessel  to  sink,  and  might  have  been  repaired  for  $15,000.  The  insurer 
claimed  that  the  collision  was  the  efficient  cause  of  the  loss,  as  with- 
out the  collision  no  fire  would  have  occurred ;  but  the  court  held  that 
the  fire  was  the  efficient  cause  of  the  loss  of  the  vessel  in  her  damaged 
condition,  and  that  the  insurer  was  therefore  liable  for  the  whole  value 
of  the  vessel,  less  the  damage  due  to  the  collision. 


IMPLIED  EXCEPTIONS. 

814.  There  we  ImpUed  in  every  ia.nranoe  npon  mny  marine  Tentnre, 
whether  of  vessel,  cargo,  or  freight,  three  conditions  of  excep- 
tion to  the  underwriter's  liability  for  the  risks  assumed,  usual- 
ly termed  <  implied  warranties."  Th»t  is,  the  insurer  will  not 
He  liable  for  any  loss  under  his  poHcy  in  case  the  vessel  (1)  is 
nnseaworthy  at  the  inception  of  the  insurance,  or  (2)  deviates 
from  the  agreed  voyage,  or  (3)  engages  in  an  Illegal  venture. 
In  England  the  warranty  of  seaworthiness  is  not  implied  in  the 
ease  of  time  policies. 

215.   SEAWORTHINESS-A  vessel  is  seaworthy  when  she  is  sufficiently 
strong  and  tight  to  resist  the  perils  reasonably  incident  to  the 

T  *i^°Q'^S'''*«^'^  ^^^'  ?•  ""'  ^''^''^  *  ^-  ^'  '^'^■P-  Co.  12  Wall.  194.  20 
V  ^  JrV  f '  *  ^^'  ^^  Interesting  case  of  Brown  t.  Ixwuranoe  Co.,  61  N. 
Y.  332,  Richards,  Ins.  Cas.  549. 


5§  214^217) 


IMPLIED   EXCEPTIONS. 


545 


voyage  for  which  she  is  Insured,  and  is  properly  manned  and 
equipped  for  such  a  voyage.^* 

216.  DEVIATION  from  the  agreed  voyage  exists  whenever  the  vessel 

unnecessarily  departs  fron&  the  course  fixed  by  express  agree- 
ment, maritime  custom,  or,  in  the  absence  of  either  of  these,  by 
the  discretion  of  a  reasonably  careful  and  skillful  navigator;  or 
ivhen  the  vessel  unreasonably  delays  in  pursuing  such  course. 

217.  IliLEGALITY— Insurance  upon  any   venture    contemplating  the 

violation  of  law  is,  like  any  other  contract  to  the  same  effect, 
void.  This  rule,  it  seemis,  does  not  apply  to  ventures  in  viola- 
tion of  foreign  revenue  laws* 

In  General. 

It  is  ordinarily  said  that  every  one  insuring  a  sea  venture  impliedly 
warrants  that  the  vessel  is  seaworthy,^*  that  there  will  be  no  unneces- 
sary deviation  from  the  prescribed  voyage,  and  that  the  venture  shall 
be  legal ;  and  that  these  warranties  are  as  much  terms  of  the  contract 
as  if  expressly  written  on  the  face  of  the  policy.  The  last,  however, 
is  certainly  not  a  "warranty,"  in  any  proper  sense  of  the  word;  for, 
if  the  contemplated  illegality  of  the  voyage  is  known  to  both  insurer 
and  insured,  the  contract  insuring  it  is  necessarily  void,  in  accordance 
with  an  elementary  rule  of  the  law  of  contracts;  whereas,  if  the  ille- 
gality is  known  only  to  the  insured,  his  concealment  of  so  material  a 
fact  will  per  se  avoid  the  insurance.  So,  while  the  rule  as  to  sea- 
worthiness is  properly  considered  a  warranty  in  connection  with  voy- 
age policies,  it  is  a  mere  condition  of  exception  to  the  risks  assumed 
by  the  insurer  in  connection  with  time  policies,  as  interpreted  by  the 
American  decisions. 

Warranty  of  Seaworthiness — Voyage  Policies. 

It  is  well  settled  on  both  sides  of  the  Atlantic  that  a  voyage  policy, 
whether  on  ship  or  cargo,  never  attaches  unless,  at  the  beginning  of  the 
voyage  insured,  the  vessel  leaves  port  in  a  seaworthy  condition.**  It 
is  now  equally  certain  that  this  warranty  applies  to  the  beginning 
of  the  voyage  only,  and  does  not  extend  through  the  whole  period  of 
its  prosecution. °*    While  the  willful  misconduct  of  the  insured  in  in- 


*»  Adapted  from  Hughes,  Adm.  p.  56. 

»«  The  implied  warranty  of  seaworthiness  is  not  excluded  by  the  fact  that 
"loss  from  unseaworthiness"  is  enumerated  among  the  risks  insured  against 
Quebec  Marine  Ins.  Co.  v.  Commercial  Bank,  L.  R.  3  P.  C.  234. 

81  Higgle  V.  American  Lloyds  (D.  C.)  14  Fed.  143,  11  Biss.  395;  Seaman 
V.  Insurance  Co.  (C.  C.)  21  Fed.  778;  Taylor  v.  Lowell,  3  Mass.  331,  3  Am.  Dec. 
141;  Van  Wickle  v.  Insurance  Co.,  97  N.  Y.  350;  Heilner  v.  Insurance  Co.,  60 
N.  Y.  Super.  Ct.  362,  18  N.  Y.  Supp.  177;  Merchants'  Ins.  Co.  v.  Morrison,  62 
111.  242,  14  Am.  Rep.  93 ;  Wedderburn  v.  Bell,  1  Camp.  1 ;  Knill  y.  Hooper, 
2  H.  &  N.  277;   Lemelin  v.  Assurance  Co.,  1  Quebec,  337. 

»  Bermon  y.  Woodbridge,  2  Doug.  788 ;  Copeland  y.  Insurance  Co,  2  Mete 
Yaitce  Ins. — 35 


itlni 


546  MARINE   INSUEANCB.  (Ch.  15 

tentionally  rendering  his  vessel  unfit  to  encounter  the  perils  of  the  voy- 
age will  discharge  the  insurer,  the  fact  that  a  vessel  became  unsea- 
worthy  after  leaving  port,  even  though  her  unseaworthiness  was  due  to 
the  negligence  or  unskillfulness  of  the  officers  and  crew,  will  not  de- 
feat the  insurance.** 

Same — Time  Policies, 

It  is  now  settled  in  England  that  there  arises  no  implied  warranty  of 
seaworthiness  in  the  case  of  time  policies,"  but  that  the  insurer  must 
rely  merely  upon  the  self-interest  and  good  faith  of  the  insured  to 
keep  his  vessel  in  as  good  a  condition  as  is  possible  during  the  insured 
period.'"  In  America,  however,  the  greatest  confusion  prevails  in 
regard  to  the  extent  of  the  insured's  duty  to  keep  his  vessel  seaworthy 
during  the  currency  of  a  time  policy.  Some  states  have  adopted  the 
English  rule,"  while  one,  at  least,  has  declared  that  the  same  rule  is 
applicable  to  time  policies  as  to  voyage  policies.*^  The  general  tendency 
of  authority  in  this  country,  however,  is  to  establish  this  rule :  If  at 
the  time  of  the  beginning  of  the  risk  the  vessel  is  in  her  home  port,  or 
in  any  other  port  in  which  she  might  be  refitted,  she  must  be  sea- 
worthy when  she  sails,"  but,  if  the  policy  attaches  while  the  vessel  is 
at  sea,  seaworthiness  is  not  warranted.*'  After  the  policy  has  once 
properly  attached,  it  becomes  the  duty  of  the  insured  or  his  representa- 
tives to  use  ordinary  diligence  and  skill  in  keeping  the  vessel  in  a  sea- 
worthy condition,  refitting  her  as  opportunity  offers  and  necessity  re- 

(Mass.)  432;  American  Ins.  Go.  v.  Ogden,  20  Wend.  (N.  Y.)  287;  Lockwood  v. 
Insurance  Co.,  46  Mo.  71. 

53  See  excellent  opinion  of  Parke,  B.,  in  DIXON  v.  SADLER,  5  Mees.  &  W. 
405,  Richards,  Ins.  Cas.  415.  See,  also,  Cross  v.  Insurance  Co.,  22  L.  C. 
Jur.  10. 

5*  GIBSON  V.  SMALL,  4  H.  L.  Cas.  353,  17  Jur.  1131;  Dudgeon  v.  Pem- 
broke, 2  App.  Cas.  284;  Hollingworth  v.  Brodrick,  7  Ad.  &  El.  4,  34  E.  C.  L. 
28 ;  Stewart  v.  Wilson,  12  Mees.  &  W.  11 ;  Fawcus  v.  Sarsfleld,  6  El.  &  Bl.  192, 
88  B.  C.  L.  192;  Anchor  Mar.  Ins.  Co.  v.  Keith,  9  Can.  Sup.  Ct.  483;  Phoenix 
Ins.  Co.  V.  Anchor  Ins.  Co.,  4  Ont  524. 

«»  But  if  a  ship  insured  under  a  time  policy  Is  knowingly  sent  to  sea  in 
an  unseaworthy  state,  and  is  lost,  the  assured  cannot  recover.  All  that  is 
necessary  to  establish  is  that  the  unseaworthiness  was  so  connected  with  the 
loss  that  it  must  necessarily  have  led  thereto.  It  need  not  be  the  proximate 
and  immediate  cause  of  the  loss.  Thompson  v.  Hopper,  6  El.  &  Bl.  192,  88 
B.  C.  L.  192. 

••  Merchants*  Ins.  Co.  v.  Morrison,  62  111.  242,  14  Am.  Rep.  93. 

»T  Hoxie  V.  Insurance  Co.,  32  Conn.  21,  85  Am.  Dec.  240. 

•«  HOXIE  V.  INSURANCE  CO.,  7  Allen  (Mass.)  211;  Union  Ins.  Co.  t. 
Smith,  124  U.  S.  405,  8  Sup.  Ct.  534,  31  L.  Ed.  497;  Jones  v.  Insurance  Co., 
2  Wall.  Jr.  (U.  S.)  278,  Fed.  Cas.  No.  7,470;  Rouse  v.  Insurance  Co.,  3  Wall. 
Jr.  (U.  S.)  367,  Fed.  Cas.  No.  12,089. 

»•  Macy  V.  Insurance  Co.,  12  Gray  (Mass.)  497 ;  Capen  v.  Insurance  Co.,  12 
Cosh.  (Mass.)  517;  Hathaway  y.  Insurance  Go.,  21  N.  Y.  Super.  Ot  33w 


§§  214-217) 


IMPLIED  EXCEPTIONS. 


547 


quires    but  the  failure  of  the  insured  to  perform  his  obligation  in  this 
respect  does  not  release  the  insurer  from  liability  for  a  bss  suffe^^ 
unless  that  loss  was  due  to  the  default  of  the  insured.** 
What  Constitutes  Seaworthiness, 

n.I^  wYvf  ^"^  n""  ^"""""^  ^"  ^^'  ^^^^  '"^"y  definitions  of  seaworthi- 
ness  but  they  all  amount  to  the  ultimate  requirement  that  the  vessel, 

fn  .^L     f.      ''^^^"^'  '^'"  ^"  ""  '''^'^''  b^  reasonably  fit  to  make 
LnunZr^^  ^""^^^^  contemplated.-     What  is  reasonable  fitness  to 
encoun  er  the  penis  expected  to  arise  in  the  course  of  a  voyage  vary 
naturally,  with  the  character  of  the  voyage.    A  vessel  well  fifted  fo 
the  navigation  of  the  Mississippi  would  be  wholly  unfit  for  a  voyage 

in"  tt  St  .^''1'  "'"'  V^^^  ^^^^"^^  "^"^^    ''^'^-'y  be  seaworthj 
in  the  Atlantic.     A  crew  that  would  be  quite  adequate  for  a  vessel 

Slin^TJ;       """^^  ^  ?^"^^  "^^^^^  b^  insufficient  for  the  proper 
handling  of  the  same  vessel  on  the  high  seas  • 

riSo.'i^^^  T-^  *^'  ^^T^  ^'  '^^""'^  ^"^'*^^ht  ^^  hull,  complete  in 
rigging,-  machinery  and  equipment,-  and  properly  manned,-*  fu^ 
nished  and  provisioned,"  but  the  cargo  must  also  be  properly  stowed  •• 
^nl  t.^'''*''  '^'"  '^'  '"^^  ^^^y^"^  ^^P^^ity  ^^  the  ship.-  Of 
2nhy)^^^^^''  ''  ''  "'''  ""'"''^'^  *^^'  '^^  ^^^^  ''"^^^  ^h^»  be  sea- 
It  stands  to  reason  that  the  warranty  of  seaworthiness  is  not  an  ab- 

•0  See  Union  Ins  Co.  v.  Smith,  124  U.  S.  405,  8  Sup.  Ct  534,  31  L.  Ed  497 

•1  Moores  V  Louisville  Underwriters  (C.  O.)  14  Fed  226;  Cobb  y.  Intura^e 

mai,  3''TaLr2'^^^^  '''^  ^"  ^'  ^^^^^^'  '  ^"^^-  *  ^^  ^77;  Annen  ".Wo^d! 

14^'  ?e^  ""ca'fNo*  2  I22'  ^m'  "'"'   ?^""'^  ^'  '^^"^^^^«  ^^'^  ^  "^  ^'  S) 

J^.      u^^^  ^^"^  ***  ^^*^^P^  ^^  ^°^™y  by  keeping  her  speed 

«*  Merchants'  Ins.  Co.  v.  Morrison,  62  111.  242  14  Am  Rpn  fl^-   Onah^  im 

Ins.  Co.  V.  Commercial  Bank   L  R   S  P  p  9^.    lu       ^^^'T'  ^  ^*^  ^*'*- 
Pa.  192.  «.  3  F.  C.  234;    Myers  v.  Insurance  Co.,  26 

27o' Pnn  7*  Y^.^^  ^^'*'  ^^^'   Treadwell  v.  Insurance  Co..  6  Cow   (N   T) 

•«  Chase  v.  Insurance  Co.,  5  Pick.  (Mass.)  51. 

•^Cincinnati  Mut.  Ins.  Co.  v.  May.  20  Ohio  211*    ATifiiii^««  t«    v      « 
Greenwich  Ins.  Co.  (D.  C.)  79  Fed.  125  '        '  Anderson  Lumber  Co.  y. 

^20*  ^""^^f  ""'  S^^^^"'  17  C.  B.  (N.  S.)  71,  112  B.  O.  L.  71.  10  Jur   N    S 
«h  •    ^''n  l"*  ^''^^y  P°*^^y  ^°  *^^  ^^^go  there  is  an  implied  warranty  tLfVh: 
Bhip  shall  be  seaworthy.    Van  Wickle  v.  Insurance  cT..^  N   Y   3?o     HI^Sp 
^.  American  Lloyds  (D.  C.)  14  Fed.  143;  Knill  y.  Hooped.  2  Hurl  &  N  27^ 


I 


<!l 


5^8 


MARINE    INSURANCE. 


(Ch.  15 


m 


solute  guaranty  that  the  vessel  will  safely  meet  all  possible  perils.  Nei- 
ther is  it  a  mere  warranty  of  due  diligence  on  the  part  of  the  insured 
in  endeavoring  to  make  her  seaworthy.  The  vessel  must  actually  be 
seaworthy  at  the  time  of  sailing.  Thus,  where  a  vessel  set  out  upon 
the  voyage  in  which  she  was  wrecked,  with  a  defective  compass,  it  was 
held  that  the  vessel  was  unseaworthy,  and  the  insurer  discharged, 
despite  the  master's  ignorance  of  the  defect  in  the  compass.** 

Deznation. 

Just  as  a  surety  is  discharged  if  the  creditor  materially  changes  the 
contract  with  the  principal  debtor,  irrespective  of  actual  injury  to  the 
surety,  so  the  marine  underwriter  is  entitled  to  be  discharged  if  the 
risk  assumed  is  changed  by  a  deviation  from  the  voyage  insured.  And 
the  fact  that  the  deviation  did  not  increase  the  risk,  or  in  any  wise 
contribute  to  the  loss  suffered,  is  wholly  immaterial.  This  principle 
is  strikingly  illustrated  by  the  leading  case  of  Burgess  v.  Insurance 
Co.''®  A  fishing  vessel  was  insured  from  Plymouth  for  a  fishing  voy- 
age to  the  Banks  of  Newfoundland.  In  former  seasons  she  had  se- 
cured a  supply  of  bait  on  the  Banks,  but  on  this  voyage  no  bait  could 
be  obtained  there.  Under  these  circumstances  she  was  compelled  to 
sail  to  a  nearby  port,  St.  Peter's,  to  procure  the  bait  necessary  to  the 
accomplishment  of  the  purpose  of  her  voyage.  After  an  absence  of 
less  than  a  week  she  returned  to  the  Banks  and  resumed  fishing.  Sev- 
eral days  later  a  severe  storm  arose,  in  which  the  vessel  foundered. 
The  court  held  that  the  voyage  to  St.  Peter's  was  a  deviation  which  dis- 
charged the  insurer,  although  it  did  not  in  any  respect  contribute  to 
the  loss. 

The  voyage  may  be  expressly  prescribed  by  naming  the  terminal  and 
intermediate  ports,  or  only  the  terminal  ports  may  be  named,  when 
the  vessel  must  pursue  the  customary  course  between  such  ports,^* 
or,  if  they  chance  to  be  little  frequented  ports,  between  which  no  cus- 
tomary course  has  been  established,  the  master  must  follow  that  route 
which  to  an  ordinarily  skillful  mariner  would  appear  most  direct  and 
proper.''* 

The  insurer  is  also  entitled  to  expect  the  voyage  to  be  prosecuted 
with  all  reasonable  dispatch,  to  have  his  risk  discharged  as  soon  as  is 


«•  Richelieu  &  O.  Nav.  Co.  y.  Boston  Marine  Ins.  Co.,  136  U.  S.  408,  10  Sup. 
Ct  934,  34  L.  Ed.  398. 

TO  BURGESS  V.  INSURANCE  CO.,  126  Mass.  70,  30  Am.  Rep.  654,  Richards, 
Ins.  Cas.  420.  See,  also,  Snyder  v.  Insurance  Co.,  95  N.  Y.  196,  47  Am.  Rep. 
29;  Martin  v.  Insurance  Co.,  2  Wash.  0.  C.  (U.  S.)  254,  Fed.  Cas.  No.  9,161; 
KETTELL  v.  WIGGIN,  13  Mass.  68;  Natchez  Ins.  Co.  v.  Stanton,  2  Smedes 
&  M.  (^liss.)  340,  41  Am.  Dec.  592. 

Ti  Commonwealth  Ins.  Co.  v.  Cropper,  21  Md.  311. 

Ts  Hearne  t.  Insurance  Co.,  20  Wall  488,  22  L.  Ed.  395. 


IMPLIED  EXCEPTIONS. 


649 


§§  214r-217) 

reasonably  possible.'''    Therefore,  any  unreasonable  delay  in  the  course 
of  the  voyage  will  be  considered  a  deviation  and  avoid  the  insurance.''* 

Necessary  Deviation  not  a  Breach  of  Warranty, 

The  warranty  against  deviation  refers  only  to  voluntary  deviation. 
If  the  vessel  is  driven  out  of  her  course  by  a  storm,"  or  departs  from 
it  to  escape  capture,"  or  to  avoid  any  imminent  peril,^^  or  to  secure 
necessary  repairs,^®  the  insurance  is  not  affected.  Such  compulsory 
deviations  are  risks  impliedly  assumed  by  the  underwriter.  A  deviation 
for  the  purpose  of  saving  life  does  not  constitute  a  breach  of  warran- 
ty,^ ^  but  a  deviation  in  order  to  save  property  is  not  so  justified.'" 

Illegality. 

The  only  peculiarity  about  insurances  of  illegal  sea  ventures  that  re- 
quires our  attention  is  the  doctrine  as  to  foreign  revenue  laws.  A  policy 
upon  a  vessel  known  to  be  engaged  in  violating  the  revenue  laws  of 
the  country  to  which  the  parties  owe  allegiance,  or  before  whose  courts 
the  question  may  come,  is  undoubtedly  void.  But  in  England,  at 
least,  it  is  settled  law  that  English  courts  will  not  aid  in  enforcing 


78  Arnold  v.  Insm-ance  Co.,  78  N.  Y.  7,  8  Ins.  Law  J.  869;  Himely  v.  In- 
surance Co.,  1  Mill,  Const.  (S.  C.)  154,  12  Am.  Dec.  623;  Coffin  v.  Insurance 
Co.,  9  Mass.  436;  Mount  v.  Larkins,  8  Bing.  108,  21  E.  C.  L.  241.  In  Augusta 
Ins.  &  Bank'->g  Co.  v.  Abbott,  12  Md.  348,  it  was  held  that  the  detention  of 
the  ship  in  port  by  proceedings  instituted  in  the  Circuit  Court  of  the  United 
States  for  the  recovery  of  a  debt  due  for  repairs  was  no  excuse  for  delay,  and 
the  insurer  was  relieved  from  liability. 

74  Oliver  v.  Insurance  Co.,  7  Cranch  (U.  S.)  487,  3  L.  Ed.  414;  BURGESS  v. 
INSURANCE  CO.,  126  Mass.  70,  30  Am.  Rep.  654;  AMSINCK  v.  INSURANCE 
CO.,  129  Mass.  185,  9  Ins.  Law  J.  581;  Audenreid  v.  Insurance  Co.,  60  N.  Y. 
482,  19  Am.  Rep.  204. 

7  5  BURGESS  V.  INSURANCE  CO.,  126  Mass.  70,  30  Am.  Rep.  654;  Graham 
V.  Insurance  Co.,  11  Johns.  (N.  Y.)  352. 

76  Whitney  v.  Haven,  13  Mass.  172;  Reade  v.  Insurance  Co.,  3  Johns.  (N. 
Y.)  352,  3  Am.  Dec.  495;  Patrick  v.  Ludlow,  3  Johns.  Gas.  (N.  Y.)  10,  2  Am. 
Dec.  130;  O'Reilly  v.  Gonne,  4  Camp.  249. 

77  Reade  v.  Insurance  Co.,  3  Johns.  (N.  Y.)  352,  3  Am.  Dec.  495;  Byrne  v. 
Insurance  Co.,  7  Mart.  (N.  S.,  La.)  126;  Rlggin  v.  Insurance  Co.,  7  Har.  &  J. 
(Md.)  279,  16  Am.  Dec.  302. 

78  Han  v.  Insurance  Co.,  9  Pick.  (Mass.)  466;  Turner  v.  Insurance  Co.,  25 
Me.  515,  43  Am.  Dec.  294;   Miller  v.  Russell,  1  Bay  (S.  0.)  309. 

7»  Bond  V.  The  Brig  Cora,  2  Wash.  C.  C.  (U-  S.)  80,  Fed.  Cas.  No.  1,621;  The 
Schooner  Boston,  1  Sumn.  (U.  S.)  328,  Fed.  Cas.  No.  1,673;  Dabney  v.  Insur- 
ance Co.,  14  Allen  (Mass.)  300;  Fernandez  v.  Insurance  Co.,  48  N.  Y.  571,  8 
Am.  Rep.  571. 

80  Mason  v.  The  Blaireau,  2  Cranch,  240,  2  L.  Ed.  266;  Settle  ▼.  Insurance 
Co.,  7  Mo.  379;  Dabney  v.  Insurance  Co.,  14  Allen  (Mass.)  300.  If  the  para- 
mount consideration  for  the  deviation  is  the  desire  to  save  life,  and  the  sav- 
ing of  property  is  merely  incidental  thereto,  it  is  otherwise.  Williams  v.  Box 
of  Bullion,  1  Spr.  (U.  S.)  57,  Fed.  C^s.  No.  17,717;  Crocker  v.  Jackson.  1  Spr. 
(U.  S.)  141,  Fed.  Cas.  No.  3,398;  Scaramauga  v.  Stamp,  6  C.  P.  Div.  295. 


i 


•♦i 


550 


MARINE    INSURANCE. 


(Ch.  15 


foreign  revenue  laws  by  declaring  void  insurances  upon  ventures  con- 
templating the  violation  of  such  laws.**  And  such  is  generally  thought 
to  be  the  law  in  this  country,®*  although  a  recent  writer  of  high  au- 
thority expresses  the  opinion  that  the  Supreme  Court  of  the  United 
States,  when  called  upon  to  decide  the  question,  may  repudiate  the  Eng- 
lish rule.®* 

PERELS  OF  THE  SEA* 

218.  The  phrase  *'perlls  of  the  aea"  includes  only  those  oasnaltles  dne 
to  the  nnnsnal  violence  or  extraordinary  action  of  xirind  and 
wave,  or  to  other  extraordinary  oanses  connected  xHth  naviga- 
tion. It  does  not  include  losses  resulting  from  ordinary  vreax 
and  tear,  or  other  damage  usually  incident  to  the  voyage. 

A  ship,  like  any  other  mechanical  contrivance,  suffers  a  certain 
amount  of  damage  in  being  used  for  ordinary  purposes  and  under  or- 
dinary conditions.  Rigging  will  chafe  and  weaken  and  break;  sails, 
exposed  to  the  weather,  will  split  and  be  carried  away ;  machinery  will 
break  or  gradually  wear  out;  and  a  wooden  hull  will  weaken  from 
decay  or  through  the  ravages  of  worms.**  Such  damage  is  termed 
"ordinary  wear  and  tear,"  for  which  the  insurer  assumes  no  liability.*'^ 
The  perils  of  the  seas  which  he  expresses  himself  content  to  bear  are 
those  which  do  not  ordinarily  occur,  but  are  fortuitous  and  unusual.*" 
The  mere  fact  that  an  injury  is  due  to  the  violence  of  some  marine 
force  does  not  necessarily  bring  it  within  the  protection  of  the  policy 
if  such  violence  was  not  unusual  or  unexpected.**    Thus,  the  insurer 


•1  Lever  v.  Fletcher,  Parker,  Mar.  Ins.  (8th  Ed.)  p.  506;  PLANCHfi  y. 
FLETCHER,  1  Doug.  251. 

8»  Livingston  v.  Insurance  Co.,  7  Cranch,  506,  3  L.  Ed.  421;  Parker  v.  Jones, 
13  Mass.  173;  Skidmore  v.  Desdoity,  2  Johns.  Cas.  (N.  Y.)  77;  Decrow  v. 
Insurance  Co.,  43  Me.  460. 

8«  See  Hughes,  Adm.  p.  66,  citing  the  analogous  case  of  Oscanyan  v.  Arms 
Co..  103  U.  S.  261,  26  L.  Ed.  539. 

8*  Hazard  v.  Insurance  Co.,  8  Pet  557,  8  L.  Ed.  1043;  Martin  ▼.  Insur- 
ance Co.,  2  Mass.  420;  ROHL  v.  PARR,  1  Esp.  445. 

sePaterson  v.  Harris,  1  Best  &  S.  336,  101  B.  C.  L.  336;  Bullard  v.  In- 
surance Co.,  1  Curt.  (U.  S.)  148,  Fed.  Cas.  No.  2,122;  The  Gulnare  (C.  C.)  42 
Fed.  861;  HUNTER  v.  POTTS,  4  Camp.  203;  THAMES  &  M.  INS.  CO.  v. 
HAMILTON,  12  App.  Cas.  492;   THOMPSON  v.  WHITMORB,  3  Taunt.  227. 

»•  "Perils  of  the  sea,"  is  defined  by  Judge  tush  in  Merchants*  Trading  Go. 
V.  Universal  Marine  Co.,  cited  by  Blackburn,  J.,  in  Dudgeon  v.  Pambroke, 
L.  R.  9  Q.  B.  596,  as  those  "casualties  arising  from  the  violent  action  of 
the  elements,  as  distinguished  from  silent,  natural,  gradual  action  of  the  ele- 
ments upon  the  vessel  itself,  which  latter  properly  belong  to  wear  and  tear." 
See,  also,  Howell  v.  Insurance  Co.,  7  Ohio,  276,  pt  1. 

87  Coles  V.  Insurance  Co.,  3  Wash.  C.  C.  (U.  S.)  159,  Fed.  Cas.  No.  2,988; 
Neidlinger  v.  Insurance  Co.  (C.  C.)  11  Fed.  514;  Baker  v.  Insurance  Co.,  12 
Gray  (Mass.)  603.    An  insurance  company  la  not  liable  on  a  policy  on  pas- 


\m 


219) 


BARRATRY. 


551 


is  not  liable  for  a  sail  carried  away  by  the  violence  of  a  tempest,  for 
tempests  are  not  unusual,  nor  is  the  loss  of  a  sail.  But  the  carrying 
away  of  a  mast,  or  the  loss  of  an  anchor,  by  a  storm,  will  entail  lia- 
bility upon  the  insurer,  for  such  damage  is  due  only  to  unusual  vio- 
lence in  the  elements,  and  is  not  ordinarily  to  be  expected  as  incident 
to  navigation.  So,  it  was  held  in  a  leading  case  ®®  that  damage  re- 
sulting to  a  vessel's  hull  from  taking  the  ground  at  ebb  tide,  as  was 
customary  for  all  vessels  visiting  that  harbor,  and  as  the  insured  ves- 
sel intended  to  do,  was  not  due  to  a  peril  of  the  sea,  but  chargeable 
to  mere  wear  and  tear.  But  when,  in  making  a  landing  on  a  river 
bank,  a  steamer  accidentally  struck  the  river  bank  with  such  violence 
as  to  cause  her  to  sink,  the  insurer  was  held  liable  for  the  loss.®'  Like- 
wise it  has  been  held  that,  when  a  vessel  rolled  in  a  storm  so  violently 
as  to  throw  cattle  carried  between  decks  together  with  such  force 
that  they  were  killed,  the  loss  was  chargeable  to  the  insurer  as  result- 
ing from  a  peril  of  the  seas.*® 

But  a  peril  of  the  seas  must  be  connected  with  navigation,  maritime 
in  character.  The  mere  fact  that  a  loss  is  due  to  an  accident  aboard 
ship  does  not  necessarily  bring  it  within  the  phrase  "perils  of  the  sea." 
Thus,  in  a  leading  case  before  the  House  of  Lords,*^  the  insured 
sought  to  hold  the  underwriter  responsible  for  damage  accidentally 
done  to  the  ship's  pumping  machinery  while  engaged  in  filling  the 
boilers  of  the  ship,  which  was  then  lying  at  anchor  and  preparing 
for  a  voyage.  It  was  held  by  the  House  of  Lords,  reversing  the  lower 
court,  that  such  damage,  though  unusual  and  accidental,  had  nothing 
to  do  with  the  sea,  nor  was  it  peculiar  to  a  ship  as  such.  Therefore, 
ft  was  not  such  a  peril  of  the  seas  as  the  insurer  had  agreed  to  bear. 


1 


BARRATRY. 

219.  Barratry  is  any  willfnl  misconduct  on  the  part  of  master  or  crew, 
in  pursuance  of  some  unlawful  or  fraudulent  purpose,  urithout 
the  consent  of  the  owners,  and  to  the  prejudice  of  the  owner's 
interest. 02 


sage  money  that  had  to  be  refunded  because  of  a  delay  occasioned  by  "perils 
of  the  sea."    Howard  v.  Insurance  Co.,  18  N.  Y.  Super.  Ct  38. 

88  MAGNUS  V.  BUTTEMER,  11  C.  B.  876. 

•»  Seaman  v.  Insurance  Co.  (C.  C.)  21  Fed.  778. 

•0  Lawrence  v.  Aberdein,  5  Barn.  &  Aid.  107,  7  B.  O.  L.  38.  See,  also,  Colt 
V.  Smith,  3  Johns.  Cas.  (N.  Y.)  16;  Snowden  v.  Gulon,  101  N.  Y.  458,  5  N.  E. 
322,  affirming  50  N.  Y.  Super.  Ct.  137.  In  Gabay  v.  Lloyd,  S  Barn.  &  C.  793, 
10  K  C.  L.  229,  the  insurers  were  held  liable  though  the  cattle  died  from 
"wounds  inflicted  by  their  kicking  one  another. 

»i  THAMES  &  M.  MARINE  INS.  00.  v.  HAMILTON,  L.  R.  12  App.  Cas. 
484,  Richards,  Ins.  Cas.  543. 

»2  See  Justice  Story's  definition  In  Marcardier  ▼.  Insurance  Co.,  8  Cranch, 
39,  3  L.  Ed.  481,  approved  in  Hughes,  Adm.  p.  72. 


5a2 


ilAUlXE    UNSUILINCB. 


(Ch.  15 


qufresTwilJful\„TT:-"^,'^"'"^'  ""*^  *erefore  necessarily  re- 
errronSenTorrr      "'•"'*  '"  '''  conunission."    No  honest 

dicial  to  the  owner  of  the  vessel  "     Ji^hl  ^  „  .     be  preju- 

n^aster  in  doing  the  frandullm  or  «nl  w  ul  aTtheT  "dt  ^'"^  *'^ 
may  not  be  criminal,  but  it  cannot  beTarratrous  "  I  iZ  ""7  °' 
thisprinciole  thatamacf*»t.«,i,^  •      i        ^^^^rdirous.        it  follows  from 

Butff  the'„  s  o"y  plrt  ollrh^^^^^^^  """°*  ^'^r*  ""'''^'^y" 
his  absent  co-owners  »•  '       "^^  '=°'"™'  ''^"^''"y  ^g^mst 

thinking  thus  to  benefit'  th.  T  u^  '"°'^*^  P°'*  °'  ""^^^nue  '^ws. 

ject  the  vS  to  arrest  or^„T''''  ''"*'  T"  '"*  '"^?^'  «<='«  ««b- 

they  are  r^a  ly  nfurious  to  Z       ^'^'"i  k°^  P'"""'"'  "  «  '=>^^'-  that 
w;iif..i      1    '.nji/'ous  to  the  owner,  and  barratrous."" 

orSg\^;"^rtt1h?p^«r;b  ""^''"^^  ''^^^^^^^  -  -"-^ 

unlawfully  selling  the  *  reo  »»  „r  2k"""^  °'  ''"1.*""^  ^^^-'^  ^o. 
or  even  willfullvVowirg  fh;  careo  on  d- J^'l  ^'*  "'^  Proceeds,"* 
under  deck,"»  amounts"!  torf  '''  ^''"^  "'''™<='^'l  *"=>  ^^^^^ 

»»  Dederer  v.  Insurance  Co.,  2  Wash    n  r   fti    tP«^    /^ 
v^EUome.  I  Starve.  2.0;  Me^sonlS'f  In^suL^^  Ll,*^-/-  ^^;,,To.. 

1  Humph.  (Tenn.)  242  *  Stewart  v.  Insurance  Co., 

Thurston  T.  Insurance  Co.  3  catoesTN  I)  M^V.'  ^^'""S"  ^  Strange.  1173; 

Ni:SoriOE"rS=^  ^•'  ^^  «-•"•  <"-•)  ««>.  »»  A.'^ec.  ISS,  ,ones  v. 
oJt.'^s'E^sZm""""*  *^-  *^  ='"'•  *  "  N.  T.  Snpp.  410;   Earle  ..  Bow- 

108  \fn?il       T  ^-  ^°**^'  ^^  ^^a.  284,  56  Am    Ren   31 

108  Meyer  v.  Insurance  Co..  104  Cal  382  i«  L«  w.,    S'      * 

V.  Albro  Co..  112  U.  S.  506,  5  Sup.  a  2^9  '2^ L   f;,  L^^""  ^"^"^°»  '°»-  <»^ 

104  Falkner  v.  Ritchie.  2  Maule  &  s  ^0-  Im^wT  ,*k 

!••  Atkinson  t,  InsuriLice  CoTeB  N  f  ^f    "^  ^'  ^"^^^  *  ^^«  a«^ 


g§  220-221) 


CAPTURES,  ARRESTS,  RESTRAINTS. 


THEFTS. 


66a 


220.  The  word  "thieves"  in  the  marine  policy  la  held  by  the  English 
courts  to  apply  only  to  persons  ontside  of  the  vessel,  who  by  the 
exercise  of  force  break  into  the  vessel  and  rob  her.  But  the 
American  authorities  include  theft  by  members  of  the  crew  or 
by  passengers. 

The  word  "thieves"  in  the  marine  policy,  being  associated  with  "ene- 
mies, pirates,  rovers,"  against  whose  violent  acts  the  insurer  covenants 
to  insure,  is  held  by  the  English  authorities  to  mean  those  persons, 
not  of  the  ship's  company,  nor  yet  pirates  or  rovers,  who  by  the  exer- 
cise of  force  rob  the  vessel."®  In  the  view  of  these  authorities  the 
underwriter  does  not  intend  to  assume  liability  for  mere  thefts  by 
passengers  or  crew,  against  which  the  master  may  protect  the  prop- 
erty in  his  charge  by  the  exercise  of  a  proper  degree  of  diligence. 
Further,  the  wrongful  appropriation  of  any  part  of  the  ship's  furniture 
or  cargo  by  one  of  the  crew  would  be  barratry,  for  which  the  insurer 
expressly  agrees  to  be  liable. 

In  America,  however,  it  seems  that  thefts  of  any  sort,  whether  by 
persons  belonging  to  the  ship's  company  or  by  strangers,  are  in- 
cluded within  the  meaning  of  the  word  as  used  in  sea  policies.^®' 


2S>1 


CAPTURES,  ARRESTS,  RESTRAINTS. 

Thr  teims  "takings  at  sea,  arrests,  restraints,  and  detainments 
cf  all  kings,  princes,  and  people,"  refer  only  to  extraordinary 
acts  done  by  virtue  of  any  sovereign  authority  in  times  of  war, 
or  under  other  unusual  international  conditions.  They  do  not 
include  acts  done  in  the  course  of  regular  legal  proceedings. 

War  has  always  been  peculiarly  disastrous  to  shipping,  not  only  to 
that  of  the  belligerent  powers,  which  is  liable  to  capture  whenever  over- 
hauled by  an  enemy,  but  also  to  that  of  neutrals,  which  is  subject  to 
constant  interference,  and  even  capture,  under  the  rules  of  international 
law  in  reference  to  blockades  and  contraband  traffic.  It  is  against 
such  perils  that  the  shipowner  seeks  protection  under  the  terms  of 
the  marine  policy  as  above  quoted.  Even  strained  international  rela- 
tions may  cause  arrest  and  detention  of  vessels  under  embargoes,  thus 

io«  Harford  v.  Maynard,  1  Park.  Ins.  36.  See  Taylor  v.  Liverpool,  etc.,  Co.. 
L.  R.  9  Q.  B.  546.  This  case,  however,  involved  a  bill  of  lading.  But  see 
Stelnman  v.  Angler  Line  [1891]  1  Q.  B.  619. 

"T  See  Spinettl  v.  Steamship  Co..  80  N.  Y.  71,  36  Am.  Rep.  579.  and  1 
Parsons,  Mar.  Ins.  pp.  563-566.  See,  also,  ATLANTIC  INS.  CO  v  STOR- 
nOWS,  5  Paige  (N.  Y.)  285;  American  Ins.  Co.  v.  Bryan,  26  Wend.'  (N.  Y) 
i>63,  37  Am.  Dec.  278. 


'  :n 


554 


MARINE   INSURANCE. 


(Ch.  15 


|.  '■ 


causing  great  loss  to  the  owners.*®*  Such  losses  are  all  fortuitous  in 
character,  and  may  properly  be  indemnified  by  the  underwriter,  who, 
however,  frequently  inserts  in  his  policy  express  exceptions  against  war 
risks  of  every  kind. 

Under  these  terms  the  insurer  is  not  liable  for  the  consequences  of 
arrests  and  detentions  that  may  occur  by  virtue  of  legal  process,  or  by 
the  operation  of  ordinary  laws. 

This  principle  is  well  illustrated  by  a  recent  English  case.*®*  A 
cargo  of  cattle  from  Liverpool  to  Buenos  Ayres  was  insured  against 
the  usual  risks,  including  "arrests,  restraints,  and  detainments  by  kings, 
princes,  and  people."  Upon  arrival  at  Buenos  Ayres  it  was  discovered 
that  the  cattle  were  afflicted  with  a  disease  which,  under  the  laws  of 
the  Argentine  Republic,  prohibited  their  being  admitted  into  that  port 
Not  being  allowed  to  land,  the  cattle  were  transshipped  into  lighters, 
and  ultimately  sold  at  considerable  loss  at  another  port.  The  owners 
claimed  that  this  loss  was  due  to  restraint  imposed  upon  their  venture 
by  the  people  of  the  Argentine  Republic,  but  the  court  held  that  the 
insurer  was  not  liable  under  the  policy,  such  a  restraint  as  was  suf- 
fered in  this  case  being  merely  due  to  the  operation  of  ordinary  mu- 
nicipal regulations. 

In  another  English  case,  certain  shipments  of  gold  that  had  been 
likewise  insured  against  arrests  and  seizures  were  seized  by  the  order 
of  the  Transvaal  government  a  few  days  before  the  outbreak  of  hostili- 
ties between  Great  Britain  and  that  Republic.  It  was  held  in  this  case 
that  the  seizure  was  within  the  meaning  of  the  policy,  and  the  insurer 
was  therefore  liable.**®  In  a  second  case,  arising  under  almost  similar 
facts,  the  insurer  of  gold  seized  by  the  Transvaal  government  was 
held  exempted  from  liability  by  a  clause  of  the  policy  which  war- 
ranted the  subject  of  the  insurance  free  from  "capture,  seizure,  and 
detention."  *** 

These  seizures  were  due  to  extraordinary  international  conditions, 
and  fortuitous.  But  a  vessel  that  does  not  pay  her  debts  may  expect 
to  be  libeled  and  detained.  There  is  nothing  fortuitous  or  unexpected 
about  such  an  arrest.***  The  captures,  arrests,  and  restraints  insured 
against  are  acts  of  state,  as  opposed  to  the  unauthorized  depredations 
of  "pirates,  rovers,  and  thieves." 

While  the  title  of  the  owner  of  captured  property  is  not  completely 


108  Walden  v.  Insurance  Co.,  5  Johns.  (N.  Y.)  310,  4  Am.  Dec.  359. 

io»  Miller  v.  Insurance  Soc,  71  Law  J.  K.  B.  551,  [1902]  2  K.  B.  694,  50 
Wkly.  Rep.  474. 

iiojanson  v.  Consolidated  Mines,  71  Law  J.  K.  B.  857,  [1902]  App.  Cas. 
484,  87  Law  T.  372,  51  Wkly.  Rep.  142. 

Ill  Robinson  Gold  Min.  Co.  v.  Alliance,  etc.,  Assur.  Co.,  71  Law  J.  K.  B. 
942,  [1902]  2  K.  B.  489,  8G  Law  T.  858,  51  Wkly.  Rep.  105. 

ii«  Finlay  v.  Liverpool,  etc.,  Co.,  23  L.  T.  (N.  S.)  251. 


§§  222-224)      PARTICULAR  AND  GENERAL  AVERAGE  LOSSES. 


add 


divested  until  sentence  of  condemnation  by  a  prize  court,  the  in- 
sured owner  need  not  await  such  proceedings,  but  may  abandon  the 
captured  property  to  the  underwriter  as  a  total  loss.  The  owner  of 
a  vessel  arrested  under  an  embargo  has  the  same  privilege  of  aban- 
donment. If  the  underwriter  declines  to  accept  the  abandonment,  the 
insured  can  successfully  prosecute  an  action  against  him  as  for  a  total 
loss,  unless,  perchance,  the  vessel  is  released  before  judgment.  The 
same  is  true  of  captured  property. 

JETTISON* 


222.  Jettison  is  the  intentional  casting  overboard  of  any  part  of  a  ven- 
ture exposed  to  peril,  xirhether  it  be  of  the  cargo,  or  of  the  ship's 
furniture  or  tackle,  in  the  hope  of  saving  the  rest  of  the  ven- 
ture. 

In  cases  of  emergency  it  sometimes  becomes  necessary  to  lighten  a 
vessel  by  throwing  a  part  of  the  cargo  overboard,  or  to  relieve  strains 
upon  her  by  cutting  away  masts,  rigging,  or  sails.  Such  losses,  known 
as  "jettisons,"  are  properly  to  be  attributed  to  perils  of  the  seas,  even 
though  they  are  immediately  caused  by  the  intentional  acts  of  the  crew, 
and  are  therefore  to  be  made  good  by  the  insurer.^ ^'  But  the  insurer 
paying  such  a  loss  is  subrogated  to  the  insured's  claim  of  general  av- 
erage against  that  part  of  the  venture  saved.^^* 

While  jettison  is  ordinarily  a  sacrifice  of  a  part  of  a  venture  im- 
perilled to  save  the  remainder,  it  need  not  always  be  so.  Thus,  it  has 
been  held  that  the  value  of  certain  coin  thrown  overboard  in  order  to 
avoid  its  capture  by  an  enemy  close  at  hand  was  a  jettison  for  which 
the  insurer  was  liable/^* 


I 


I 


PARTICULAR  AND  GENERAL  AVERAGE  LOSSES. 

223.  PARTICniiAR  AVERAGE  losses  are  merely  those  losses  suffered 

by  and  borne  alone  by  particular  interests  in  a  venture,  being 
usually  partial  losses. 

224.  GENERAL  AVERAGE  losses  are  those  due  to  the  voluntary  and 

intentional  sacrifice  of  a  part  of  a  venture  for  the  purpose  of 
saving  the  rest  of  the  venture  from  imminent  peril.  A  general 
average  loss  must  be  borne  equally  by  all  of  the  interests  con- 
cerned in  the  venture. 


»i«  Dickenson  v.  Jardlne,  L.  R.  3  C.  P.  639;  Merchants'  &  Manufacturers' 
Ins.  Co.  V.  Shillito,  15  Ohio  St.  559,  86  Am.  Dec.  491;  Wood  v.  Insurance  Co. 
(0.  C.)  8  Fed.  27;   Hazleton  v.  Insurance  Co.  (D.  C.)  12  Fed.  159. 

11*  Hazleton  v.  Insurance  Co.  (D.  C.)  12  Fed.  159. 

11 »  Butler  y.  WUdman,  3  Barn.  &  Aid.  398. 


i 


* 


556 


MARINE   INSURANCE. 


(Ch.  15 


The  doctrine  of  general  average  contribution  in  cases  of  marine  dis- 
aster belongs  properly  to  admiralty  law,  and  the  reader  must  refer  to 
works  on  admiralty  for  a  discussion  of  its  origin,  development,  and 
particular  rules.^^*  Its  striking  analogy  to  insurance,  and  the  fre- 
quency with  which  its  rules  are  involved  in  adjusting  insurance  pay- 
ments, require  that  it  shall  be  briefly  explained  here. 

Particular  Average, 

The  term  "particular  average"  is  applied  to  those  losses  which  occur 
under  such  circumstances  as  do  not  entitle  the  unfortunate  owners  tc 
receive  contribution  from  other  owners  concerned  in  the  same  ven- 
ture ;  as,  where  a  vessel  is  accidentally  run  aground  and  goes  to  pieces 
after  the  cargo  is  saved.  Such  a  loss  is  particular  average,  and  must 
be  borne  by  the  owner  of  the  vessel  alone.  The  term  "particular  av- 
erage" is  used  in  the  memorandum  clause  of  the  marine  policy  in  the 
sense  of  partial  loss. 

General  Average. 

General  average  is  a  principle  of  customary  law,  independent  of  con- 
tract, whereby,  when  it  is  decided  by  the  master  of  a  vessel,  acting  for 
all  the  interests  concerned,  to  sacrifice  any  part  of  a  venture  exposed  to 
a  common  and  imminent  peril  in  order  to  save  the  rest,  the  interests 
so  saved  are  compelled  to  contribute  ratably  to  the  owner  of  the  in- 
terest sacrificed,  so  that  the  cost  of  the  sacrifice  shall  fall  equally 
upon  all.^*^  A  recent  writer  on  admiralty  thus  admirably  summarizes 
the  requisites  to  the  right  to  claim  general  average  contribution:^^* 
"The  sacrifice  (a)  must  be  voluntary,  and  for  the  benefit  of  all;  (b) 
must  be  made  by  the  master  or  by  his  authority ;  (c)  must  not  be  caused 
by  any  fault  of  the  party  asking  the  contribution ;  (d)  must  be  success- 
ful; (e)  must  be  necessary." 

The  most  frequent  causes  of  general  average  loss  are  putting  into 
port  for  repairs  to  the  vessel  or  the  rehandling  of  the  cargo,  and  jet- 
tisons.^^* 

Strandmg. 

In  England  it  is  held  that  voluntary  stranding  of  a  vessel  is  not  a 
ground  for  general  average  contribution,  since  such  an  act  is  done 


lie  See  Hughes,  Adm.  p.  39. 

117  McAndrews  v.  Thatcher,  3  Wall.  366,  18  L.  Ed.  155;  Fowler  v.  Rath- 
bone,  12  Wall.  114,  20  L.  Ed.  281;  Hobson  v.  Lord,  92  U.  S.  404,  23  L.  Ed. 
613;  Burton  v.  English,  12  Q.  B.  Div.  218.  See,  also,  Wright  v.  Marwood,  7 
Q.  B.  Div.  67. 

118  Hughes,  Adm.  p.  41. 

ii»  Padelford  v.  Boardman,  4  Mass.  548;  Stevens  t.  Wallace.    3  Q.  B.  Div. 
69 ;   Hall  v.  Janson,  4  El.  &  Bl.  500,  82  E.  C.  L.  500 ;   Barker  v.  Insurance  Co. 
8  Johns.  (N.  Y.)  307,  5  Am.  Dec  339;   Hazleton  t.  Insurance  Co.  (D.  0.)  12 
Fed.  159. 


g§  225-227)      THE  insurer's  liability— total  loss.  557 

with  a  view  to  saving  the  vessel  as  well  as  the  cargo."®  But  in  this 
country  the  rule  is  otherwise ;  it  being  well  settled  that  when  the  mas- 
ter, in  his  effort  to  save  the  cargo,  intentionally  runs  his  vessel 
aground,  as  he  would  not  otherwise  have  done,  the  damage  to  the  ves- 
sel is  a  subject  for  general  average  contribution  by  the  cargo  if  it  is 
saved.^^^ 

THE  INSURER'S  lilABILITY— TOTAL  LOSS. 

225.  Tte  insurer  becomes  Uable,  under  the  terms  of  his  policy,  as  for 

a  total  loss,  when  the  loss  is  either  actuaUy  or  constructively 
total. 

226.  AN  ACTUAL  TOTAL  LOSS  exists  when  the  subject-matter  of  the 

insurance  is  wholly  destroyed  or  lost,  or  when  it  is  so  damaged 
as  no  longer  to  eadst  in  its  original  character. 

227.  A  CONSTRUCTIVE  TOTAL  LOSS   exists,   (a)    according  to  the 

English  rule,  when  the  subject-matter  of  the  insurance,  while 
still  existent  in  specie,  is  so  damaged  as  not  to  be  worth,  when 
repaired,  the  cost  of  the  repairs;  (b)  according  to  the  American 
rule,  when  the  vessel  is  so  damaged  that  the  cost  of  repairs 
would  exceed  one-half  of  the  value  of  the  vessel  as  repaired. 

Like  any  other  insurer,  the  underwriter  of  marine  risks  is  liable  in 
accordance  with  the  terms  of  his  contract.  The  general  principles  gov- 
erning the  measure  of  that  liability  have  already  been  sufficiently  con- 
sidered elsewhere.  It  now  remains  to  discuss  that  doctrine  so  strik- 
ingly peculiar  to  marine  insurance — ^total  loss  and  abandonment. 

Actual  Total  Loss. 

The  rule  for  determining  when  a  marine  loss  is  actually  total  is,  in 
effect,  the  same  as  that  previously  discussed  in  connection  with  the 
fire  policy."*  In  case  of  marine  losses  it  may  be  stated  generally  as 
in  the  black-letter  text  above.  When  a  vessel  sinks  in  deep  water,"* 
or  is  captured  and  condemned,"*  or  is  burned,  or  runs  on  a  reef  and 
is  broken  wholly  to  pieces,  the  loss  is  actually  total.  So,  when  a  ves- 
sel is  so  badly  injured  that  she  no  longer  exists  as  a  ship,  but  is  a 
mere  confused  mass  of  material,  an  actual  total  loss  has  been  suf- 
fered."**   But  if  she  still  remains  a  ship,  capable  of  being  repaired  and 

120  Amould,  Mar.  Ins.  (7th  Ed.)  §  939. 

121  THE  STAR  OF  HOPE,  9  Wall.  203,  19  L.  Ed.  638,  Richards,  Ins.  Cas. 
428 ;  Barnard  v.  Adams,  10  How.  270,  13  L.  Ed.  417. 

122  See  ante,  p.  491. 

12 •  Merchants'  S.  S.  Co.  v.  Commercial  Mut  Ins.  Co.,  51  N.  Y.  Super.  Ct 
444 ;  Crosby  v.  Insurance  Co.,  5  Bosw.  (N.  T.)  369. 

124  Sawyer  v.  Insurance  Co.,  12  Mass.  291;  Monroe  v.  Insurance  Co.,  52 
Fed.  777,  3  C.  C.  A.  280,  5  U.  S.  App.  179;  Mullet  v.  Shedden,  13  East  304; 
Abel  V.  Potts,  3  Esp.  242,  6  Rev.  Rep.  826. 

126  Merchants'  S.  S.  Co.  v.  Commercial  Mut.  Ins.  Co.,  51  N.  Y.  Super.  Ct 
444;  Burt  y.  Insurance  Co.,  9  Hun  (N.  Y.)  383. 


558 


MARINE   INSURANCB. 


(Ch.  15 


If 

I 


^l  ^^l'"^  J^'^'^^S  upon  the  seas,  the  loss  is  not  actually  total,  even 
though  the  cost  of  repairing  her  would  be  greater  than  her  value 
when  repaired.  In  the  latter  case  the  loss  would  be  constructively 
total,  as  we  shall  presently  see. 

Actual  Total  Loss  of  Goods. 

A  loss  of  goods  is  total  when  the  goods  are  wholly  lost  or  de- 
stroyed,^ »•  or  when  they  are  so  greatly  damaged  as  to  be  worthless.* 
1  he  question  whether  a  loss  of  goods  insured  is  total  or  only  partial 
IS  of  great  importance  in  cases  of  insurances  "warranted  free  from  par- 
ticular average,"  which  means  that  the  insurer  will  not  be  liable  for 
any  loss  not  total.  Thus,  in  the  leading  case  of  Great  Western  Ins.  Co. 
V.  Fogarty,"^  certain  machinery,  constituting  a  single  sugar-packing 
apparatus,  was  shipped  with  insurance  subject  to  such  a  warrant.  The 
vessel  was  wrecked,  but  a  part  of  the  machinery,  about  one-half  in 
weight,  was  recovered  by  the  insurer  and  tendered  to  the  insured  in  a 
very  rusty  condition.  As  only  a  part  of  the  machinery  had  been  ac- 
tually lost,  the  insurer  claimed  that  there  was  only  a  partial  loss 
for  which  he  was  not  liable.  But  the  court  held  that  as  the  parts  re- 
covered were  without  value  as  a  machine,  and  of  very  small  value  as 
old  iron,  and  so  rusty  as  not  to  be  worth  using  in  making  another  ma- 
chine, there  was,  in  effect,  a  total  loss. 

But  a  different  rule  applies  where  such  insurance  covers  a  large 
number  of  articles  of  the  same  kind,  or  a  bulk  of  homogeneous  goods. 
Thus,  where  a  part  of  a  shipment  of  hides  was  lost,  it  was  held  to  be 
only  a  partial  loss  of  the  whole  and  not  a  total  loss  as  to  a  part."' 
So,  where  more  than  half  of  a  cargo  of  corn  was  lost,  and  the  re- 
mainder seriously  damaged,  the  loss  was  only  partial.""     This  rule 

"•  In  Robinson  y.  Insurance  Co.,  3  Sumn.  (C.  O.)  220,  Fed.  Gas.  No.  11 949 
a  cargo  of  goods,  permanently  prevented  from  arriving  at  the  port  of  destina- 
tion by  reason  of  the  perils  insured  against,  was  held  a  total  loss.  See 
also,  BONDRETT  y.  HENTIGG,  1  Holt,  149,  3  E.  C.  L.  66. 

Hides  and  skins  becoming  so  putrid,  as  a  result  of  being  soaked  with  water 
that  they  endanger  the  lives  of  the  crew,  will  be  considered  a  total  loss     De 
Peyster  v.  Insurance  Co.,  19  N.  Y.  272,  75  Am.  Dec.  331.    See,  also.  Ogden  v 
Insurance  Co.,  35  N.  Y.  418.  »     s  ^u  v. 

Ro?croff3%.Vp.T7r  ^" '  ^°"-  ^'''  '-^  '''^ ''  ^-  ^^-  ^^^  ^^«-  - 

127  GREAT  WESTERN  INS.  CO.  y.  FOG  ARTY.  19  Wall.  640  22  L  E» 
216.  See,  also,  the  interesting  case  of  Canton  Ins.  Office  y.  Woodside,  90  Fed. 
301,  33  C.  C  A.  63,  in  which  the  insurance  covered  the  personal  effects 
of  the  vessel's  captain.  These  effects  consisted  of  many  distinct  articles, 
most  of  which  were  lost  The  court  held  the  loss  total  as  to  the  separate 
articles  lost 

128  Biays  y.  Insurance  Co.,  7  Cranch  (U.  S.)  415.  SJL.  Ed.  389. 

"»  Morean  v.  Insurance  Co.,  1  Wheat  (U.  S.)  219,  4  L.  Ed.  75.  »ee,  also, 
Washburn  &  Moen  Mfg.  Co.  v.  Reliance  Marine  Ins.  Co.,  179  U.  S.  1,  21  Sup! 
Ct  1,  45  L.  Ed.  49,  in  which  the  cases  are  reviewed. 


g§  225-227)        THE  INSUBEE's  liability — ^TOTAL  LOSS. 


559 


is  often  varied  by  a  stipulation  that  the  insurer  shall  be  liable  for  a 
total  loss  of  a  part  of  the  whole,  provided  that  part  amounts  to  a 
specified  percentage  of  the  whole,^** 

Constructive  Total  Loss, 

As  to  what  constitutes  a  constructive  total  loss,  radically  different 
rules  obtain  in  England  and  America.  The  general  theory  of  con- 
structive total  loss  is  undoubtedly  based  on  the  presumed  course  of  ac- 
tion by  an  uninsured  owner.  If  such  an  owner,  in  the  exercise  of  an 
interested  discretion,  would  abandon  his  property,  though  still  existing 
in  specie,  as  not  being  worth  the  probable  cost  of  raising  or  repairing 
or  other  necessary  expense  required  to  make  it  available,  it  is  properly 
regarded  as  constructively  lost  to  him.  And  such,  in  effect,  is  the  cri- 
terion established  by  the  English  courts  for  determining  when  a  loss  is 
constructively  total.*** 

The  American  Rule, 

The  rule  laid  down  by  the  American  decisions,  if  less  scientific  and 
more  arbitrary  than  the  English  rule,  is  also  more  certain  in  applica- 
tion, and  therefore  more  satisfactory  in  practice.  It  is  ordinarily 
spoken  of  as  the  "fifty  per  cent,  rule,"  and  roughly  said  to  be  that,  if 
the  vessel  or  other  thing  insured  is  damaged  to  an  extent  greater  than 
fifty  per  cent,  of  its  value,  the  insured  may  claim  a  total  loss.**'  But 
the  more  accurate  statement  of  the  rule  would  seem  to  be  based  upon 
the  value  of  the  vessel  or  other  thing  after  it  has  been  saved  and  re- 
paired; that  is,  if  the  expenditures  estimated  to  be  necessary  to  put 
the  vessel  again  in  serviceable  condition,  or  to  put  damaged  cargo  in 
merchantable  condition,  would  amount  to  more  than  fifty  per  cent,  of 
the  value  of  the  vessel  or  cargo  as  restored,  the  loss  may  be  consid- 
ered total.*" 

The  value  of  the  vessel,  the  cost  of  repairs,  and  other  questions  of 
value  entering  into  the  application  of  the  rule  as  to  constructive  total 
loss,  must  be  determined  as  of  the  time  and  under  the  circumstances 

i«o  Note  the  memorandum  In  the  policy  in  suit  in  Washburn  &  Moen  Mfg. 
Co.  y.  Reliance  Marine  Ins.  Co.,  supra.  See,  also,  Wadsworth  y.  Insurance 
Co.,  4  Wend.  (N.  Y.)  33;  Moses  y.  Insurance  Co.,  6  Johns.  (N.  Y.)  219;  SILr 
LOWAY  y.  INSURANCE  CO.,  12  Gray  (Mass.)  73;  Brooke  v.  Insurance  Co., 
4  Mart.  N.  S.  (La.)  640. 

181  Rankin  y.  Potter,  L.  R.  6  H.  L.  83;  Rosetto  y.  Gumey,  11  O.  B.  176,  73 
B.  C.  L.  176 ;  Domett  y.  Young,  Car.  &  M.  465 ;  Fleming  v.  Smith,  1  H.  L.  Cas. 
513;  Irving  y.  Manning,  1  H.  L.  Cas.  289;  Moss  y.  Smith,  9  C.  B.  94;  Allen  v. 
Sugrue,  3  M.  &  R.  9,  8  B.  &  C.  561. 

132  See  Washburn  &  Moen  Mfg.  Co.  y.  Reliance  Marine  Ins.  Co.,  179  U.  S. 
1, 16,  21  Sup.  Ct.  1,  45  L.  Ed.  49. 

183  BRADLIE  y.  INSURANCE  CO.,  12  Pet.  (U.  S.)  378,  9  L.  Bd.  1123;  Ful- 
ton Ins.  Co.  v.  Goodman,  32  Ala.  127;  Cincinnati  Ins.  Co.  v.  Bakewell,  4  B. 
Mon.  (Ky.)  541. 


560 


MARINE   INSURANCE. 


(Ch.  15 


"^1  I 


existing*'*  when  the  abandonment  under  claim  of  total  loss  was 
made.  The  mere  fact  that  some  good  fortune  may  have  subsequently 
occurred  to  lessen  the  expense  of  saving  vessel  or  cargo,  or  to  make 
the  damage  less  than  it  seemed  probable  that  it  would  be,  does  not 
render  invalid  a  previous  claim  of  total  loss,  made  with  reasonable 
reference  to  all  the  probabilities  of  the  case.^** 

ABANDONMENT. 

228.  When  damage  sniPered  by  an  insured  venture  Is  such  as  to  oonsti- 
tute  a  constructive  total  loss,  the  insured  may  give  notice  of 
abandonnient  to  the  underwriter,  and  claim  the  whole  in/- 
■urance. 

In  case  of  an  actual  total  loss  the  right  of  the  insured  to  claim  the 
whole  insurance  is  absolute.  He  need  give  no  notice  of  abandonment, 
nor  formally  abandon  to  the  insurer  anything  that  may  rerrtain  of  the 
insured  property."*  But  it  seems  that  the  insurer,  paying  as  for  a  total 
actual  loss,  is  entitled  to  take  possession  of  any  such  remnants  that  may 
be  saved. ^'^ 

But  when  the  loss  is  only  technically  total,  the  insured  cannot  claim 
the  whole  insurance  without  showing  due  regard  to  the  interest  which 
the  underwriter  may  take  in  the  abandoned  property.  Therefore, 
whenever  the  underwriter,  by  prompt  action,  might  be  able  to  save 
some  portion  of  the  insured  property,  he  is  entitled  to  timely  notice  of 
abandonment  by  the  insured,  and  cannot  be  made  liable  for  a  total 
loss  without  it"«  Such  notice  of  abandonment  will  not,  however,  be 
a  condition  precedent  to  the  insured's  right  to  recover  in  those  rare 
cases  in  which  the  receipt  of  such  notice  could  not  by  any  possibility 

134  Center  v.  Insurance  Co.,  7  Cow.  (N.  Y.)  564;  Smith  v.  Insurance  Co.,  7 
Mete.  (Mass.)  448;  Greely  v.  Insurance  Co.,  9  Cush.  (Mass.)  415;  Goold  v. 
Shaw,  1  Johns.  Cas.  (N.  Y.)  293;  Patapsco  Ins.  Co.  v.  Southgate.  5  Pet.  (U.  S.) 
<K>4,  8  L.  Bd.  243. 

136  See  Bradlie  ▼.  Insurance  Co.,  12  Pet  (U.  S.)  378,  9  L.  Ed.  1123;  Orient 
Mut.  Ins.  Co.  V.  Adams,  123  U.  S.  67,  8  Sup.  Ct  68,  31  L.  Bd.  63. 

136  Parker,  O.  J.,  said,  in  Gordon  v.  Insurance  Co.,  2  Pick.  (Mass.)  249: 
"The  money  arising  from  the  sale  in  such  case  must  be  held  by  the  master 
to  the  use  of  the  underwriters;  it  is  their  property  without  any  abandon- 
ment; and,  if  it  comes  to  the  hands  of  the  insured,  it  may  be  deducted  from 
the  loss  as  so  much  paid." 

i»7  Stewart  v.  Insurance  Co.,  2  H.  L.  Cas.  183. 

1*8  New  Orleans  Ins.  Co.  v.  Piaggio,  16  Wall.  (U.  S.)  378,  21  L.  Bd.  358; 
McConochle  v.  Insurance  Co.,  26  N.  Y.  477;  Bosley  v.  Insurance  Co.,  3  Gill  & 
J.  (Md.)  450,  22  Am.  Dec.  337;  Taber  v.  Insurance  Co.,  131  Mass.  239;  Globe 
Ins.  Co.  V.  Sherlock,  25  Ohio  St.  50;  American  Ins.  Co.  v.  Francia,  9  Pa.  390; 
Thomas  v.  Insurance  Co.,  45  Me.  116;  Hubbell  v.  Insurance  Co.,  74  N.  Y.  246; 
Townsend  v.  Phillips,  2  Root  (Conn.)  400;  Gomila  v.  Insurance  Co  40  lia. 
Ann.  553,  4  South.  490.  ' 


§228) 


ABANDONMENT. 


661 


benefit  the  insurer;  as,  for  example,  when  the  insured  learned  at  the 
same  time  of  the  damage  to  insured  goods  and  their  sale.^*' 

Upon  receiving  notice  of  abandonment,  the  underwriter  may  accept 
or  reject  the  abandonment.  If  he  accepts,  he  becomes  at  once  liable 
for  the  whole  of  his  insurance,^*®  and  also  becomes  entitled  to  all  rights 
which  the  insured  possessed  in  the  thing  insured.^*^  He  acquires  the 
same  title  to  the  abandoned  vessel  as  he  might  have  acquired  by  pur- 
chase. He  may  save  and  repair  her,  sell  her,  or  otherwise  do  as  he 
will  with  her.  If  the  injury  to  the  vessel  was  due  to  the  tort  of  an- 
other, the  insurer's  right  of  subrogation,  heretofore  limited  to  the 
amount  of  payments  made  by  him,  becomes  extended  by  abandonment 
to  the  full  amount  recoverable  from  the  tort  feasor,  even  though  that 
may  exceed  the  amount  of  insurance  paid.^** 

The  acceptance  of  an  abandonment  fixes  the  rights  of  the  parties,  and 
no  subsequent  developments  affecting  the  expediency  of  either  the 
abandonment  or  the  acceptance  can  give  either  party  the  right  to  res- 
cind the  transaction. ^** 

If  the  insurer  declines  to  accept  a  proper  abandonment,  the  insured 
may  bring  his  action  for  the  whole  insurance,  his  recovery,  of  course, 
to  be  diminished  to  the  extent  of  any  benefits  he  may  have  received  on 
account  of  the  damaged  property.  If  the  abandonment  was  improp- 
erly made,  the  insurer  is  liable  in  such  an  action  to  the  extent  of  the 
damage  proved. 


*H 


188  ROUX  V.  SALVADOR,  3  Ring  N.  C.  266. 

1*0  Phoenix  Ins.  Co.  v.  Copelin,  9  Wall.  (U.  S.)  461,  19  L.  Ed.  739;  Fulton 
Ins.  Co.  V.  Goodman,  32  Ala.  108;  Watson  v.  Insurance  Co.,  1  Bin.  (Pa.)  47; 
Reyn-lds  v.  Insurance  Co.,  22  Pick.  (Mass.)  199,  33  Am.  Dec.  727;  Cincinnati 
Ins.  Co.  \  Bakewell,  4  B.  Mon.  (Ky.)  541;  Buffalo  City  Bank  v.  Northwestern 
Ins.  Co.,  30  N.  Y.  251;  Childs  v.  Insurance  Co.,  2  Sandf.  (N.  Y.)  76;  Citizens' 
Ins.  Ck>.  V.  Glasgow,  9  Mo.  411. 

1*1  Patapsco  Ins.  Co.  v.  Southgate,  5  Pet.  (U.  S.)  622,  8  L.  Ed.  243;  The 
Manitoba  (D.  C.)  30  Fed.  129;  Kirby  v.  Insurance  Co.  (D.  C.)  27  Fed.  221: 
Mercantile  Marine  Ins.  Co.  v.  Clark,  118  Mass.  288;  Mercantile  Ins.  Co.  v. 
Calebs,  20  N.  Y.  174;  Hooper  v.  Whitney,  19  La.  267;  Northwestern  Transp. 
Co.  V.  Thames  &  M.  Ins.  Co.,  59  Mich.  214,  26  N.  W.  336;  CINCINNATI  INS. 
CO.  V.  DUFFIELD,  6  Ohio  St.  200,  67  Am.  Dec.  339;  Norton  v.  Insurance  Co., 
16  111.  235. 

142  North  of  England  Iron  Steamship  Ins.  Ass*n  v.  Armstrong,  L.  R,  5  Q.  B. 
244;  Yates  v.  Whyte,  4  Ring.  N.  C.  272,  33  E.  C.  L.  349;  Mercantile  Marine 
Ins.  Co.  V.  Clark,  118  Mass.  288. 

i*»  Northwestern  Transp.  Co.  v.  Insurance  Co.  (O.  C.)  24  Fed.  171;  Fulton 
Ins.  Co.  V.  Goodman,  32  Ala.  108;  Lee  v.  Boardman,  3  Mass.  238,  3  Am.  Dec. 
134;  Dickey  v.  Insurance  Co.,  3  Wend.  (N.  Y.)  658,  20  Am.  Dec.  763;  Fuller  v. 
Insurance  Co.,  31  Me.  325;  Maryland  Ins.  Co.  v.  Bathurst,  5  Gill  &  J.  (Md.) 
230;  Cincinnati  Ins.  Co.  v.  Bakewell,  4  B.  Mon.  (Ky.)  541;  Wood  T.  Lincoln 
Ins.  Co.,  6  Mass.  479,  4  Am.  Dec.  163. 
Vance  Ins.— 36 


u 


;.  I- 


562 


MARINE   INSURANCE. 


(Ch.  15 


SUE  AND  LABOR  CLAUSE. 


I    t 


229.  Under  tlie  sue  and  labor  clanse  of  fhe  marine  poliey,  th%  Intnrer 
may  become  liable  to  pay  the  insnred,  in  addition  to  the  lost 
actually  suffered,  such  expenses  as  he  may  have  incurred  in  his 
efforts  to  protect  the  property  against  a  peril  for  which  the  in« 
surer  would  have  been  liable. 


1' '", 


*! 


That  term  of  the  American  policy  known  as  the  "sue  and  labor 
clause"  reads  as  follows:  "And  in  case  of  any  loss  or  misfortune,  it 
shall  be  lawful  and  necessary  to  and  for  the  assured,  his  factors,  serv- 
ants and  assigns,  to  sue,  labor,  and  travel  for,  in  and  about  the  de- 
fense, safeguard  and  recovery  of  the  said  goods  and  merchandises,  or 
any  part  thereof,  without  prejudice  to  this  insurance,  *  *  *  to 
the  charges  whereof  the  said  insurance  company  will  contribute  ac- 
cording to  the  rate  and  quantity  of  the  sum  herein  insured." 

The  form  of  the  clause  in  Lloyd's  policy,  while  somewhat  more 
verbose,  is  to  the  same  effect. 

This  curious  clause  is  not  a  part  of  the  contract  of  insurance,*** 
but  an  independent,  collateral  agreement,  which  is,  however,  to  be 
construed  in  connection  with  the  contract  of  insurance  to  which  it  is 
attached.  Its  purpose  is  to  stimulate  the  owner  of  the  insured  venture, 
or  his  representatives,  to  do  all  things  possible  to  avoid  loss  or  damage, 
or  to  lessen  its  extent  when  incurred,  by  providing  compensation  for 
their  efforts.^*'  The  insurer's  liability  under  this  sue  and  labor  clause 
is  wholly  distinct  from  the  question  of  his  liability  to  indemnify  the 
insured  for  a  loss  incurred.^*'  If  the  insured  has  labored  to  preserve 
the  venture  from  a  peril  for  which  the  underwriter  would  be  liable, 
the  latter  must  make  good  the  insured's  expenditures  in  that  behalf,"^ 
even  though  the  property  is  subsequently  lost  through  an  excepted 
peril.  So,  the  underwriter  is  equally  liable  under  this  clause,  even 
though  he  has  become  also  liable  to  pay  the  full  amount  of  his  in- 
surance, because  of  a  total  loss  in  spite  of  the  insured's  suing  and 
laboring.  It  thus  comes  about  that  the  underwriter  sometimes  ap- 
parently becomes  liable  for  a  greater  sum  than  is  expressed  on  the 
face  of  his  policy. 

i**Lohre  y.  Altchlson,  2  Q.  B.  Dlv.  509;  Nicholson  v.  Chapman,  2  H.  BL 
257 ;  Xenos  v.  Fox,  L.  R.  8  C.  P.  630,  L.  R.  4  C.  P.  665. 

1*5  AITCHISON  V.  LOHRE,  1  Q.  B.  Div.  502,  3  Q.  B.  Dlv.  553,  4  App.  Cas. 
755;  Mitchell  v.  Edle,  1  Term  R.  608;  Kldston  v.  Insurance  Ck>.,  L.  R.  1  C.  P. 
535,  Exch.  2  0.  P.  357. 

!*•  AITCHISON  V.  LOHRB,  1  Q.  B.  Dlv.  502,  3  Q.  B.  Dlv.  553,  4  App.  Cas. 
755 ;  Nicholson  v.  Chapman,  2  H.  Bl.  257 ;  Xenos  v.  Fox,  L.  B.  3  C.  P.  630,  L.  E. 
4  C.  P.  665. 

i*T  Kldston  v.  Insurance  Oo^  L.  B.  1  0.  P.  535,  Ebceh.  2  C.  P.  357. 


§229) 


SUE  AND  LABOR  CLAUSE. 


563 


From  the  wording  of  the  sue  and  labor  clause,  it  is  apparent  that 
two  requisites  must  exist  in  order  that  the  expense  of  suing  and  labor- 
ing  shall  be  chargeable  to  the  insurer:  i"  (1)  The  efforts  made  to 
preserve  the  thing  insured  must  have  been  made  by  the  person  insured 
or  by  some  one  employed  as  his  representative.  Therefore,  salvors 
cannot  make,  nor  can  salvage  payments  be  made,  a  claim  under  this 
clause,  imless  the  salvors  work  under  the  employ  of  the  owner  or  the 
master.^"    (2). The  loss  or  damage  which  the  insured  labors  to  avoid 

"""^^so  ^u^  ^^  "^^"^"^  ^^  chargeable  to  the  insurer  if  it  should  oc- 
cur. The  purpose  of  the  clause  is  not  to  stimulate  philanthropic 
v^'i^'TA  ^H^^.^^ss^^  the  loss  for  which  the  underwriter  would  be 
liable.  The  insurer  is  certainly  not  commercially  interested  in  se- 
curing protection  of  the  venture  against  a  misfortune  for  which  he  had 
declined  to  assume  responsibility.  Thus,  when  insurance  is  warranted 
free  of  particular  average,  the  insurer  would  not  be  liable  for  expenses 
incurred  m  avoiding  a  partial  loss.^"* 

Of  course,  the  expense  of  repairing  losses  covered  by  the  policy 
is  not  chargeable  to  the  insurer  under  the  sue  and  labor  clause,  since 
It  forms  a  part  of  the  loss  to  be  indemnified.*** 

1*8  See  Richards,  Ins.  252. 

i*»See  International  Nav.  Co.  v.  Atlantic  Mut  Ins.  06.  (D  C)  100  Fpd 
313;  AITCHISON  v.  LOHRE,  4  App.  Cas.  755.  ' 

160  Kldston  V.  Insurance  Co.,  L.  R.  1  C.  P.  535,  Bxch.  2  a  P  357  8e^ 
also,  Booth  V.  Galr,  15  C.  B.  (N.  S.)  291,  33  L.  J.  C.  P.  9a.  '  ^ 

181  Zenos  V.  Fox,  L.  R.  3  C.  P.  630,  4  C.  P.  665. 

162  Kldston  V.  Insurance  Co.,  L.  R.  1  C.  P.  543. 

i»»  Alexandre  v.  Insurance  Co.,  61  N.  Y.  253, 


564 


ACCIDENT   INSUBANCB, 


(Ch.  16 


CHAPTER  XVI. 

ACCIDENT  INSURANCE. 

230.  In  General. 

231.  Accident  Policies  and  Their  Constructloa 

232.  Accidental  Injuries— External,  Violent,  and  Accidental  Cansea. 

233.  Disease  Induced  by  Accident — Proximate  Cause. 

234.  External  and  Visible  Signs  of  Injury. 

235.  Risks  of  Travel. 

236.  Excepted  Risks— In  General. 

237.  Poison,  or  Contact  with  Poisonous  Substances, 

238.  Inhaling  Gas. 

239.  Bodily  Infirmities  or  Disease. 

240.  Voluntary  and  Unnecessary  Exposure  to  Injury* 

241.  Intentional  Injury  by  Another. 

242.  Occupation  and  Employment. 

243.  Injuries  Received  while  Intoxicated. 

244.  Liability  of  the  Insurer- Total  Disability, 

245.  Right  to  an  Autopsy. 


IN  GENEBAIi. 

230.  Accident  insurance  is  similar  in  most  respects  to  life  Insurance, 
of  whicli  it  is  properly  a  branch.  The  same  mles  of  law  apply 
to  the  making  of  the  accident  insurance  contract,  and  to  its 
construction  when  made,  as  have  already  been  disonssed  aji  ap" 
plicable  to  life  insurance* 

As  heretofore  shown,  accident  insurance  is  the  most  recently  de- 
veloped of  all  the  important  branches  of  insurance,  being  derived 
from  the  practice  of  life  insurance.  Most  of  the  conditions  existing  in 
connection  with  contracts  of  life  insurance  are  found  present  also  in 
the  writing  of  accident  policies,  so  that  it  will  not  be  necessary  for 
us  to  consider  such  questions  as  pertain  to  the  making  of  the  contract, 
representations,  concealments,  and  warranties,  waiver  and  estoppel, 
and  the  other  numerous  matters  that  have  already  been  discussed  in 
treating  of  the  life  insurance  policy. 

Accident  insurance  is  so  closely  akin  to  life  insurance  that  it  is 
generally  held  that  statutes  which  have  been  enacted  for  the  regulation 
of  the  business  of  life  insurance,  or  for  the  purpose  of  fixing  the  rights 
of  parties  under  contracts  of  life  insurance,  apply  equally  well  to  those 
of  accident  insurance.^ 

1  Thus,  a  statute  declaring  that  breach  of  warranty  shall  not  avoid  a  pol- 
icy of  insurance  unless  the  warranty  is  materially  or  fraudulently  false,  ap- 
plies to  accident  insurance.  Maryland  Casualty  Co.  y.  Gehrmann,  96  Md. 
634,  54  AtL  67& 


§  251)  ACCIDENT   POLICIES  AND  THEIR  CONSTRUCTION.  565 

While  accident  insurance  is  of  later  origin,  it  more  clearly  accords 
with  the  original  principles  of  insurance  than  does  life  insurance.  Un- 
der life  insurance,  the  insurer  undertakes  to  pay  a  certain  sum  upon 
the  happening  of  an  event  which  will  certainly  take  place,  the  only 
contingency  being  with  reference  to  the  time  at  which  death  will 
occur.  On  the  other  hand,  the  accident  insurer  merely  takes  upon  him- 
self the  risk  of  a  misfortune  which  may  or  may  not  happen,  and 
which,  in  fact,  in  the  great  majority  of  cases  never  does  happen. 
Therefore,  in  accident  insurance,  there  is  nothing  of  the  investment 
feature  that  requires  the  preservation  of  the  reserve  fund  which 
we  have  found  to  play  so  important  a  part  in  the  conduct  of  life 
insurance  business. 

ACGIDEXT  POLICIES  AND  THEIR  CONSTRUCTIOW. 

831-    Accident  policies  vary  greatly  in  their  terms,  whicli  the  courts  are 
always  zealous  to  construe  strictly  in  favor  of  the  insured. 

Policies  of  accident  insurance  were  originally  relatively  simple  in 
form,  merely  promising  indemnity  to  the  insured  for  injury  and  death 
by  accident.  The  uncertainty  of  the  meaning  of  the  word  "accident," 
and  the  great  liberality  of  the  courts  in  extending  the  protection  of 
the  poHcy  against  accident  to  a  great  many  injuries  which  the  insurer 
did  not  contemplate  being  liable  for,  has  induced  accident  companies 
gradually  to  add  terms  of  definition  and  restriction  to  their  promises, 
until  at  the  present  time  the  usual  accident  policy  is  so  full  of  con- 
ditions defining  the  risk  assumed,  and  excepting  all  others,  that  its 
construction  is  a  matter  of  the  greatest  difficulty  even  to  a  perfectly 
fair-minded  court.  In  connection  with  this  policy,  as  with  those  in 
other  branches  of  insurance  law,  the  meaning  of  the  language  employed 
in  defining  the  risks  assumed  has  been  greatly  distorted  by  the  constant 
struggle  carried  on  between  the  courts  striving  to  extend  the  liability 
of  the  insurer,  and  of  the  insurer  attempting  to  so  restrict  his  liability  as 
to  make  that  feat  on  the  part  of  the  courts  impossible.  The  result  has 
been  to  cause  the  greatest  variation  in  the  forms  of  accident  policies, 
so  that  anything  like  a  consistent  treatment  of  the  rules  of  construc- 
tion as  applied  to  their  specific  clauses  is  impossible. 

There  are,  however,  certain  fundamental  terms  and  usual  provisions 
found  in  all  of  these  varying  forms  that  we  may  profitably  consider. 

The  Primary  Purpose  of  the  Contract. 

The  first  principle  to  be  borne  constantly  in  mind  is  that  the  courts 
never  lose  sight  of  the  fact  that  an  accident  policy,  whatever  may  be 
its  form,  conditions,  and  limitations,  is  intended  by  the  parties  to  give 
indemnity  for  accidental  injury.    It  will  therefore  be  found  that  the 


566 


ACCIDENT   INSURANCE. 


(Ch.  16 


courts,  wherever  possible,  take,  as  the  criterion  of  the  liability  of  the 
insurer  under  any  form  of  policy,  the  existence  of  an  injury  properly 
to  be  called  "accidental/'  If  such  an  injury  has  been  suffered,  the 
courts  will  go  far  to  hold  the  insurer  liable  for  it,  unless,  in  so  doing. 
It  would  be  necessary  to  make  a  new  contract  for  the  parties. 

ACCIDENTAL  INJURIES-EXTERNAIi,  VIOLENT,  AND 

ACCIDENTAI.  CAUSES. 

232.  An  accidental  injnry  is  a  bodily  injury  cansed  by  some  external 
force  or  agency,  operating  contrary  to  the  intention  of  the  in- 
sured, unexpectedly,  and  not  according  to  tbe  usual  order  of 
•rents.  The  accident  policy  usually  defines  an  accidental  in- 
Jury  as  one  due  to  external,  violent,  and  accidental  causes. 

Accidental  Injury  and  Disease. 

The  term  "accident"  has  been  defined  in  many  different  ways.    Thus, 
It  is  defined  by  a  standard  law  dictionary  *  as  "an  event  which,' under  the 
circumstances,  is  unusual,  and  unexpected  by  the  person  to  whom  it 
happens."  ^   Neither  this  definition,  however,  nor  any  other  that  is  to 
be  found  in  the  dictionaries,  will  serve  as  an  effective  guide  in  deter- 
mining whether  a  given  injury  is  due  to  accident  or  not.     In  fact, 
there  are  many  bodily  misfortunes  reco^ized  as  diseases  that  will 
come  fairiy  within  any  of  the  definitions  of  the  term  "accident"  to  be 
found  in  the  books.    This  is  naturally  accounted  for  by  the  fact  that, 
m  the  broadest  sense  of  the  term,  practically  every  disease  results  from 
accident,  inasmuch  as  it  is  unexpected  by  the  person  who  contracts  it, 
and  certainly  it  is  contracted  without  his  desire  or  intention.    Thus,  the 
drinking  of  water  infected  with  typhoid  fever  germs  might  be  termed 
an  accident  from  which  very  serious  consequences  may  ensue,  yet  it  is 
plain  that  the  parties  to  a  contract  of  accident  insurance  do  not  con- 
template an  insurance  against  such  a  misfortune  as  the  accidental  con- 
tracting of  a  disease.'     This  illustration,  however,  makes  apparent 

»  Bouvier.  Black  defines  It  as  "an  unforeseen  event  occurring  without  the 
wiU  or  design  of  the  person  whose  mere  act  causes  It;  an  unusual,  unex- 
pected, or  undesigned  occurrence."  This  definition  would  exclude  murder, 
or  other  injuries  intentionally  inflicted  by  another,  which  all  authorities  agree 
are  accidental  injuries. 

»  The  physiological  distinction  between  contracting  typhoid  fever  from  ac^ 
cldentally  drinking  water  infected  by  germs,  and  contracting  blood  poison- 
ing  through  the  infection,  by  germs,  of  a  toe  accidentally  abraded  by  wear- 
ing a  new  shoe,  is  so  subtle,  if  it  exists  at  all,  as  not  to  be  capable  of  expres- 
sion in  language  intelligible  to  any  one  but  a  physician.  Yet  the  former  is 
a  disease,  and  the  latter  has  been  held  an  accidental  injury.  WESTERN 
COMMERCIAL  TRAVELERS'  ASS'N  v.  SMITH.  85  Fed.  401,  56  U.  S.  App. 
393,  29  C.  C.  A.  223,  40  L.  R.  A.  653.  Every  argument  used  by  the  court  will 
apply  to  the  one  case  as  well  as  to  the  other. 


§232) 


EXTERNAL,  VIOLENT,  AND  ACCIDENTAL  CAUSES. 


567 


the  great  difficulty  which  is  encountered  by  the  courts  in  deciding 
just  what  the  parties  to  an  accident  contract  do  contemplate  by  the 
use  of  the  term  "accidental  injury,"  and  of  the  mass  of  cases  in  which 
questions  of  accident  insurance  have  been  litigated  the  greater  number 
involve  merely  the  question  whether  the  injury  suffered  in  each  case 
is  included  under  the  risk  assumed  by  the  insurer  in  his  policy. 

Definitions  being  thus  unreliable,  we  can  come  to  a  satisfactory  un- 
derstanding of  what  is  regarded  in  law  as  an  accidental  injury  only, 
by  considering  the  cases  as  they  have  actually  come  before  the  courts 
for  decision.  In  Lovelace  v.  Travelers'  Protective  Ass'n,*  the  question 
arose  tmder  the  following  facts:  The  deceased,  who  was  insured 
against  "death  by  accident,"  while  a  guest  in  a  tavern  was  provoked 
by  the  indecent  behavior  of  another  guest  to  attempt  to  expel  him  from 
the  house.  In  the  struggle  which  ensued,  the  insured  was  shot  and 
killed  by  the  one  whom  he  sought  to  expel.  The  only  question  before 
the  court  was  whether  death  under  such  circumstances  was  accidental 
or  not.  It  was  claimed  by  the  defendant  that  such  a  fatal  injury  was 
but  the  natural  and  probable  consequence  of  such  an  assault,  and  there- 
fore could  not  be  regarded  as  accidental.  The  court  .concluded,  how- 
ever, that  the  deceased  could  not  reasonably  have  expected  such  a  fatal 
termination  of  his  attempt  to  expel  a  disagreeable  person,  since,  under 
the  circumstances,  he  had  no  reason  to  suppose  the  person  attacked  to 
be  armed.  The  insurer  was  therefore  held  liable.*  In  other  cases, 
however,  where  the  deceased  had  entered  into  a  combat  under  such 
circumstances  as  would  justify  an  expectation  that  fatal  results  would 
probably  ensue,  it  has  been  held  that  injuries  received  were  not  acci- 
dental.'  In  another  case  it  has  been  held  that  death  by  hanging  at  the 
hands  of  a  mob  was  an  unexpected  happening  that  might  be  regarded 
as  an  accident.''  Likewise  it  has  been  held  by  the  Supreme  Court  of 
the  United  States  «  that,  when  the  insured  received  an  injury  by  the 
wrenching  of  his  muscles  when  jumping  from  a  platform  four  or  five 
feet  high  to  the  ground,  the  injury  could  be  regarded  as  an  accident, 
although  the  insured  intentionally  took  the  leap.    While  he  intended  to 

•  LOVELACE  V.  TRAVELERS'  PROTECTIVE  ASS'N,  126  Mo.  104,  28  S. 
W.  877,  30  L.  R.  A.  209,  47  Am.  St.  Rep.  638. 

8  Other  cases  to  the  same  effect  are  numerous.  See  Hutchcraft's  Bx'r  v. 
Insurance  Co.,  87  Ky.  300,  8  S.  W.  570,  12  Am.  St.  Rep.  484;  Supreme  Coun- 
cU  V.  Garrigus,  104  Ind.  133,  3  N.  E.  818,  54  Am.  Rep.  298;  Richards  v.  In- 
surance Co.,  89  Cal.  170,  26  Pac.  762,  23  Am.  St  Rep.  455;  TRAVELERS' 
INS.  CO.  V.  McCONKEY,  127  U.  S.  661,  8  Sup.  Ct  1360,  32  L.  Ed.  308. 

•  Taliaferro  v.  Association,  80  Fed.  368,  49  U.  S.  App.  275,  25  C.  a  A.  494. 
T  FIDELITY  &  CASUALTY  CO.  v.  JOHNSON,  72  Miss.  333,  IT  South.  2, 

30  L.  R.  A.  206.    The  record  does  not  disclose  the  color  of  the  insured. 

•  United  States  Mut  Ace.  Ass'n  v.  Barry,  131  U.  S.  100,  0  Sup.  Ct.  755,  33 
!«.  Ed.  60. 


t .)] 


oUS 


ACCIDENT   INSURANCE. 


(Ch.  16 


Iff*' 


leap  he  did  not  intend  to  leap  so  as  to  suffer  the  injury  which  caused 
his  death. 

Injuries  inflicted  by  another  person  upon  the  insured,'  or  those 
self-inflicted  when  insane,^^  ^re  considered  to  be  accidents.  So  are 
injuries  due  to  mistakes  in  taking  medicine/^  to  the  inhaling  of  gas,^« 
and  to  coming  in  contact  with  poisonous  substances  unintentionally, 
considered  accidental  injuries.  In  Omberg  v.  United  States  Mut.  Ace. 
Ass  n,  the  Kentucky  Supreme  Court  held  that  the  bite  of  an  insect, 
inflicted  upon  the  toe  of  the  insured,  which  caused  blood  poisoning 
to  set  in  and  the  consequent  death  of  the  victim,  was  an  accident  for 
which  the  insurer  should  be  held  liable.  In  a  New  York  case,  under 
somewhat  similar  facts,  the  contrary  conclusion  was  reached  ^*  In 
Texas  it  was  held  by  the  Court  of  Civil  Appeals  "  that  death  due  to 
intestinal  inflammation  set  up  by  the  eating  of  unsound  oysters  was 
an  accidental  injury;  but  upon  appeal  the  Supreme  Court  reversed  the 
decision  of  the  lower  court,  principally,  however,  upon  the  ground 
that  the  eating  of  the  oysters  brought  the  injury,  if  it  was  accidental, 
under  the  terms  of  an  exception  in  the  policy. 

Again,  death  by  choking  consequent  upon  an  attempt  to  swallow  a 
piece  of  beefsteak  has  been  held  to  be  death  by  accident.^*  But  it  is 
weU  settled  that  death  by  sunstroke,"  though  unusual,  is  not  to  be 

•  The  fact  that  the  blow  struck  by  the  other  party  was  designed  makes 
the  injury  to  the  victim  none  the  less  accidental  If  he  had  no  reason  to  ex- 
?!.  ol^  ^  natural  course  of  events.  American  Aec.  Co.  v.  Carson.  99  Ky. 
441,  36  S.  W.  169,  34  L.  R.  A.  301,  59  Am.  St.  Rep.  473.  ^ 

T  '^:J^^.?n^^^'^  ^^'^-  ^^-  ^-  ORANDAL,  120  U.  S.  527,  7  Sup.  Ct  685,  30 
Li.  hjCL.  740. 

11  Games  v.  Association,  106  Iowa,  281,  76  N.  W.  683,  68  Am.  St.  Rep.  306. 
Here  it  was  said  that  if  the  Insured  died  because  he  took  more  morphine 
than  he  Intended,  the  death  was  accidental,  but  it  would  be  otherwise  if  he 
had  taken  only  as  much  as  he  had  intended,  not  knowing  that  such  a  dose 
^^'w   1102  ^""^  ^^^  ^^^"  ^'  Fidelity  &  Casualty  Co.,  176  Mo.  253,  75 

12  United  States  Mot  Ace.  Ass'n  v.  Newman,  84  Va.  52.  3  S  E  805 

13  101  Ky.  303,  40  S.  W.  909,  72  Am.  St.  Rep.  413. 

9f"p^^%V*  ^^^^.^^.a^^'^'  123  N.  Y.  304,  25  N.  E.  399,  9  L.  R.  A.  617,  20  Am. 
bt.  Rep.  748.  In  this  case  some  putrid  animal  matter  came  In  contact  with 
an  abrasion  on  the  insured's  lip.  causing  infection  and  the  formation  of  a 
malignant  pustule,  which  proved  fatal.  The  court  held  that  death  was  due 
to  disease  merely. 

"  Maryland  Casualty  Co.  v.  Hudgins  (Civ.  App.)  72  S.  W.  1047   reversed 
in  Supreme  Court,  76  S.  W.  745,  64  L.  R.  A.  349  ^-  -^"^^  reversed 

42'l^ltTe^l74^''*  ^'  ^^^^^"^  ^^  ^^'  ^^'  ^  ^-  ^-  ^®^'  21  U  R.  A.  651, 

IT  SINCLAIR  V.  ASSURANCE  CO..  3  E.  &  E.  478 ;  Dozler  v.  Fidelity  &  Cas- 

't^^l  ?•/  f  ^  FT^  ^'''  ""'^  ^'  ^'^'  ^^'  ^^  ^'  «•  ^'  114-    in  Railway  ol 

E.  A.  401,  95  Am.  St.  Rep.  370,  often  cited  as  contra,  the  policy  in  terms  ex- 


§  232)  EXTERNAL,  VIOLENT,  AND  ACCIDENTAL  CAUSES.  569 

regarded  as  accidental ;  nor  is  the  mere  rupture  of  a  blood  vessel  to 
be  regarded  as  an  accident,  unless  it  was  induced  by  some  sort  of  vio- 
lent accidental  occurrence.^'  So,  when  the  insured,  while  stooping 
over  to  put  on  his  socks,  suffered  such  a  disarrangement  of  the  intes- 
tines that  death  ensued,  his  fatal  injury  was  held  not  to  be  accidental.^* 

External},  Violent,  and  Accidental  Causes. 

The  terms  "external"  and  "violent"  have  been  added  by  the  insurer 
for  the  purpose  of  restricting  the  sense  of  the  term  "accidental,"  with 
which  they  are  coupled,  but  their  presence  has  had  little,  if  any,  in- 
fluence upon  the  construction  given  to  the  term  "accidental  cause  or 
injury."  The  term  "external"  applies  to  the  force,  and  not  to  the  in- 
jury.^® Thus,  poison  taken  into  the  system,  and  operating  entirely  in- 
ternally, is  nevertheless  an  external  cause,  as  is  the  water  which  causes 
death  by  drowning,  and  gas  which  causes  asphyxiation.  Likewise,  the 
term  "violent,"  as  applied  to  causes  of  accidental  injury,  means  merely 
that  the  cause  is  efficient  in  producing  a  harmful  result.  It  is  not  neces- 
sary that  it  shall  be  violent  in  the  sense  of  breaking  tissues  or  other- 
wise physically  and  visibly  affecting  the  body."  Thus,  where  the 
insured  was  injured  by  his  straining  efforts  to  stop  his  horse  that 
was  running  away,  it  was  held  that  the  cause  of  the  injury  was  both 
external  and  violent,  although  the  result  was  entirely  internal,  being 
probably  a  rupture  of  a  blood  vessel  near  the  heart."  And  so  it  is 
generally  held  that  where  an  injury  is  received  in  attempting  to  lift  a 
heavy  weight,  or  from  any  other  kind  of  over-exertion,  the  result  may 
be  attributed  to  an  external  and  violent  accidental  cause.^* 

pressly  recognized  sunstroke  as  one  of  the  risks  assmned,  subject  to  condi- 
tions. 

18  See  Standard  Life  &  Accident  Ins.  Co.  v.  Schmaltz,  66  Ark.  588,  53  S. 
W.  49,  74  Am.  St.  Rep.  112.  Here  the  rupture  was  caused  by  a  sudden  and 
violent  wrenching  of  the  body  in  an  effort  to  remove  a  cylinder  head  from 
an  engine.  A  similar  rupture  caused  by  an  effort  to  close  a  shutter  was  held 
not  to  be  accidental.  Feder  v.  Association,  107  Iowa,  538,  78  N.  W.  252,  43 
L.  R.  A.  693,  70  Am.  St.  Rep.  212. 

i»  Clidero  v.  Insurance  Co.,  29  Scot.  L.  R.  303.  See,  also,  Southard  v.  As- 
surance  Co.,  34  Conn.  574,  Fed.  Cas.  No.  13,182. 

20  American  Ace.  Co.  v.  Reigart,  94  Ky.  547,  23  S.  W.  191,  21  L.  R.  A.  651, 
42  Am.  St.  Rep.  374. 

21  See  the  excellent  discussion  of  this  matter  in  Paul  v.  Insurance  Co.,  112 
N.  Y.  472,  20  N.  E.  347,  3  L.  R.  A.  443,  8  Am.  St.  Rep.  758. 

22  McGLINCHEY  v.  FIDELITY  &  CASUALTY  CO.,  80  Me.  251,  14  Atl. 
18,  6  Am.  St  Rep.  190,  Woodruff,  Ins.  Cas.  277. 

2«  Standard  Life  &  Accident  Co.  v.  Schmaltz,  66  Ark.  588,  53  S.  W.  49,  74 
Am.  St.  Rep.  112;  RUSTIN  v.  INSURANCE  CO.,  58  Neb.  792,  79  N.  W.  712. 
46  L.  R.  A.  2I»3,  76  Am.  St  Rep.  136,  Woodruff,  Ins.  Cas.  294. 


570 


ACCIDENT   INSURANCE. 


(Ch.  16 


§234) 


EXTERNAL  AND  VISIBLE  SIGNS  OF  INJURT. 


671 


II 


DISEASE  nTDTTCBD  BY  AOOIBENT-PKOXIMATE  CAUSE. 

833.  " '"qnenUy  occ««  that  the  death  of  the  per«,n  in,urea  under 
an  accWent  poUey  U  cau.ed  by  .ome  dlsea..  Indneed  by  an  ac- 
!l.  !?^  ^Y'-  "  *""  •''•"'"•tanee.  are  .neh  a.  to  make  the 
accident,  and  not  the  disease,  the  proximate  oan.e  of  the  death, 
the  Intnrer  U  Uable  a.  for  an  accidental  Injury. 

fn'!!!'l*'*i?''*'°t"  **^  P'"°'^™ate  from  remote  causes,  always  difficult 
to  make,  often  becomes  peculiarly  difficult  in  deciding  questions  aris- 
mg  under  accident  policies.  The  insurer,  under  an  accident  policy,  is 
not  liable  for  death  by  mere  disease,  even  in  the  absence  of  the  usual 
clause  expressly  excluding  disease  from  among  the  risks  assumed. 
But  It  frequently  happens  that,  while  the  immediate  cause  of  death  is 
a  disease,  that  disease  is  directly  attributable  to  some  accident  that 
has  previously  happened.     If  the  causal  connection  between  the  dis- 

rt?,t  r.v.  T  "  '^"■^'*  ^"*^  ''"^''  *^  -^^^th  ^'»  be  considered  as 
ThJ  lu  ^  "1^  ^'  proximate  cause,  and  not  to  the  disease.  Thus, 
where  the  msured's  toe  was  bruised  and  rubbed  by  a  new  shoe,  which 
injury  caused  blood  poisoning  from  which  he  died,  it  was  held  that 
the  cause  of  his  death  was  the  accidental  injury  to  his  toe"     So 

lured'^hL  2;*^  ^'  *!  ^^^^^^husetts  Supreme  Court,  where  the  in-' 
sured  had  died  of  peritonitis  that  was  induced  by  a  heavy  fall    the 

Xh^  H-*'*'  ''*r^'  'I'  •"^"^^'^  "^^  --  "'^-^  b-n  afflicted 
3i  *'',;^'^^^*«'.^d  w^s  therefore  evidently  peculiarly  liable  to  con- 
tract it,  the  proximate  cause  of  his  death  was  the  accidental  fall,  so 

f^^c  .%r"''  "^u  "^^''  ^°'  ^''  ^^^th.»  In  connection  with  the 
facts  of  this  case,  the  court  makes  this  clear  statement  of  the  doctrine 
of  proximate  cause,  as  applicable  to  such  cases:    "The  law  does  not 

cause  wht'h'^^on  •  "^"-r  "^T"!  ''^"^'"^  '^'  ^'«"^"*  predominant 
^^11;  r  i.  *°"°^'."?  't  no  farther  than  those  consequences  that 
might  have  been  antiapated  as  not  unlikely  to  result  from  it,  has 
prcKluced  the  effect  An  injury  which  might  naturally  produce  deaA 
nf  ?;P7°"°^/«rtam  temperament  or  state  of  health  is  the  cause 
of  his  death  If  he  dies  by  reason  of  it.  even  if  he  would  not  have 
died  If  his  temperament  or  previous  health  had  been  different;  and 
this  IS  so.  as  well  when  death  comes  through  the  medium  of  a  disease 

™Si  I"X5e'^ -'°'''  "  "'■"  ""  ""■""  '"-«''"*  '•"'■ 

"FREEMAN  y.  ASSOCIATION,  156  Mass.  351.  "sO  N.  E.  1013  17  L  R 
H^!f  •  ^'  "  ^"  ^^"^  ^^^^  *^^*  ^^  accidental  fall,  causing  a  ruptoe  of  a 
Wdney  and  consequent  death,  was  the  proximate  cause  of  the  dSS^ou^h 

FidXT;?  '"^^*'r  ^'  *^^  ^^^°^y  ^^^^  the  rupture  possible     Fett^^t 
FideUty  &  Casualty  Co..  174  Mo.  256.  73  S.  W.  592.  61  L.  R  ^459 


In  another  case  an  insurer  was  held  liable  for  the  death  of  the 
insured,  caused  by  peritoneal  inflanmiation  which  was  induced  by  a 
blow  received  from  the  handle  of  a  pitchfork  which  accidentally  slip- 
ped from  his  grasp  while  being  used  in  pitching  hay.**  So,  an  accident 
insurance  company  was  held  liable  for  a  death  caused  directly  by  in- 
flammation of  the  intestines  which  had  been  weakened  by  disease,  the 
inflammation  being  caused  by  the  presence  of  hard  food  substances 
that  had  been  swallowed  by  the  insured,  who  had  no  knowledge  of 
the  weakened  condition  of  his  digestive  organs.*^ 

Another  and  different  phase  of  the  question  of  proximate  and  remote 
cause  appears  in  the  leading  English  case  of  Lawrence  v.  Accidental  Ins. 
Co.**  In  that  case  the  insured  was  standing  near  a  railway  track  upon 
which  a  locomotive  was  approaching.  He  was  suddenly  seized  with  a 
fit  of  illness  which  caused  him  to  fall  forward  helpless  upon  the  track, 
where  he  was  almost  immediately  crushed  to  death  under  the  wheels  of 
the  locomotive.  The  defendant  claimed  that  it  was  not  liable  under  an 
accident  policy  for  the  death  of  the  deceased,  on  the  ground  that  the 
proximate  cause  of  his  death  was  his  fit  of  illness,  while  the  plaintiff 
claimed  that  the  predominant  cause  was  his  being  run  over  by  the 
locomotive,  which  was  accidental.  The  policy  provided  that  the  in- 
surance company  should  be  liable  only  when  the  accidental  injury  "was 
the  sole  and  direct  cause  of  death  to  insured."  The  court  held  that 
the  efficient  cause  of  the  death  of  the  insured  was  the  locomotive, 
which  hapjpened  accidentally  to  be  present  at  that  time,  while  the  fit  was 
merely  the  cause  of  his  being  upon  the  track  in  a  place  of  danger,  and 
therefore  remote. 

EXTERNAL  AND  VISIBLE  SIGNS  OF  INJURY. 

234.  The  nsnal  term  of  the  accident  policy,  proridine  that  the  insurer 
will  be  liable  only  for  those  injuries  of  which  there  shall  be 
some  external  and  visible  sign,  does  not  require  that  the  injury 
itself  shall  be  external  and  visible,  but  merely  that  the  evi- 
dences of  accidental  injury  shall  be  external  and  visible. 

In  the  course  of  their  efforts  to  avoid  liability  for  injuries  and  deaths 
due  to  merely  natural  causes,  and  for  feigned  internal  injuries,  difficult 

••North  American  life  &  Accident  Oo.  v.  Burroughs,  69  Pa.  43,  8  Am. 
Rep.  212. 

27  Miller  v.  Fidelity  &  Casualty  Co.  (C.  0.)  97  Fed.  836.  So,  in  Travelers' 
Ins.  Co.  V.  Hunter,  30  Tex.  Civ.  App.  489,  70  S.  W.  798,  the  insurer  was  held 
liable  for  a  fatal  attack  of  rheumatism  caused  by  an  accident. 

28  7  Q.  B.  Div.  216,  Richards,  Ins.  Cas.  522.  A  similar  case  is  Winspear 
v.  Insurance  Co.,  6  Q.  B.  Div.  42,  in  which  the  insured,  while  crossing  a  river, 
was  seized  with  a  fit,  which  caused  him  to  fall  into  the  water  and  drown. 
The  death  was  considered  to  be  accidental. 


572 


ACCIDENT   INSURANCE. 


(Ch.  16 

to  disprove,  all  accident  insurers  now  insert  in  their  policies  a  provision 
to  the  effect  that  they  will  not  be  liable  for  any  bodily  injuries  that 
shall  be  suffered  by  the  insured,  unless  there  are  found  some  external 
and  visible  signs  of  such  injuries.  The  courts  have,  however,  largely 
done  away  with  any  restrictive  effects  of  this  provision,  by  giving  to  it 
such  a  construction  as  seldom  defeats  recovery  in  a  case  in  which  the 
plaintiff  would  succeed  in  its  absence.  It  has  been  held  that  the  pro- 
vision has  no  application  whatever  to  injuries  that  result  in  death,^' 
but  only  temporary  nonfatal  injuries.  And  when  the  provision  is 
so  worded  as  to  make  it  clearly  apply  to  fatal  injuries,  the  courts  have 
found  little  difficulty  in  discovering  the  requisite  external  and  visible 
signs. 

We  must  first  note  that  the  signs  of  injury  ordinarily  required  need 
not  be  on  the  body  itself,  although  such  was  the  probably  intended 
meaning  of  the  insurers  when  the  term  was  incorporated  in  the  policy. 
Any  sign  at  all  indicating  the  occurrence  of  an  injury  that  is  visible 
to  the  eye,  or  otherwise  capable  of  sense  perception,  is  held  to  satisfy 
the  requirements  of  this  clause.  Thus,  froth  on  the  mouth  of  a  person 
who  has  died  from  asphyxiation  through  inhaling  gas  is  a  visible 
sign  of  the  cause  of  his  death.'^  It  has  even  been  held  that  where 
artificial  respiration  was  resorted)  to  in  the  case  of  the  asphyxiated 
person,  and  the  odor  of  inhaled  gas  could  be  detected,  that  was  a 
sufficient  sign  of  his  fatal  injury  by  inhaling  gas.^^  Discoloration  of 
the  skin  is  a  sufficient  external  evidence  of  an  internal  injury,^^  and 
the  unnatural  redness  of  one  lobe  of  the  brain  discovered  by  autopsy 
has  been  also  regarded  as  an  external  visible  sign  of  an  accident.^^ 
Even  an  unusual  color  of  the  skin  is  sufficient  ;3*  and  the  court  may 
take  into  consideration  as  evidence  other  external  circumstances,  not 
immediately  connected  with  the  body,  but  which  would  show  the  cause 
and  probable  presence  of  an  accident,  as  the  odor  of  gas  in  the  room 
in  which  a  dead  body  is  found.  •• 

In  another  case,  where  the  injury  for  which  it  was  sought  to  hold 

2»  McGLINCHEY  y.  FIDELITY  &  CASUALTY  CO.,  80  Me.  251,  14  Atl.  13, 
6  Am.  St.  Rep.  190.  In  this  ease  the  court  said:  "There  are  reasons  for  the 
condition  applying  to  a  surviving  claimant.  He  has  unusual  chance  for  feign- 
ing an  internal  injury,  if  disposed  to  defraud  the  insurers.  But  no  such  pro- 
tection is  required  where  the  accident  causes  death.  The  dead  body  is  ex- 
ternal and  visible  sign  enough  that  the  injury  was  received." 

30  United  States  Mut.  Ace.  Ass'n  v.  Newman,  84  Va.  52,  3  S.  E.  805. 

«i  Menneily  v.  Assurance  Corp.,  148  N.  Y.  596,  43  N.  E.  54,  31  L.  R.  A.  686 
51  Am.  St  Rep.  716.  ' 

82  Thayer  v.  Insurance  Co.,  68  N.  H.  577,  41  Atl.  182. 

»»  Union  Casualty  &  Surety  Co.  v.  Mondy  (Colo.  App.)  71  Pac.  677. 

«♦  Horsfall  v.  Insurance  Co.,  32  Wash.  132,  72  Pac.  1028,  63  L.  R.  A  425. 

«B  See  Menneily  v.  Assurance  Corp.,  148  N.  Y.  596,  43  N.  E.  54.  31  L.  R. 
A.  686,  51  Am.  St  Rep.  716*  »^  ox  u,  a. 


§235) 


RISKS  OF  TRAVEL. 


573 


the  insurer  liable  was  entirely  internal,  presenting  no  evidence  what- 
ever upon  the  surface  of  the  body  of  its  presence,  a  physician  was 
allowed  to  testify  that  by  external  pressure  with  the  hand  he  cou  d 
detect  the  presence  of  the  internal  injury;  and  such  evidence  was  held 
to  satisfy  the  requirement  of  an  external  sign  of  the  injury.  ^        ^ 

The  result  of  the  cases  on  this  subject  has  been  well  summanzed  in 
the  instruction  of  the  court  to  the  jury  in  Barry  v.  United  States  Mut. 
Ace  Ass'n,"  as  follows:  "  ^Visible  signs  of  injury,'  within  the  mean- 
ing of  this  policy,  are  not  to  be  confined  to  broken  limbs  or  bruises  on 
the  surface  of  the  body.  There  may  be  other  external  indications  or 
evidences  of  an  injury.  Complaint  of  pain  is  not  a  visible  sign  because 
pain  you  cannot  see.  Complaint  of  internal  soreness  is  not  such  a  sign, 
for  that  you  cannot  see.  But  if  the  internal  injury  produces,  for  ex- 
ample, a  pale  and  sickly  look  in  the  face;  if  it  causes  vomitmg  and 
retching,  or  bloody  and  unnatural  discharges  from  the  bowels ;  if,  in 
short,  it  sends  forth  to  the  observation  of  the  eye,  in  the  struggle  of 
nature,  any  sign  of  injury— then  those  are  external  and  visible  signs, 
provided  they  are  the  direct  result  of  the  injury." 

BISKS  OF  TRAVEL. 

235.  In.urai.ce  against  accidental  injuries  incurred  wMe  «  ?*"7f^' 
on  a  public  conveyance,  or  other  conveyance  specified,  is  Ixel J  to 
cover  any  injuries  received  while  doing  anything  naturally  and 
properly  incident  to  the  accompUshment  of  the  journey  in  hand. 

The  first  accident  insurance,  as  well  as  a  considerable  portion  of 
that  now  written,  was  upon  travel  risks  alone.    Those  pohcies  issued 
against  accidents  that  may  happen  to  the  insured  while  engaged  in 
prosecuting  a  journey  stipulate  specifically  the  circumstances  under 
which  the  insurer  will  become  liable,  although  the  terms  in  which  the 
assumed  risks  are  described  vary  considerably.     The  one  most  fre- 
quently inserted  is  against  accidents  that  may  happen  to  the  insured 
"while  traveling  as  a  passenger  on  any  conveyance  using  steam,  cable, 
or  electricity  as  a  motive  power,"  or  "while  traveling  in  a  public  con- 
veyance provided  bv  a  common  carrier."    It  is  clear  that,  when  the 
insurance  is  only  against  injuries  received  while  traveling  in  a  specified 
manner  or  in  a  specified  vehicle,  the  insurer  should  not  be  liable  for 
such  accidents  as  may  happen  to  the  insured  while  in  other  places 
or  vehicles  than  those  mentioned.    Thus,  where  a  certain  stock  dealer 
received  a  policy  insuring  him  against  injuries  that  might  be  receivea 
while  riding  in  the  public  conveyances  of  any  common  carrier,  he  was 
not  allowed  to  recover  for  an  injury  that  he  received  by  falling  from 

««  Gale  V.  Association,  66  Hun,  600,  21  N.  Y.  Supp.  893. 

tt  (^   C.)  23  red.  712,  affirmed  131  U.  S.  100,  9  Sup.  Ct  755,  33  L.  Ed.  60. 


ill 


u 


574 


ACCIDENT   INSURANCE. 


(Ch.  16 


Incidental  Risks, 

risS  «'he  t!  «  ""IP'r'  *°  ''"^'^  *^  '"^"^<=^  ««We  for  only  such 

onlv  fV,r  n^«.„    will  consiaer  that  the  insurer  assumes  the  liability  not 

.„  th.  V  IT  ^""^"J*'  ^^^^  '"^y  '^"^^  to  the  insured  while  he  is 
n  the  vehicle  expressly  described,  but  also  for  those  other  risks  thl 

nev  whkh  h^r  ""'7^°,  ''  '"S'^"'  *°  *^  prosecution  of  "he  joS 
"hose  rist  f  1'  undertaken.  This  rather  subtle  distinction  between 
those  nsks  impliedly  assumed  as  incidental  to  those  exoresslv  dl 
scnbed,  and  those  others  which  are  excluded  by  impHcation  from  tZ 
express  description,  may  be  best  illustrated  by  consTdeS  Ae  fa^t,  nf 
some  leading  cases  In  Northrup  v.  Railwa/Snger  Astr  Co  " 
ient'thXr™^'^  •:!*^'""'*y  '"  ^^«  «f  de^'h  caused  bjany  «d- 
cou  se  o   Lt  "^  •^.P"''""  °'  P"^^*^  conveyances.     DuriL  the 

the  land2  J?™'^  l''''^'"'  "^^^^^^^^  f°^  the  insured  to  pass  frS^^ 

^i  ^^.p-^is^^^^  ctiin:::  hf  foi^ 

P^r^'r™:' ?edtn?"^"^"*'r  .^'^^  ThelSl^er'^Sd  To 
cXed  wWle  Sw  h  ^"""'^  .*^*  *"  «J"^  had  not  been  re- 
The  New  YoJL  r™,^^,,  T^T  '""^  °^  conveyance,  but  while  on  foot, 
th^  ;i^  .    ''^'*^'  however,  that  the  insurer  was  liable  since 

ient Tth/''  ''T"*^  r*""^  ^°'"^  ^"  ^<=*  that  was  neces^ri';  inci 
dent  to  the  prosecuhon  of  the  journey.    This  case  goes  to  the  e^tre,^ 

liable,  under  a  policy  similar  to  that  in  the  NoSrun  Case  for  •"""•'' 

f^mt  '^ -^  '""^^  *"^^'^'  *--  rob^rX'^hTwa;  wis 
from  the  railway  station  to  his  home,  a  distance  of  some^ShSs 

.t  declined  to  extend  the  doctrine  of  the  Northruo  Case%?!Sw       !•' 
reached  the  conclusion,  that  seems  sufifcifrnj  apparent     hat    h'eTn 
in  tS^^^cy^"^*"^  *"•  "^'  ^"'^  "''^  -  -^  -*  ^'   veiiclt'sptifi:^- 

thJ?!^"'  •' j'^^f''^*"  ?«W  that  a  policy  containing  such  provision  as 
tha  now  under  discussion  covered  a  fatal  injury  to  the  insured^!^X^^ 
while  attempting  to  board  a  train  from  UTch  he  ^  tel^J 

*•  Ripley  V.  Aflsurance  Co.,  16  Wall.  (U.  S.)  336,  21  L.  id.  460. 


§236) 


EXCEPTED  RISKS — IN   GENERAL, 


575 


alighted,  while  the  train  was  in  motion.*^  But  in  another  case,  when 
the  insured  left  a  train  at  a  station  from  which  he  expected  to  con- 
tinue his  journey  by  a  later  train,  but  afterwards  turned  again  to 
speak  to  one  of  the  trainmen  about  a  matter  not  connected  with  the 
journey,  and  was  injured  by  falling  from  the  car  platform,  it  was 
held  that  the  insurer  was  not  liable.*^  As  far  as  that  train  was  con- 
cerned, the  insured  had  discontinued  his  journey,  and,  when  injured, 
was  not  properly  engaged  in  the  prosecution  of  the  journey. 

In  a  recent  California  case  it  has  been  held  that  a  passenger  who 
leaves  the  regular  coach,  and  at  the  invitation  of  an  officer  of  the  rail- 
way company  rides  in  the  engine,  does  not  cease  to  be  a  passenger, 
within  the  terms  of  an  accident  policy  against  travel  risks.** 

Double  Indemnity  for  Travel  Risks, 

In  some  accident  policies  it  is  provided  that  a  double  indemnity 
shall  be  paid  for  injuries  received  while  traveling  in  specified  convey- 
ances. In  determining  when  the  insurer  is  liable  for  double  indemnity, 
the  same  rules  of  construction  are  to  be  applied  as  in  the  cases  just 
discussed  above.  Thus,  it  has  been  held  that  under  such  a  policy  the 
insurer  is  not  liable  for  double  indemnity  when  the  insured  came  to  his 
death  by  falling  from  the  open  platform  of  a  railway  car,  the  double 
indemnity  being  promised  only  when  the  injury  is  received  while  rid- 
ing "in"  a  public  conveyance.**  Again,  a  paymaster  of  a  railway  com- 
pany, riding  from  station  to  station  in  the  regular  discharge  of  his 
usual  duties,  was  held  not  to  be  a  passenger,  within  the  meaning  of 
the  double  indemnity  clause,  nor  was  his  pay  car,  although  merely  a 
specially  equipped  coach,  to  be  regarded  as  a  passenger  car,  within 
the  terms  of  the  clause  in  question.*' 

EXCEPTED  RISKS— IN  GENEBAI^ 

236.  The  terms  of  an  aooident  policy  exceptins  risks  that  wonld  other- 
wise be  included  will  be  construed  in  connection  neith  all  the 
terms  of  the  instrument,  so  as  to  carry  out,  ^^herever  possible, 
the  general  purpose  of  the  contract,  ^^hich  is  to  grant  inden&- 
nity  for  accidental  injury. 

As  already  stated  above,  modem  accident  policies  are  bound  in  nu- 
merous conditions  of  exception,  some  of  which  are  consistent  with 

*»  Tooley  v.  Assurance  Co.,  3  Biss.  (U.  S.)  399,  Fed.  Cas.  No.  14,098. 

«s  Hendrick  v.  Assurance  Corp.  (C.  C.)  62  Fed.  893.  In  this  case  the  insur- 
ance was  against  injuries  received  **as  a  passenger  in  a  public  conveyance 
provided  by  a  common  carrier." 

«•  Berliner  v.  Insurance  Co.,  121  Cal.  458,  53  Pac.  918,  66  Am.  St  Rep.  49. 

**Van  Bokkelen  v.  Insurance  Co.,  34  App.  Div.  399,  54  N.  Y.  Supp.  307, 
affirmed  in  167  N.  T.  590,  60  N.  E.  1121. 

«»  Travelers'  Ins.  Co.  T.  Austin,  116  6a.  264,  42  S.  E.  522,  59  L.  B.  A.  107, 
94  Am.  St  Bep.  125. 


I 


676 


ACCIDENT   INSURANCE. 


(Ch.  16 


Other  terms  of  the  policy  and  with  the  general  purpose  of  the  contract." 
While  the  courts  cannot  make  new  contracts  for  the  parties,  they  yet 
go  very  far  in  construing  away  exceptions  that  would  defeat  the  gen- 
eral purpose  of  the  contract  to  afford  indemnity  for  accidental  injury. 

POISON,  OR  CONTACT  WITH  POISONOUS  SUBSTANCES. 

237.  Exceptions  in  the  policy  of  death  or  injury  by  taking  poison  or 
by  coming  in  contact  with  poisonous  substances  are  generally 
construed  to  refer  only  to  intentional  acts  of  taking  poison  or 
coming  in  contact  with  it,  unless  the  wording  of  the  clause  is 
•uch  as  to  make  it  perfectly  clear  that  accidental  poisoning  is 
intended  to  be  included  within  the  exceptions. 

The  clauses  to  be  found  in  the  different  insurance  policies  which 
are  mtended  to  exempt  the  insurer  from  liability  for  injuries  due  to 
the  operation  of  poisonous  substances  differ  very  greatly  in  their  word- 
ing. Where  it  is  provided  that  the  insurer  will  not  be  liable  for  in- 
junes  due  to  "taking  poison,"  the  courts  almost  unanimously  hold  that 
the  msurer  is  still  liable  for  the  accidental  taking  of  poison.*^     The 

"  The  pervasive  extent  and  complicated  language  of  the  list  of  exceptions 
to  be  found  in  the  ordinary  accident  policy  may  be  illustrated  from  the  fol- 
lowing quotation  from  the  policy  in  suit  in  TRAVBI.ERS'  INS    CO    v    Mo- 
CONKEY    127  U.  S.  661,  8  Sup.  Ct.  1360,  32  L.  Ed.  308:    "Provided  always, 
^,  lit  iiisurance  shall  not  extend  to  hernia,  nor  to  any  bodily  injury  of 
which  there  shall  be  no  external  and  visible  sign,  nor  to  any  bodily  injury 
happening  directly  or  indirectly  in  consequence  of  disease,  nor  to  any  death 
or  disability  which  may  have  been  caused  wholly,  In  part,  or  jointly,  by  bod- 
ily Infirmities  or  disease  existing  prior  or  subsequent  to  the  date  of  this  con- 
tract, or  by  the  taking  of  poison  or  contact  with  poisonous  substances    or 
by  any  surgical  operation  or  medical  or  mechanical  treatment;    nor  to  anv 
case  except  where  the  injury  is  the  proximate  and  sole  cause  of  the  disabil- 
ity or  death;   and  no  claim  shall  be  made  under  this  policy  when  the  death 
or  injury  may  have  been  caused  by  dueling,  fighting,  wrestling,  lifting  or  bv 
over  exertion,  or  by  suicide  (felonious  or  otherwise,  sane  or  insane)    or  bv 
sunstroke,  freezing,  or  Intentional  injuries  inflicted  by  the  insured  or  anv 
other  person,  or  when  the  death  or  injury  may  have  happened  in  consequence 
of  war,  not,  or  invasion,  or  of  riding  or  driving  races,  or  of  voluntary  ex- 
posure to  unnecessary  danger,  hazard,  or  perilous  adventure,  or  of  violatin*' 
the  rules  of  any  company  or  corporation,  or  when  tiie  death  or  injury  mav 
have  happened  while  the  insured  was,  or  in  consequence  of  his  having  been 
under  tiie  influence  of  Intoxicating  drinks,   or  while  employed  in  minin- 
blastmg,  or  wrecking,  or  in  the  manufacture,  transportation,  or  use  of  gu^! 
powder  or  other  explosive  substances  (unless  insured  to  cover  such  occupa- 
tion), or  while  engaged  in  or  in  consequence  of  any  unlawful  act-    and  this 
insurance  shall  not  be  held  to  extend  to  disappearances,  nor  to  any  case  of 
death  or  personal  injury,  unless  the  claimant  under  this  policy  shall  estab- 
lish by  direct  and  positive  proof  that  the  said  death  or  personal  injurv  wa« 
caused  by  external  violence  and  accidental  means" 

«  TRAVELEBS'  INS.  CO.  v.  DUNLAP,  160  Ul.  642,  43  N.  B.  765,    52  A-^ 


§  237)       POISON,  OR  CONTACT   WITH   POISONOUS  SUBSTANCES.  577 

principal  object  of  the  whole  transaction  being  to  insure  against  acci- 
dental injury,  the  courts  will  not  allow  that  purpose  to  be  defeated  in 
any  given  case  by  an  exception,  unless  the  language  of  the  exception 
is  so  clear  and  certain  as  to  imperatively  demand  such  a  result;  that 
is,  if  the  parties  intend  to  defeat  the  natural  purpose  of  their  con- 
tract, they  must  express  that  intention  in  language  wholly  unambig- 
uous. Thus,  it  has  been  held  that  where  the  insured  drank  carbolic 
acid,  supposing  it  to  be  peppermint,  and  died  from  the  poisoning,  the 
insurer  was  liable,  despite  the  presence  of  the  clause  exempting  from 
liability  for  injury  by  taking  poison.  The  court  thought  that  the  or- 
dinary meaning  attached  to  the  expression  "take  poison"  was  the  inten- 
tional taking  of  poison,  and  held  that  the  parties  must  be  deemed 
to  have  used  the  terms  adopted  for  the  expression  of  their  contract  in 
accordance  with  their  popular  meaning.*® 

In  order  to  avoid  the  narrow  construction  placed  by  the  courts  upon 
the  simple  phrase  "take  poison,"  the  accident  insurers  have  added  nu- 
merous qualifying  phrases  in  the  hope  of  effectively  accomplishing  their 
purpose;  but  even  these  qualifying  phrases  will  not  avail  the  insurer 
in  his  effort  to  escape  liability  for  accidental  death  from  poison,  if 
there  is  an)'  possible  ambiguity  in  the  language  of  the  exception.*' 

St.  Rep.  355;  Omberg  v.  Association,  101  Ky.  303,  40  S.  W.  909,  72  Am.  St 
Rep.  413;   Dezeil  v.  Fidelity  &  Casualty  Co.,  176  Mo.  253,  75  S.  W.  1102. 

But  see,  contra,  Early  v.  Insurance  Co.,  113  Mich.  58,  71  N.  W.  500,  67 
Am   St.  Rep.  445;   Pollock  v.  Association,  102  Pa.  230,  48  Am.  Rep.  204. 

48  TRAVELERS'  INS.  CO.  v.  DUNLAP,  160  111.  642,  43  N.  E.  765,  52  Am. 
St  Rep.  365. 

*»  It  wac  held  in  DezeU  v.  Fidelity  &  Casualty  Co.,  176  Mo.  253,  75  S.  W. 
1102,  that  the  insurer  was  liable  for  the  death  of  the  insured  caused  by  an 
overdose  of  morphine,  taken  to  alleviate  severe  pain  under  the  advice  of  a 
physician,  although  the  policy  excepted  injuries  "resulting  from  poison  or 
anything  accidentally  or  otherwise  taken."  The  argument  of  the  court  is  as 
follows:  "The  policy  Insured  'against  bodily  injuries  sustained  through  ex- 
ternal, violent,  and  accidental  means.'  The  exception  was:  *This  insurance 
does  not  cover  ♦  ♦  •  injuries,  fatal  or  otherwise,  resulting  from  poison 
or  anytliing  accidentally  or  otherwise  taken,  administered,  absorbed,  or  in- 
haled.* It  will  be  observed  that  it  is  not  limited  to  poison,  but  extends  to 
'anytliing,*  and  is  not  confined  to  poison  or  anything  taken,  but  includes  poi- 
son or  anything  not  only  taken,  but  also  such  as  may  be  administered,  ab- 
sorbed, or  inhaled,  and  that  it  applies  whether  the  same  be  accidentally  or 
intentionally  done.  Literally  construed,  it  would  cover  everything  known  to 
man  that  would  injure  or  kill,  whether  taken  by  the  assured  himself  or  ad- 
ministered to  him  by  a  physician,  or  whether  absorbed  or  inhaled  without 
and  in  spite  of  himself,  or  with  the  aid  of  any  one  else,  or  as  the  result  of 
natural  laws.  It  would  also  cut  ofiC  a  recovery  where  the  poison  or  anytliing 
was  taken  or  administered  to  save  life,  and  was  given  for  the  best  and  most 
scientific  reasons,  as  fully  and  completely  as  if  it  was  taken  with  suicidal 
Intent  If  this  was  the  true  meaning  and  intent  of  the  insured,  it  ought  to 
have  been  expressed  in  such  unequivocal  and  plain  words  that  there  could 
be  no  misunderstanding  its  meaning.     Instead  of  emj^lojing  the  necatlTe 


57« 


ACCIDENT   INSURANCB. 


(Ch.  16 


Thus,  it  has  been  held  that,  where  the  policy  provided  that  the  insurer 
should  be  exempt  from  liability  for  death  by  poison  in  any  way  taken, 
the  qualifying  phrase  "in  any  way  taken"  referred  merely  to  the  man- 
ner of  the  taking  of  the  poison,  and  not  to  the  motive  with  which  it  is 
taken,  and  therefore  the  insurer  was  held  liable  for  accidental  poison- 
ing, despite  his  attempted  exception.**  When,  however,  the  language 
of  the  exception  is  such  as  to  expressly  include  accidental  poisoning, 
the  courts  have  no  alternative  but  to  excuse  the  insurer  from  pay- 
ment ^ 

It  has  been  held  that  the  inhaling  of  gas,  causing  the  death  of  the 
insured,  is  not  taking  poison.'*  So,  death  caused  by  the  poisonous  sting 
of  an  insect  has  been  held  not  to  be  within  the  exception  of  injuries 
caused  by  poison  in  any  form  or  by  contact  with  poisonous  sub- 
stances.''' In  a  recent  Texas  case  the  policy  provided  that  "this  in- 
surance does  not  cover  injuries,  fatal  or  otherwise,  resulting  from  poi- 
son or  anything  accidentally  or  otherwise  administered,  absorbed,  or 
inhaled."  The  insured  swallowed  two  unsound  oysters,  which  caused 
mflammation  of  the  intestines,  and  death.  The  court  held  that  the 
swallowing  of  these  oysters  came  within  the  terms  of  the  exception  as 
quoted  above.** 

INHALING  GAS. 

238.  Clauses  In  accident  policies  exempting  the  Insnrer  front  liability 
for  death  by  inhaling  gas  are  generally  oonstmed  as  referring 
only  to  intentional  acts  of  inhaling  gas,  and  not  to  injuries 
caused  by  accidental  inhalation. 


Exceptions  in  the  policy  of  death  by  inhaling  gas  have  given  rise  to 
much  difficulty  in  construction.  On  general  principles  it  would  seem 
that  the  same  rule  should  be  applied  to  such  exceptions  as  to  the  ex- 
form  of  expression,  and  clothing  the  Intention  In  such  general  terms,  It 
should  have  been  affirmatively  stated  that  the  policy  meant  that  no  recov- 
ery could  be  had,  unless  the  physical  evidences  of  the  cause  of  the  injury 
were  apparent  to  the  naked  eye,  and  that  the  company  would  not  pay  for 
any  injury  unless  the  gaping  wound  told  its  own  tale.  The  better  reason 
supports  the  rule  that  such  exceptions  in  such  policies  do  not  cover  medicine 
(even  though  it  contain  poison)  or  anything  taken  or  administered  in  good 
faith  to  alleviate  physical  pain,  even  though  it  result!  In  unexpected  and  un- 
intentional death." 

00  Metropolitan  Ace.  Ass'n  y.  Froiland,  161  111.  30,  43  N.  B.  766,  52  Am.  St 
Rep.  359. 

61  See  Early  v.  Insurance  Co.,  supra;  McOlother  ▼.  Accident  C3o.,  89  Fed. 
685,  60  U.  S.  App.  705,  32  C.  O.  A.  318. 

62  United  States  Mut  Ace.  Ass'n  v.  Newman,  84  Va.  52,  3  S.  B.  805. 

»«  Omberg  v.  Association,  101  Ky.  303,  40  S.  W.  909,  72  Am.  St  Hep.  413. 
»♦  Maryland  Casualty  Co.  v.  Hudgins  (Tex.  Civ.  App.)  76  S.  W.  746,  64  L. 
R.  A.  349,  reversing  same  case  in  Court  of  Civil  Appeals,  72  S.  W.  1047. 


§238) 


INHALING   GAS. 


579 


ception  of  death  by  poison,  just  considered.     But  the  courts  seem  to 
be  more  unwilling  to  gfive  effect  to  the  gas  clause,  and  have  held,  in 
practically  all  cases,  that  death  due  to  purely  accidental  and  uninten- 
tional inhaling  of  poisonous  gases  is  not  within  the  exception,  which, 
It  IS  said,  IS  mtended  to  apply  only  to  cases  of  suicide  by  inhaling  gas, 
or  to  cases  where  gas  is  intentionally  inhaled,  in  surgical  operations  or 
for  other  like  purposes."     A  typical  case  presenting  the  difficulty  of 
giving  a  fair  construction  to  the  words  of  this  exception  is  Pickett 
V.  Pacific  Mut.  Life  Ins.  Co."    In  this  case  the  policy  involved  con- 
tained the  usual  exception  of  "death  or  injury  resulting  from,  or  at- 
tributable partially  or  wholly  to,  inhalation  of  gas."    The  insured 
descended  into  a  shallow  well  for  the  purpose  of  repairing  a  pump,  and 
was  quickly  asphyxiated  by  the  gas  that  had,  in  some  inexplicable 
way,  accumulated  in  the  well.     There  was  no  reason  to  suspect  the 
presence  of  this  deadly  gas  in  the  well,  and  the  circumstances  of  the 
death  were  unquestionably  accidental,  and  by  every  consideration  of 
fairness  should  fall  within  the  operation  of  an  accident  policy.    On  the 
other  hand,  there  could  be  no  question  but  that  the  immediate  cause  of 
the  death  of  the  insured  was  his  breathing  air  charged  with  this  deadly 
gas,  and  that  would  seem  to  amount  to  "inhalation  of  gas,"  in  the  or- 
dinary acceptance  of  that  term.     The  court  held,  however,  that  in- 
halation meant  mtentional,  and  not  accidental,  inhalation,  and  held 
the  insuier  liable.     In  the  opinion,  the   following  language  of  the 
New  York  Court  of  Appeals  "  was  approved :     "In  expressing  its 
intention  not  to  be  liable  for  death  from  'inhaling  of  gas'  the  com- 
pany can  only  be  understood  to  mean  a  voluntary  and  intelligent  act 
ot  the  msured,  and  not  an  involuntary  and  unconscious  act    Read  in 
that  sense  and  in  the  light  of  the  context,  these  words  must  be  inter- 
preted as  haying  reference  to  medical  or  surgical  treatment,  in  which, 
ex  VI  termim,  would  be  included  the  dentist's  work  or  a  suicidal  pur- 
I>ose.    Of  course,  the  deceased  must  have,  in  a  certain  sense,  inhaled 
gas;  but  in  view  of  the  finding  that  death  was  caused  by  accidental 
nieans,  the  proper  meaning  of  the  words  compels,  as  does  the  lo^c 
of  the  thing,  the  conclusion  that  there  was  not  that  voluntary  or  con- 
scious act  necessarily  involved  in  the  process  of  inhaling.     An  acci- 
clent  IS  the  happening  of  an  event  without  the  aid  and  the  desi^  of 
the  person,  and  which  is  unforeseen.    *    ♦    ♦    To  inhale  gas  requires 
an  act  of  voFition  on  the  person's  part  before  the  danger  is  incurred, 
i^oison  may  be  taken  by  mistake,  or  poisonous  substances  may  be  inad- 

Am'lt  Re^  J^™^"^  ^''  ^  ^'  ^'  4^  20  N.  a  847.  8  U  R.  A.  443.  8 
«e  PICKETT  v.  PACIFIC  MUT.  LIFE  INS.  CO..  144  Pa.  79,  22  Atl    871 
«   X^  ^'  ^^  ^'^  ^™-  S*-  ^^P-  ^IS*  Woodruff,  mi.  Cas  290 
foun?!Jl!?/T  l^^J^  Insurance  Co.,  supra,  in  which  the  insured 
found  dead  in  his  bed,  the  room  being  fnU  of  escaped  coal 


• « 


ii 


580 


ACCIDENT    INSURANCE. 


(Ch.  16 


il^ 


vertently  touched;  but,  whatever  the  motive  of  the  insured,  his  act 
precedes  either  fact.  *  *  *  If  the  policy  had  said  that  it  was  not 
to  extend  to  any  death  caused  wholly  or  in  part  by  gas,  it  would  have 
expressed  precisely  what  the  appellant  now  says  is  meant  by  the  pres- 
ent phrase,  and  there  could  have  been  no  room  for  doubt  or  mistake."  "• 
The  courts  often  go  so  far  as  to  hold  the  insurer  liable  for  the  accidental 
death  of  the  insured  by  breathing  gas,  even  when  the  policy  excepts 
death  resulting  from  "anything  accidentally  or  otherwise  taken,  ad- 
ministered, absorbed,  or  inhaled,"  it  being  said  that  "accidental  inhal- 
ing" means  merely  accidentally  drawing  gas  into  the  system  by  a  con- 
scious and  voluntary  act  of  inspiration.  **• 

BODII.Y  INFIRMITIES  OR  DISEASE. 

230*  Temii  ezcepting  injuries  sustained  in  consequence  of  any  disease 
or  bodily  infimiity  are  ordinarily  construed  to  mean  serious  de- 
rangements of  tl&e  bodily  organs  or  functions,  and  not  mere 
temporary  disorders. 

As  we  have  already  seen,  the  insurer  is  liable,  in  the  absence  of  ex- 
ception, for  the  death  of  the  insured  by  disease  induced  by  an  accident, 
or  for  an  accident  that  was  due  to  a  disease.  In  order  to  avoid  such 
liability,  modern  policies  usually  contain  a  provision  that  the  company 
will  not  be  liable  for  injuries  "resulting  directly  or  indirectly,  in  whole 
or  in  part,  from  any  disease  or  bodily  infirmity." 

The  terms  "disease  or  bodily  infirmity"  are  defined  rather  liberally 
in  favor  of  the  insured.  It  is  held  that  bodily  infirmity  means  the  state 
of  being  physically  infirm,  as  opposed  to  a  mere  temporary  condition 
of  weakness  due  to  hunger  or  other  passing  cause.'**  So,  disease  means 
some  functional  defect  in  the  vital  organs,  of  a  serious  and  more  or 
less  lasting  character.  Thus,  it  has  been  held  that,  where  a  mere  tem- 
porary fit  of  weakness  contributed  to  the  accident  suffered,  the  insurer 
was  liable  despite  the  presence  of  this  exempting  clause.'^ 

But  it  seems  that  this  exception  does  away  with  the  operation  of  the 
lule  of  proximate  cause  heretofore  considered,  and  exempts  the  in- 

»»  But  see,  contra  to  the  reasoning  of  these  cases,  Richardson  v.  Insurance 
Co.  (C.  0.)  46  Fed.  843. 

B»  Fidelity  &  Casualty  Co.  of  New  York  v.  Waterman,  161  111.  632,  44  N. 
B.  283,  32  L.  R.  A.  654.  See,  also,  Menneily  v.  Assurance  Corp.,  148  N.  Y. 
596,  43  N.  E.  54,  31  L.  R.  A.  686,  51  Am.  St  Rep.  716. 

•0  See  Meyer  v.  Fidelity  &  Casualty  Co.,  96  Iowa,  378,  65  N.  W.  828,  59  Am. 
kjt  Rep.  374. 

•1  Manufacturers*  Accident  Indemnity  Co.  t.  Dorgan,  58  Fed.  945,  16  U. 
S.  App.  290,  7  C.  a  A.  581,  22  L.  R.  A-  620.  But  prostration  by  heat  Is  a 
disease.  Dozler  y.  Fidelity  &  Casualty  Co.  of  New  York  (C.  C.)  46  Fed.  446. 
But  insanity  is  not  a  bodily  disease.  ACCIDENT  INS.  CO.  y.  CRANDAU 
120  U.  B.  527,  7  Sup.  Ct  685,  30  L.  Bid.  740. 


§  240)      VOLUNTARY  AND  UNNECESSARY  EXPOSURE  TO  INJURY.  581 

surer  in  case  a  real  disease  contributes  directly  or  indirectly  to  the  ac- 
cident. Thus,  in  a  recent  Missouri  case  •*  it  was  proved  that  the  in- 
sured was  delirious  from  an  attack  of  grippe  at  the  time  he  jumped  from 
a  hospital  window  and  received  the  injury  for  which  he  brought  suit 
The  court  held  that,  even  though  it  might  be  true  that  the  accidental 
jump  from  the  window  was  the  proximate  cause  of  the  injury,  the  in- 
jury was  yet  at  least  indirectly  due  to  the  delirium  of  the  disease,  and 
therefore  the  insurer  was  held  not  liable. 

VOIiUNTART  AKD  UNNECESSARY  EXFOSUIIE  TO  IN JUBT. 

240.  The  exception  of  injnries  due  to  volnx&tary  and  nnnecessary  ez» 
posure  by  the  insured  nierely  abrogates  the  rule  that  the  in- 
surer is  liable  for  the  consequences  of  the  nesligenoe  of  the 
insured,  so  far  as  they  fall  within  the  terms  of  his  policy.  This 
term  merely  requires  the  insured  to  exercise  reasonable  dili- 
genco  in  avoiding  injury. 

It  is  a  familiar  principle  that  the  insurer  assumes  the  risk  of  the  in- 
sured's negligence,  provided  there  be  no  bad  faith  on  the  part  of  the 
latter.  Accident  insurers,  however,  have  essayed  to  change  this  rule, 
and  to  import  into  the  insurance  contract  the  doctrine  of  contributory 
negligence,  by  inserting  a  provision  excepting  themselves  from  liability 
for  "injury  or  death  caused  by  the  voluntary  exposure  of  the  insured 
to  nnnecessary  danger,"  or  other  words  of  similar  effect.  This  excep- 
tion merely  imposes  upon  the  insured  the  duty  of  exercising  ordinary 
care  in  order  to  avoid  sustaining  any  sort  of  injury.  He  is  not  re- 
quired to  exercise  any  unusual  degree  of  care.  As  is  well  said  by  the 
Nebraska  court,* ^  in  a  case  in  which  the  proprietor  of  a  pleasure  resort 
injured  himself  by  attempting  to  raise  a  very  heavy  dumbbell,  in  order 
to  discover  whether  one  of  his  performers  was  telling  the  truth  as  to 
its  weight:  "Accident  insurance  is  not  designed  to  furnish  indem- 
nity only  in  cases  where  the  policy  holder  orders  his  conduct  with 
grave  circumspection  and  a  provident  foresight  of  consequences.  Mere 
contributory  negligence  is  no  answer  to  an  action  on  a  contract  of  in- 
surance. Neither  is  there  any  absolute  inference  that  the  lifting  was 
unnecessary.  According  to  the  plaintiff's  testimony,  the  act  was  the 
product  of  a  reasonable  motive,  and  was  performed  in  the  line  of  duty." 

In  order  to  come  within  the  terms  of  this  exception,  the  exposure 
must  be  not  only  voluntary — ^that  is,  intentional — but  also  must  be 
unnecessary.  Thus,  the  man  who  is  injured  in  a  fight  which  he  could 
not  avoid,'*  or  a  painter  who  is  injured  by  a  fall  from  the  side  of  a 

•»  Carr  t.  Insurance  Co.,  100  Mo.  App.  602,  76  S.  W.  180. 
«»  RUSTIN  v.  INSURANCE  CO.,  58  Neb.  792,  79  N.  W.  712,  46  L.  B.  A. 
253,  76  Am.  St.  Rep.  136,  Woodruff,  Ins.  Cas.  294. 
•*  OoUins  v.  Fidelity  &  Casualty  Co.,  63  Mo.  App.  258i 


ri 


iB 


I 


582 


ACCIDENT    INSURANCE. 


(Ch.  IG 


house  that  he  was  painting,*'  while  incurring  voluntary  danger,  is  yet 
entitled  to  recover,  since  the  exposure  was  necessary. 

While,  to  come  within  the  language  of  this  exception,  it  is  neces- 
sary that  the  exposure  shall  be  voluntary,  an  actual  appreciation  of  the 
danger  is  not  always  necessary,  provided  the  circumstances  are  such 
that  a  reasonable  man  would  be  aware  of  the  danger.  Thus,  the  act 
of  walking  along  a  railway  track,  even  though  the  track  was  used  as 
a  passway,  is  a  voluntary  exposure  to  danger.  ••  So  is  an  attempt  to 
cross  a  track  before  a  rapidly  approaching  train ;  '^  but  not  the  act  of 
carefully  crossing  a  railway  track  or  a  thoroughfare.*®  So,  attempting 
to  walk  across  a  railway  trestle  on  a  dark  night  is  within  this  excep- 
tion ;  ••  but  the  act  of  the  insured  in  stepping  upon  the  floor  of  the 
bridge,  which  he  had  reason  to  think  was  safe,  is  not,  although  the 
insured  fell  through  a  hole  in  the  bridge  to  his  death  beneath.''®  Stand- 
ing on  the  open  platform  of  a  moving  railway  car  is  voluntary  ex- 
posure to  danger,^*  but  passing  from  one  car  to  another  in  a  vestibule 
train  is  not.^* 

INTENTIONAI.  INJURY  BY  ANOTHIHEt. 

241.  The  terms  excepting  from  the  operation  of  tlie  policy  injuries 
intentionally  inflicted  by  another  are  valid,  bnt  they  'will  ex- 
empt the  insnrer  only  -when  the  injury  is  not  more  extensive 
than  the  intent  ivith  ivhich  it  "was  inflicted. 

Injuries  intentionally  inflicted  upon  the  body  of  the  insured,  either  by 
his  own  hand  while  insane,  or  by  that  of  another,'*  are  deemed  ac- 
cidental, and  chargeable  to  the  insurer,  unless  excepted  from  the  risks 
assumed,  as  is  usually  the  case  in  the  modern  policy.  The  language  of 
the  exception  is  "injuries  or  death  resulting  from  intentional  injuries 
inflicted  by  the  insured  or  another  person." 

In  order  that  an  injury  shall  come  within  this  exception  it  is  not 

••  Matthes  v.  Association,  110  Iowa,  222,  81  N.  W.  484. 

••  Lovell  V.  Insurance  Co.  (Q.  B.  1874)  3  Ins.  Law  J.  877. 

•7  Cornish  v.  Insurance  Co.,  23  Q.  B.  Div.  453. 

•8  Payne  r.  Association,  119  Iowa,  342,  93  N.  W.  361. 

«»  Follis  V.  Association,  94  Iowa,  435,  62  N.  W.  807,  28  L.  R.  A.  78,  58  Am. 
St.  Rep.  408.  See,  also.  Travelers'  Ins.  Co.  t.  Jones,  80  Ga.  541,  7  S.  B.  83, 
12  Am.  St.  Rep.  270. 

70  BURKHARD  v.  INSURANCE  CO.,  102  Pa.  262,  48  Am.  Rep.  205. 

Ti  Travelers'  Ins.  Co.  v.  Randolph,  78  Fed.  754,  24  C.  C.  A.  305;  Travelera' 
Ins.  Co.  V.  Austin,  116  Ga.  264,  42  S.  E.  522,  59  L.  B.  A,  107,  94  Am.  St  Rep. 
125. 

T  2  Robinson  v.  Society  (Mich.)  94  N.  W.  211. 

T8  When  the  peraon  inflicting  the  injury  Is  insane  or  so  grossly  Intoxicated 
as  not  to  be  capable  of  forming  an  intention,  tlie  injury  does  not  fall  with- 
in this  exception,  and  the  insurer  is  liable.  Northwestern  Bene  v.  Soc.  ▼. 
Dudley,  27  Ind.  App.  327,  61  N.  E.  207. 


OCCUPATION  AND  EMPLOYMENT. 


583 


§  242) 

necessary  that  it  shall  be  inflicted  with  the  consent  of  the  insured ;  the 
intent  of  the  other  party  to  inflict  the  injury  is  sufficient.  But  the  in- 
jury received  must  have  been  one  that  the  other  party  intended  to  in- 
flict,^* or  otherwise  it  would  be  accidental.  For  instance,  if  A.  should 
shoot  at  B.  and  kill  C,  he  would,  in  a  criminal  trial,  be  presumed  to 
have  intended  to  murder  C,  but  the  injury  to  C.  would  not  be  "inten- 
tionally inflicted,"  under  the  terms  of  an  accident  policy."  So,  it  has 
been  held  that,  where  the  insured  was  shot  by  a  robber,  the  insurer  was 
held  liable  despite  the  presence  of  this  clause,  as  there  was  no  evidence 
that  the  robber  intended  to  kill  the  insured.^* 


OCCUPATION  AND  EMPLOYMENT. 

242.  An  accident  policy  issued  to  the  insured  as  beingr  engaged  Im  a 
specified  occupation  or  employuLent  does  not  cover  injuries 
suffered  by  Mm  -wliile  engaged  in  son&e  other  vocation,  but  it 
does  cover  such  injuries  as  may  be  inflicted  upon  the  insured 
while  engaged  in  doing  other  incidental  acts  not  in  the  line  of 
the  occupation  specified* 

Some  accident  policies  grant  insurance  only  against  the  risks  of  a 
certain  specified  occupation,  while  in  other  cases  the  insurance  com- 
pany may  have  classified  the  various  occupations  as  more  or  less  haz- 
ardous, and  apportioned  the  amount  of  the  indemnity  to  be  paid  in 
case  of  accident  in  accordance  with  this  classification.  In  such  cases 
it  is  usually  provided  that,  when  the  insured  is  injured  in  an  occupa- 
tion classed  as  more  hazardous  than  that  in  which  he  is  insured,  either 
there  shall  be  no  indemnity  paid  at  all,  or  only  the  amount  which  is 
apportioned  to  the  occupation  in  which  the  insured  was  engaged  when 
he  received  the  injury. 

It  is  held  by  the  authorities  that  the  fact  that  the  insured  has  had 
issued  to  him  a  policy  describing  him  as  engaged  in  a  specified  occupa- 
tion, and  denying  any  liability  on  the  part  of  the  insurer  for  injuries 
suffered  while  otherwise  occupied,  does  not  prevent  the  insured  from 
being  protected  while  doing  those  other  acts,  whether  of  business  or 
pleasure,  which  are  ordinarily  incidental  to  one's  existence  in  a  civil- 
ized community.  Thus,  where  the  plaintiff  was  insured  as  a  banker,  he 
was  allowed  to  recover  for  the  loss  of  a  hand  suffered  while  trying  to 
saw  some  boards  which  he  intended  to  use  in  making  a  cabinet. ''^    So, 

T4  Richards  v.  Insurance  CJo.,  89  Oal.  170,  26  Pac.  762,  23  Am.  St.  Rep.  455; 
Railway  Officials'  &  Employes'  Ace.  Ass'n  v.  Drummond,  56  Neb.  235,  76  N. 
W.  562. 

»»  Richards  v.  Insurance  Co.,  supra. 

7  6  Railway  Officials'  &  ESmployfis'  Ace.  Ass'n  v.  Drummond,  56  Neb. 
76  N.  W.  562. 

"  Hess  V.  Association,  112  Mich.  196,  70  N.  W.  460,  40  L.  R.  A.  444. 


I  • 


I    "1 


ir 


5S4 


ACCIDENT   INSUKANCB. 


(Ch.  IG 


another  person  who  was  insured  as  a  teacher  was  allowed  to  recover 
when  he  was  killed  by  falling  from  a  barn  which  he  was  having  built.^* 
So,  where  a  barber  was  out  hunting  and  received  an  injury,  he  was  not 
considered  to  have  been  hurt  while  engaged  in  the  occupation  of  hun- 
ter J »  The  same  rule  has  been  applied  in  the  case  of  similar  injuries 
received  by  persons  insured  as  grocer  «<*  and  bookkeeper.*^  In  another 
case  it  was  held,  however,  that  where  a  man,  who  had  obtained  insur- 
ance as  a  "retired  gentleman,"  was  injured  while  operating  a  buzzsaw 
merely  for  the  fun  of  it,  he  was  not  entitled  to  charge  the  consequences 
of  his  fun  to  the  insurance  company.®* 

More  Hazardous  Employments, 

The  same  principles,  in  effect,  apply  to  those  cases  in  which  a  less 
amount  of  indemnity  is  paid  for  an  injury  received  while  engaged  in 
an  employment  classified  as  more  hazardous  than  that  in  which  the 
plaintiff  was  insured.  In  order  that  the  payment  may  be  reduced  to 
that  apportioned  to  the  more  hazardous  occupation,  it  must  be  proved 
that  the  insured  had  engaged  in  that  occupation  as  his  regular  voca- 
tion. The  mere  fact  that  he  may  have  done  some  acts  which  are  or- 
dinarily done  by  persons  of  a  certain  vocation  does  not  necessarily  put 
him  in  that  class.  Thus,  a  person  insured  as  a  farmer,  when  injured 
while  driving  piles  for  a  private  bridge  that  he  was  building  on  his 
farm,  was  held  not  to  be  engaged  in  the  occupation  of  a  pile  driver,  and 
therefore  not  subject  to  have  his  indemnity  cut  down  to  the  amount 
apportioned  to  the  more  hazardous  occupation  of  pile  driving.**  But 
where  a  person  insured  as  "importer  and  dealer  in  Chinese  merchan- 
dise and  contractor  for  Chinese  labor,"  was  injured  while  acting  as 
foreman  of  a  gang  of  Chinese  laborers,  it  was  held  that  the  company 
was  liable  to  pay  only  in  accordance  with  the  rating  of  the  more  hazard- 
ous employment  of  foreman,  despite  the  fact  that  the  agent  of  the  in- 
surer knew  at  the  time  of  the  issue  of  the  policy  that  the  insured  was 
accustomed  occasionally  to  act  as  such  foreman.**  So,  where  a  per- 
son insured  in  the  class  of  blacksmiths  was  killed  while  he  was  acting 
as  a  car  coupler,  an  occupation  more  hazardous  than  that  of  black- 

Ti  STONE'S  ADM'RS  v.  CASUALTY  CO.,  34  N.  J.  Law,  371. 

79  Wildey  Casualty  Co.  v.  Sheppard,  61  Kan.  351,  59  Pac.  651,  47  L.  R.  A. 
650. 

80  Kentucky  Life  &  Accident  Ins.  Co.  v.  Franklin,  102  Ky.  512,  43  S.  W. 
709. 

81  Holiday  t.  Association,  103  Iowa,  178,  72  N.  W.  448,  64  Am.  St  Rep. 
170.  So  of  an  insured  merchant,  injured  while  hunting.  Union  Mut  Ace. 
Ass'n  V.  Frohard,  134  111.  228,  25  N.  E.  642,  10  L.  R.  A.  383,  23  Am.  St  Rep. 
664. 

82  Knapp  y.  Association,  53  Hun,  84,  6  N.  Y.  Supp.  57. 
88  National  Ace.  Soc.  v.  Taylor,  42  111.  App.  97. 

84  Employers'  Liability  Assurance  Corp.  t.  Back,  102  Fed.  229,  42  a  0.  A. 
286. 


§243) 


INJURIES   RECEIVED   WHILE   INTOXICATED. 


585 


smith,  the  liability  of  the  insurer  was  reduced  to  that  payable  to  car 
couplers.*^  In  another  case,  where  the  insured  was  injured  when 
riding  home  on  his  bicycle  from  a  friend's  funeral,  taking  a  more  cir- 
cuitous route  than  was  necessary,  it  was  held  that,  as  the  indirect 
route  was  taken  for  recreation,  he  was  entitled  only  to  the  indemnity 
payable  to  the  class  to  which  amateur  bicyclists  belong. ®®  As  a  general 
rule,  it  is  for  the  jury  to  determine  whether  the  acts  done  by  the  in- 
sured, in  any  case,  constitute  engaging  in  the  occupation  in  which  these 
acts  are  usually  done,  or  whether  the  acts  are  incidental  and  occa- 
sional." 

A  classification  once  made  by  the  agent  of  the  insurer,  there  being 
no  circumstances  of  fraud  on  the  part  of  the  insured,  is  binding  upon 
the  insurer,  though  the  classification  may  have  been  wrong  on  account 
of  an  error  of  the  agent.  Thus,  a  cattle  dealer,  who  was  accustomed 
occasionally  to  accompany  his  cattle  when  shipped  by  railway,  was  in- 
sured as  belc«iging  to  the  class  of  cattlemen  not  accompanying  ship- 
ments, which  occupation  was  regarded  as  less  hazardous  than  that  of  an- 
other class  designated  as  "cattle  dealers  accompanying  shipments." 
The  facts  being  fully  stated  to  the  agent,  he  classified  the  insured  in  the 
less  hazardous  class.  The  insured  being  subsequently  injured  while  at- 
tending to  some  cattle  that  were  being  shipped,  it  was  held  that  the 
company  was  Kable  to  pay  the  sum  due  to  the  less  hazardous  class,  it 
being  bound  by  the  mistaken  classification  of  its  agent*' 


INJUltlES  RECEIVED  WHILE  INTOXICATED. 


243.  Accident  policies  usnally  except  injnries  received  by  tlie  insnred 
isrhile  nnder  the  influence  of  intoxicants.  This  exception  ex- 
empts the  insnrer  from  liability  for  any  injury  that  may  bs 
sustained  by  the  insured  when  in  a  condition  of  inteidcation, 
'orhether  his  intoxication  contributed  to  the  injury  or  not. 

As  we  have  heretofore  seen,  there  is  some  difference  of  opinion  as  to 
what  constitutes  "intemperance,"  within  the  meaning  of  the  usual  war- 
ranty of  temperance  in  the  life  policy.  There  is  likewise  some  diffi- 
culty in  deciding  when  the  insured  is  to  be  considered  "under  the  in- 
fluence of  intoxicating  drinks,"  *®  within  the  terms  of  the  exception 


«6  Standard  Life  &  Accident  Ins.  Co.  r.  Taylor,  12  Tex.  Civ.  App.  386,  34 
S.  W.  781. 

8«  Eaton  V.  Insurance  Co^  89  Me.  570,  36  Atl.  1048. 

87  Eggenberger  v.  Association  (C.  C.)  41  Fed.  172;    Tucker  v.  Insurance 
Co.,  50  Hun,  50,  4  N.  Y.  Supp.  505. 

8«  Pacific  Mut  Life  Ins.  Co.  v.  Snowden,  12  U.  S.  App.  704,  58  Fed.  342,  7 
C.  C.  A.  264.     Compare  Employers'  Liability  Assur.  Corp.  v.  Back,  102  Fed. 
229,  42  C.  C.  A.  286. 
.    •»  It  is  well  settled  that  the  phrase  *'under  the  influence  of  intoxi<sating 


586 


ACCIDBNT    INSURANCB. 


v: 


I'  * 


I 


(Ch.  16 

ordinarily  inccwporated  in  every  accident  policy.  Courts  have  always 
found  difficulty  in  deciding  when  a  man  is  to  be  considered  drunk,  but 
for  the  purpose  of  the  insurance  polky  it  is  considered  that  the  insured 
is  under  the  influence  of  intoxicating  liquor  when  he  has  so  far  in- 
dulged himself  as  to  render  himself  incapable  of  that  deliberate  ex- 
ercise of  all  of  his  faculties,  for  the  purpose  of  protecting  himself  from 
injury,  upon  which  the  insurer  reasonably  relies. •• 

In  a  leading  case**  the  insured  partook  too  freely  of  intoxicants 
during  the  course  of  a  dinner  with  a  convivial  friend.  The  ccxiver- 
sation  chanced  to  turn  upon  shooting,  whereupon  the  friend  offered 
to  make  good  his  boast  of  skill  in  shooting,  by  shooting  the  ear  of 
the  insured  without  hitting  him  otherwise.  The  insured,  while  not 
too  drunk  to  stand  erect,  was  not  sober  enough  to  decline  the  propo- 
sition. His  friend's  skill  had  evidently  forsaken  him  in  the  midst 
of  his  cups,  for  the  result  of  the  trial  was  that  the  bullet,  instead  of 
piercing  the  ear  of  the  insured,  struck  him  fairly  in  the  forehead, 
killing  him  instantly.  The  New  York  court  held  very  reasonably  that 
the  insured  was  brought  to  his  death  while  intoxicated,  and  therefore 
that  there  could  be  no  recovery  under  the  policy. 

It  is  not  necessary,  however,  that  the  intoxication  of  the  insured  shall 
in  any  wise  have  contributed  to  his  injury.  If  he  was  intoxicated  at 
the  time  of  receiving  the  injury,  he  loses  his  right  to  claim  indemnity 
from  the  insurer,  even  though  there  was  no  causal  relation  between 
the  intoxication  and  the  injury.** 


I 


MABTT.TTY  OF  THE  INSURER— TOTAI.  DISABHiITT. 

244.  The  liability  of  the  insurer  is  fixed  exclusively  by  the  terms  •£ 
tbe  policy.  Total  disability,  upon  which  certain  payments  are 
usually  conditioned,  exists,  as  a  general  rule,  when  the  injury 
is  such  as  to  prevent  the  insurer  from  engagring;  in  his  cus- 
tomary occupation.  This  rule,  however,  may  be  varied  by  the 
terms  of  the  contract. 


drinks,**  as  used  in  accident  policies,  has  the  legal  significance  of  •'drank"  or 
•'intoxicated."  Standard  Life  &  Accident  Ins.  Co.  v.  Jones,  94  Ala.  434,  10 
South.  530. 

00  SHADER  V.  ASSURANCE  CO.,  66  N.  Y.  441,  23  Am.  Rep.  65,  affirming 
3  Hun  (N.  Y.)  424,  5  Big.  Ins.  Cas.  331.  In  this  case  the  court  thus  expresses 
the  reason  of  this  provision:  "Accidental  policies  are  issued  principally  to 
travelers  or  persons  exposed  to  unusual  peril  and  danger,  and,  the  risk  in 
such  cases  being  extremely  hazardous,  it  is  by  no  means  unreasonable  that 
the  insurer  should  require  that  the  insured  should  be  under  no  exciting  in- 
fluence which  may  affect  his  self-possession  or  judgment,  or  seriously  inter- 
fere with  the  free,  full,  and  deliberate  exercise  of  bis  faculties  in  protecting 
himself  from  accident  or  harm.** 

•1  SHADER  v.  ASSURANCE  CO.,  supra. 

•2  See  SHADER  v.  ASSURANCE  CO.,  supra;  Standard  Life  &  Aoddent 
Ins.  Go.  y.  Jones,  94  Ala.  434,  10  South.  920, 


§244) 


LIABILITY  OF  THE   INSURER — TOTAL  DISABILITY. 


587 


Loss  of  a  Member, 

Granting  that  the  policy  is  once  validly  issued,  the  measure  of  the 
insurer's  liability  depends  solely  upon  its  terms,  no  embarrassing  ques- 
tions of  indemnity  being  allowed  to  arise.*'  The  extent  of  the  in- 
surer's liability  for  any  one  of  the  innumerable  injuries  which  a  mortal 
may  sustain  varies  almost  infinitely  with  the  character  of  the  injury 
under  the  terms  of  the  policy.  Therefore,  any  general  discussion  of 
the  liability  of  the  instu*er  will,  for  the  most  part,  be  useless,  just  as 
a  particular  discussion  of  individual  cases  would  be  at  once  tedious 
and  profitless.  Two  general  cases,  however,  may  be  properly  noted. 
Where  the  insurer  agrees  to  pay  a  certain  sum  in  case  of  the  loss  of 
a  member,  or  of  members,  as  of  "one  entire  hand,"  or  "sight  in  both 
eyes,"  etc.,  it  is  not  necessary,  in  order  that  the  member  shall  be  lost, 
within  the  meaning  of  this  phrase,  that  it  shall  be  severed  or  separated 
from  the  body.  If  it  is  so  injured  as  to  be  practically  useless  to  the 
insured,  it  is  to  be  deemed  entirely  lost.  Thus,  where  a  man  received 
an  accidental  gunshot  wound  in  the  spine,  causing  paralysis  (A  the  lower 
limbs,  it  was  held  that  he  suffered  an  entire  loss  of  both  his  legs.** 
Again  where  a  one-eyed  man  had  that  eye  knocked  out,  he  was  held 
to  have  lost  the  sight  of  both  eyes,  witiiin  the  terms  of  his  policy.*  • 

Total  Disabiiky, 

Much  litigation  has  arisen  in  determining  when  the  insured  shall 
be  deemed  to  have  been  "totally  disabled,"  within  the  terms  of  the  usual 
accident  policy.  Of  coarse,  there  may  be  qualif3ring  phrases  coupled 
with  the  one  in  question,  which  wifl  more  or  less  cleariy  indicate  its 
definition  in  particular  cases.  For  instance,  where  it  is  stipulated  that, 
in  order  to  recover,  the  insured  shall  be  disabled  from  carrying  on  "all 
kinds  of  business,"  *•  or  that  the  injury  shall  cause  a  "total  inability 
to  labor,"  '^  in  such  cases  the  limiting  adjuncts  should  receive  a  rea- 
sonable construction. 

But  where  the  provision  is  for  a  certain  payment  in  case  of  mere 


'\ 


•3  Of  course,  the  policy  may  stipulate  for  liability  measured  by  actual  loss 
to  the  insured,  as  where  "the  money  value"  of  the  insured's  time  loss  was 
fixed  as  the  limit  of  his  recovery.  Bean  v.  Insurance  Co..  94  Cal.  581,  29 
Pac.  1113. 

»*  Sheamon  v.  Insurance  Co.,  77  Wis.  618,  46  N.  W.  799,  9  L.  B.  A.  685,  20 
Am.  St.  Rep.  151. 

95  Humphreys  v.  Association,  139  Pa.  214,  20  Atl.  1047,  11  L.  R.  A.  564. 

»•  Lyon  v.  Assurance  Co.,  46  Iowa,  631.  For  an  interesting  case  in  which 
an  attempted  restriction  of  this  kind  was  turned  against  the  insurer  in  a 
most  surprising  fashion,  see  YOUNG  v.  INSURANCE  CO.,  80  Me.  244,  13 
Atl.  896. 

»T  Total  inability  to  labor  does  not  exist  so  long  as  the  injured  person  is 
capable  of  doing  any  labor  whatever  by  which  he  could  earn  a  livelihood. 
Baltimore  &  Ohio  Employes'  Relief  Ass'n  v.  Po«t,  122  Pa.  579,  15  AtL  885 
2  L.  R.  A.  44,  9  Am.  St  Rep.  147. 


ft 


H 


I 


'  i 


I: 


5S8 


ACCIDENT   INSURANCB. 


(Ch.  16 


total  disability,  or  total  disability  to  engage  in  his  usual  occupation,  it 
IS  generally  held  that  such  total  disability  exists  when  the  insured  is 
so  injured  as  to  be  incapable  of  safely  and  efficiently  engaging  in  his 
usual  employment  It  necessarily  follows,  therefore,  that  the  extent 
of  the  injury  necessary  to  cause  total  disability  will  vary  greatly  with 
the  character  of  the  employment.  Thus,  where  an  active  solicitor  was 
so  injured  as  to  be  confined  to  his  room,  so  that  he  was  unable  per- 
sonally to  attend  to  the  business  of  his  clients,  he  was  held  to  be  to- 
tally disabled,  although  he  was  able  to  conduct  his  correspondence  and 
to  direct  his  clerks."  So,  a  surgeon  would  be  totally  disabled  by  the 
loss  of  an  arm,  since  it  would  be  practically  impossible  for  him  to  per- 
form surgical  operations  without  the  use  of  both ;  but  a  druggist,  hav- 
ing lost  one  arm,  could  carry  on  his  business  very  well  with  the  other, 
and  therefore  was  not  totally  disabled.** 

In  order  to  be  totally  disabled  it  is  not  necessary  that  the  insured 
should  be  wholly  incapable  of  doing  any  acts  at  all  in  furtherance  of 
his  business  interests.  He  might  be  capable  of  doing  single,  incon- 
siderable acts  in  connection  with  his  business,  and  yet  be  wholly  unable 
to  conduct  it  efficiently.!'*  So,  the  insured  will  be  held  to  be  totally 
disabled  if  considerations  of  prudence  would  require  him  to  refrain 
from  carrying  on  his  business,  even  though  he  might  be  physically  ca- 
pable of  conducting  it,  though  at  the  risk  of  his  health.^** 

KIGHT  TO  AN  AUTOPST. 

245.  The  Tight  reserved  in  accident  policies  to  the  insurer  to  demand 
an  autopsy  in  case  of  alleged  accidental  death  is  not  absolute, 
but  one  to  be  exercised  reasonably,  with  due  consideration  to 
all  the  circumstances  of  the  case. 

In  order  to  avoid  fraudulent  claims,  most  accident  policies  contain 
a  stipulation  that,  upon  demand  by  the  insurer,  the  body  of  the  insured 
shall  be  subject  to  examination  by  the  medical  examiner  of  the  in- 
surer, and  that,  if  demand  is  made,  the  insurer  shall  be  permitted  to 
hold  an  autopsy  upon  the  body  of  the  deceased  insured.  Such  a  pro- 
vision is  reasonable,  and  well  calculated  for  the  proper  protection  of 
the  insurer.     It  will,  therefore,  be  enforced,  provided  it  is  claimed 

»«  Hooper  ▼.  Insurance  Co.,  5  H.  A  N.  546,  7  Jur.  (N.  S.)  73.  But  an  attor- 
ney is  not  totally  disabled  by  losing  the  use  of  one  hand.  United  Statea 
Mut  Ace.  Ass'n  v.  Biillard,  43  111.  App.  148. 

•»  Smith  V.  Supreme  Lod^e,  62  Kan.  75,  61  Pac.  416. 

100  Turner  v.  Fidelity  &  Casualty  Co..  112  Mich.  425,  70  N.  W.  898  38  L. 
R.  A.  529,  67  Am.  St  Rep.  428;    Lobdill  t.  Association.  69  Minn    14*  71  N 
W.  696,  38  U  R.  A.  537,  65  Am.  St  Rep.  5^.  *       ' 

101  YOUNG  V.  INSURANCE  CO.,  80  Me.  244,  13  Atl.  896;  Lobdill  t.  Asso- 
ciation, 69  Minn.  14.  71  N.  W.  696.  38  L.  R.  A.  537.  65  Am.  St  Rep  542. 


.:i  245) 


EIGHT  TO  AN   AUTOPSY. 


589 


under  reasonable  circumstances.*®*  The  insurer,  if  desiring  an  autopsy, 
must  make  his  demand  within  a  reasonable  time,  and  of  the  proper 
ijcrson.  As  a  general  thing,  if  he  delays  making  such  a  demand  until 
after  the  burial  of  the  corpse,  he  will  be  deemed  to  have  forfeited  his 
right.*®*  Reasons,  both  of  sentiment  and  public  policy,  would  prohibit 
the  insurer  from  making  a  tardy  demand  for  an  autopsy  that  could 
be  complied  with  only  by  exhuming  the  buried  body.  If,  however, 
circumstances  awakening  suspicion  of  fraud  come  to  the  knowledge 
of  the  insurer  only  after  interment  has  taken  place,  it  seems  that  he 
may  insist  upon  the  exhuming  and  dissection  of  the  body,  especially  if 
the  collateral  proof  of  fraud  is  strong.*®* 

!•«  See  Tompkins  ▼.  Insurance  CJo.,  53  W.  Va.  479,  44  S.  E.  439,  62  L.  R. 
A.  489. 

108  American  Employers'  Liability  Ins.  Co.  v.  Barr,  32  U.  S.  App.  444,  68 
Fed.  873,  16  C.  C.  A.  51.  In  this  case  the  demand  was  made  several  weeks 
after  burial,  and  of  the  widow  of  the  deceased,  rather  than  of  the  beneficiary. 
Bwing  V.  Association,  55  App.  Div.  241,  66  N.  Y.  Supp.  1066;  Wehle  T.  As- 
sociation, 153  N.  Y.  116,  47  N.  B.  35,  60  Am,  St  Rep.  598. 

104  Wehle  y.  ABiodation,  supra. 


f' 


590 


ti 


■J" 


aUARANTY,   CREDIT,    AND    LIABILITY    INSURANCE.  (Ch.  IT 


CHAPTER  XVn. 

OUARANTT.  CREDIT,  AND  LIABILITY  INSURANOm 


24a 
247-248. 
249-250. 

251. 
262-253. 

254. 


In  General. 

Fidelity  and  Guaranty  Insurance. 

Liability  of  the  Guaranty  Insurer. 

Credit  Insurance. 

Employers'  Liability  Insurance. 

Rights  of  the  Injured  Person  in  the  Insurance  Fund. 

ZN  OENEBAIc 

246.  The  Tighu  of  the  parties  to  oontracti  for  the  speolal  Unds  of 
insurance  recently  developed  are  to  be  determined  in  accord- 
ance with  the  terms  of  each  contract,  constmed  in  the  Ught  of 
the  purpose  for  which  it  was  made,  and  according  to  the  gen- 
oral  rules  of  insurance  law. 

Reference  has  already  been  made,  in  considering  the  development  of 
the  practice  of  insurance,  to  the  remarkably  rapid  extension  within 
recent  times  of  the  principles  of  insurance  to  almost  every  important 
commercial  or  industrial  enterprise  the  conduct  of  which  necessarily 
subjects  those  concerned  in  it  to  risk  of  loss  from  fortuitous  causes. 
Thus  special  contracts  are  now  made  insuring  against  loss  by  lightning 
hail,   floods,   tornado  or  other  windstorm,   or   by   failure  of  crops. 
Many  of  these  special  insurances  have  assumed  sufficient  importance 
to  have  received  special  names  that  are  fast  becoming  familiar  not 
only  to  the  lawyer,  but  to  the  general  public  as  well.    Live  stock  in- 
surance protects  the  owners  of  live  stock  against  damage  or  loss  by 
lightning  or  disease;    boiler  insurance,  against  the  injurious  conse- 
quences of  boiler  explosions ;  title  insurance,  against  defects  in  or  fail- 
ure of  title  to  real  estate ; '   rent  insurance,  against  loss  by  reason  of 
the  failure  of  tenants  to  pay  rent ;  burglar  insurance,  against  loss  by 
burglary ;  and  plate-glass  insurance  against  all  the  evils  that  may  be- 
fall that  fragile  but  costly  kind  of  property.     Probably  the  latest  of 
these  special  forms  of  insurance  is  strike  insurance,  devised  for  the 

»  Title  insurance:  The  business  of  insuring  titles  of  real  estate  to  purchas- 
ers or  mortgagees  has  become  very  extensive,  every  considerable  city  having 
''^L^LT''^ .^'^^^  companies,  which  unite  the  business  of  examining  tities 
with  that  of  Insuring  them.  The  thoroughness  that  characterizes  the  work  of 
these  companies  is  attested  by  the  remarkably  small  number  of  cases  involv- 
ing title  insurance  that  are  to  be  found  in  our  reports.  The  usual  terms  and 
general  scope  of  title  Inaurance  contracts  may  be  seen  in  the  following  cases  • 
Place  V.  Trust  Co    67  Minn.  126,  69  N.  W.  70C,  64  Am.  St  Rep.  404 ;  Stensgaard 


§246) 


IN  GENEBAL. 


591 


purpose  of  protecting  employers  of  labor  from  losses  that  may  be 
caused  by  strikes  among  their  employes. 

But  the  special  insurances  which  are  most  important  and  popular, 
as  answering  a  more  generally  recognized  need,  are  fidelity  and  guar- 
anty insurance,  intended  to  protect  employers  against  the  consequences 
of  the  dishonesty  of  employes;  liability  insurance,  against  liabilit>' 
incurred  by  masters  or  passenger  carriers  on  account  of  personal  in- 
juries suffered  by  servants  or  passengers ;  and  credit  insurance,  against 
loss  to  merchants  from  bad  debts.  Only  these  three  forms  last  men- 
tioned are  of  sufficient  importance  at  the  present  time  to  justify  special 
treatment  in  such  a  work  as  this.  The  oldest  and  most  important  kind 
of  special  insurance,  accident  insurance,  has  already  been  separately 
treated. 

General  Principles  of  Construction. 

Contracts  for  these  kinds  of  insurance  often  assume  forms  very  dif- 
ferent from  that  of  the  conventional  insurance  policy,  and  bear  names 
suggestive  of  other  commercial  contracts.  Thus  a  contract  of  fidelity 
or  guaranty  insurance  may  be  set  forth  in  an  instrument  bearing  the 
form  of  an  ordinary  official  bond,  while  another  writing  purporting 
to  be  a  contract  of  conditional  sale  may  prove  to  be  a  contract  of 
credit  *  insurance  or  of  crop  *  insurance.  But  whatever  be  the  outer 
form  of  such  contracts,  the  courts  always  look  to  their  inner  na- 
ture, and  if  they  are  found  in  reality  to  be  agreements  "by  which 
one  party  for  a  consideration  promises  to  pay  money  or  its  equiv- 
alent, or  to  do  some  act  of  value  to  the  assured,  upon  the  destruc- 
tion or  injury  of  something  in  which  the  other  party  has  an  interest,"  * 
they  are  declared  to  be  contracts  of  insurance,  and  subject  in  their 
making  to  all  the  laws  regulating  insurance.  Thus  in  a  lecent  Massa- 
chusetts case  a  contract  whereby  one  party  agreed  to  purchase  at  a 
fixed  price  all  the  accounts  which  the  other  should  have,  during  a 
designated  period,  against  certain  defined  insolvent  debtors,  or  judg- 


» 


2  Claflln  V.  Credit  System  Co.,  165  Mass.  501,  43  N.  B.  293,  52  Am.  St  Rep. 
528;  Shakman  v.  Credit  System  Co.,  92  Wis.  366,  66  N.  W.  528,  32  L.  R.  A. 
383,  53  Am.  St  Rep.  920;  Robertson  v.  Credit  System  Co.,  57  N.  J.  Law.  12. 
29  Atl.  421. 

8  See  State  y.  Hogan,  8  N.  D.  301,  78  N.  W.  1051,  45  L.  R.  A.  166,  73  Am. 
St  Rep.  759.  In  this  case  it  was  held  that  a  contract  whereby  a  farmer,  by 
the  payment  of  a  certain  sum,  purchased  an  option  to  sell  the  produce  of  cer- 
tain described  farm  lands  at  $5  an  acre,  was  one  of  guaranty  insurance,  and 
that  the  corporation  engaged  in  making  such  contracts  should  comply  with 
all  the  requirements  of  the  state  insurance  laws. 

*  This  definition  of  a  contract  of  insurance,  first  given  In  COMMONWEALTH 
V.  WETHERBEE,  105  Mass.  149,  160,  was  adopted  by  the  Massachusetts  In- 
surance act  of  1887  (St  1887,  c  214^  i  3).  And  see  Claflin  y.  Credit  System  Co.. 
•supra. 


I « 


592  GUARANTY,    CREDIT,    AND    LIABILITY    INSURANCE.  (Ch.  17 

1 

ment  debtors,  against  whom  execution  should  have  been  returned  un- 
satisfied, was  held  to  be  an  insurance  contract.* 

Being  thus  insurance  contracts,  these  agreements  are  subject  to 
the  same  general  rules  of  law  that  have  already  been  discussed  as 
applicable  to  fire,  marine,  and  life  insurance,  although  there  are  to  be 
found  in  the  cases  occasional  intimations  that  the  courts  will  be  loath 
to  apply  to  these  new  kinds  of  insurance  the  arbitrary  technical  rules 
that  have  so  often  operated  to  embarrass  the  courts  and  to  defeat  just 
claims  under  policies  of  insurance  of  the  older  kinds.^ 

Contracts  Construed  in  Favor  of  Insured. 

Probably  the  most  important  general  rule  guiding  the  courts  in  the 
construction  of  insurance  policies  is  that  all  doubt  or  uncertainty  as 
to  the  meaning  of  the  contract  shall  be  resolved  in  favor  of  the  insured. 
This  rule,  it  is  well  settled,  applies  in  full  force  to  these  contracts  of 
special  insurance,^  which,  unfortunately  for  both  insurer  and  insured, 
are  often  filled  with  numerous  conditions,  the  legal  significance 
and  economic  purpose  of  which  are  alike  uncertain,  as  was  the  case 
with  life  policies  a  quarter  of  a  century  ago.  Such  a  contract  was 
thus  commented  on  by  the  North  Carolina  Supreme  Court  in  a  recent 
case: «  "One  of  these  conditions  is  as  follows:  'And,  lastly,  should 
the  employe  become  a  defaulter  and  seek  refuge  in  any  foreign  coun- 
try, he  hereby  agrees  to  the  enforcement  against  him  of  the  laws  of 
such  country,  as  they  are  now  or  may  be  hereafter  enacted,  relative  to 
the  commission  of  injuries  or  offenses  against  an  employer  resident  in 

8  Claflln  V.  Credit  System  Co..  165  Mass.  501,  43  N.  B.  293,  52  Am.  St  Rep. 
528.  The  same  contract  was  similarly  construed  in  the  other  cases  cited  in 
note  1,  supra. 

•  Thus,  in  Guarantee  Co.  of  North  America  v.  Trust  Co.,  80  Fed.  766,  26 
C.  C.  A.  146,  it  is  said :  "Marine,  fire,  or  life  insurance  against  the  destrurtive 
forces  of  nature  is  not  quite  the  same  thing  as  an  insurance  against  the  dangers 
of  dishonesty ;  and  the  courts  must  interpret  the  contracts  in  view  of  this  dif- 
ference, applying  the  words  used  to  the  purpose  of  covering  the  peculiarities 
of  the  risk  assumed  on  the  one  hand,  and  on  the  other  intended  to  be  dis- 
carded or  shifted  to  others.  And  if  these  new  contracts,  whatever  their  form 
are  to  be  turned  into  contracts  of  insurance,  the  courts  will  be  careful  not  to 
again  perplex  themselves  with  regrettable  technicalities  of  law,  such  as  have 
sometimes  crept  into  the  older  contracts  of  insurance,  and  have  reaulped 
statutes  for  their  removal." 

T  Mechanics*  Sav.  Bank  &  Trust  Co.  v.  Guarantee  Co.  (C.  C.)  68  Fed  469  • 
Shakman  v.  Credit  System  Co..  92  Wis.  366,  66  N.  W.  528,  32  L.  R.  A.  383! 
53  Am.  St  Rep.  920;  American  Surety  Co.  v.  Pauly,  170  U.  S.  144,  18  Sup 
Ct  652,  42  L.  Ed.  977;  American  Credit  Indemnity  Co.  v.  Cassard,  83  Md. 
272,  34  Atl.  703.  And  see,  especially.  Bank  of  Tarboro  v.  Deposit  Co.,  126 
N.  C.  320,  35  S.  E.  588.  83  Am.  St  Rep.  682;  s.  c.  on  rehearing,  128  N.  C  366 
38  S.  E.  908,  83  Am.  St  Rep.  682. 

8  Bank  of  Tarboro  v.  Deposit  Co.,  126  N.  0.  320,  36  S.  D.  688.  83  Am.  St  Rep. 
682. 


§2^6) 


IN  GENERAL. 


593 


such  country.'  How  an  agreement  between  private  parties  can  affect 
the  criminal  laws  of  a  foreign  country  we  fail  to  comprehend,  and  we 
are  glad  the  question  is  not  before  us.  We  allude  to  it  only  to  show 
the  complicated  nature  of  the  conditions  injected  into  bonds  of  in- 
demnity which  often  tend  to  defeat  the  primary  object  of  the  contract 
The  old  bond  of  indemnity  was  a  simple  instrument,  which  could  be 
easily  comprehended  and  promptly  enforced.  If  these  new  forms  of 
contract  are  to  take  its  place,  we  hope  they  will  preserve  some  of  its 
simplicity  and  efficiency.  This  is  a  matter  of  great  importance,  as 
surety  companies  arc  now  allowed  to  make  the  bonds  of  trustees,  guar- 
dians, administrators,  and  all  other  fiduciaries;  and  we  would  much 
regret  to  see  the  rights  of  orphan  children,  as  well  as  other  helpless 
beneficiaries,  depend  not  upon  the  substantial  merits  of  their  case,  but 
upon  a  multitude  of  technicalities  in  an  instrument  to  which  they  were 
not  parties."  • 

But  this  rule  of  construction  favoring  the  insured  will  not  be  car- 
ried so  far  as  to  make  a  new  contract  for  the  parties.  It  has  no  room 
for  application  when  rights  under  the  contract  as  written  are  clear. 
Thus  in  a  recent  Massachusetts  case  ^**  the  defendant  had  insured  the 
plaintiff  railway  company  "against  loss  from  liability  to  every  person 
who  may,  during  a  period  of  twelve  months"  from  a  specified  date, 
"accidentally  sustain  bodily  injuries  while  traveling  on  any  railway 
of  the  insured,  or  while  in  a  car  or  upon  the  railway  bed  or  other 
property  of  the  insured,  under  circumstances  which  shall  impose  upon 
the  insured  a  common-law  or  statutory  liability  for  such  injuries." 
The  insured  became  liable  to  the  administrator  of  a  passenger  who 
was  instantly  killed  while  on  one  of  its  cars,  and  sought  indemnity 
from  the  insurer.  The  court,  however,  held  that,  as  the  insurer  had 
promised  indemnity  only  for  liability  to  the  person  injured,  the  in- 
sured could  not  make  legal  claim  for  indemnity  against  liability  to  the 
injured  person's  administrator,  whose  right  of  action,  given  only  by 
statute,  was  original  and  distinct,  and  not  a  surviving  right.  While 
the  plaintiff  was  doubtless  surprised  to  learn  from  the  court  what  a 
peculiar  contract  it  had  made,  the  decision  appears  to  be  sound. 

•  The  principle  underlying  the  rule  that  all  presumptions  are  in  favor  of  the 
validity  of  a  contract  of  insurance  is  thus  forcibly  put  in  a  second  appeal  of 
the  Bank  of  Tarboro  Case  (128  N.  C.  366,  38  S.  B.  908,  83  Am.  St  Rep.  682) : 
"The  object  of  an  indemnifying  bond  is  to  indemnify;  and  if  it  fails  to  do 
this,  either  directly  or  indirectly,  it  fails  to  accomplish  its  primary  purpose, 
and  becomes  worse  than  useless.  It  is  worthless  as  an  actual  security,  and 
misleading  as  a  pretended  one." 

10  Worcester  &  S.  St  R.  Co.  v.  Insurance  Co.,  180  Mass.  263,  62  N.  E.  364, 
67  L.  R.  A.  629,  91  Am.  St  Rep.  275.  See,  also,  People's  Ice  Co.  t.  Assurance 
Corp.,  161  Mass.  122,  36  N.  B.  754;  Phillipsburg  Horse  Gar  Co.  ?•  Fidelitj 
Co.,  160  Pa.  350,  28  Atl.  823. 

Yancb  I«s.— 88 


! 


594  GUARANTY,   CREDIT,    AND    LIABILITY    INSURANCE.  (Ch.  17 

Good  Faith  Required  of  the  Parties, 

As  in  the  case  of  other  insurances,  the  parties  to  these  contracts  of 
special  insurance  must  exercise  the  highest  degree  of  good  faith  in 
dealing  with  each  other.  It  has  been  intimated  in  some  of  the  cases 
that  the  parties  to  these  new  insurances  contract  with  each  other  at 
arm's  length,"  but  this  is  certainly  not  the  case.  Thus  it  has  been  held 
that  the  failure  of  the  employer  to  inform  the  surety  company  of  pre- 
vious known  acts  of  dishonesty  on  the  part  of  the  employe  discharged 
the  fidelity  bond  given  in  ignorance  of  such  dishonesty."  That  is 
to  say,  the  insured  owes  to  the  insurer  in  such  cases  the  duty  of  making 
full  disclosure  of  all  facts  known  by  him  to  be  material  to  the  risk 
which  the  insurer  proposes  to  assume.  Likewise  it  is  the  duty  of  the 
insured  to  inform  the  surety-insurer  of  any  occurrences  during  the 
currency  of  the  insurance  which  will  materially  increase  the  risk,  such 
as  embezzlement,  or  other  acts  of  the  employe  concerned  that  involve 
moral  turpitude.** 

Proofs  of  Loss. 

The  same  rules  that  have  already  been  discussed  as  applying  to  re- 
quirements of  proofs  of  loss  found  in  the  more  familiar  kinds  of  insur- 
ance policies,  also  apply  to  similar  requirements  that  usually  appear  in 
contracts  for  these  special  kinds  of  insurance.  Thus  the  requirement 
of  "immediate  notice"  of  an  injury  entailing  liability,  usually  found  in 
employers'  liability  insurance  policies,  is  satisfied  by  giving  notice 
within  a  reasonable  time.'* 


"See  Guaranty  Co.  of  North  America  v.  Trust  Co.,  80  Fed.  766,  26  0.  O.  A, 
146. 

"Capital  Fire  Ins.  Co.  v.  Watson,  76  Minn.  .387,  79  N.  W.  601,  77  Am.  St 
Rep.  657 ;  Lancashire  Ins.  Co.  v.  Callahan,  68  Minn.  277,  71  N.  W.  261  64  Am. 
St  Rep.  475.  ' 

i»  See  Lancashire  Ins  Co.  ▼.  Callahan,  supra. 

1*  Ward  V.  Casualty  Co.,  71  N.  H.  262,  51  Atl.  900,  93  Am.  St  Rep.  514 ; 
Columbia  Paper  Stock  Co.  v.  Casualty  Co.  (Mo.  App.)  78  S.  W.  320;  Mandell 
T.  Casualty  Co.,  170  Mass.  173,  49  N.  E.  110,  64  Am.  St  Rep.  291 ;  Trippe  v 
Society,  140  N.  Y.  23,  35  N.  E.  316,  22  L.  R.  A.  432,  37  Am.  St  Rep.  529. 

All  conditions  requiring  notice  must  of  course  be  construed  with  reference 
to  the  purpose  for  which  they  are  inserted.  Thus  a  condition  in  a  live  stock 
insurance  policy  requiring  telegraphic  notice  to  the  Insurer  In  every  case  of 
sickness  of  an  animal  Insured  was  held  not  to  be  broken  by  failure  to  give 
notice  of  a  slight  sickness  of  only  a  few  moments  duration.  Kells  v.  Insurance 
Co.,  84  Minn.  390,  67  N.  W.  215,  58  Am.  St  Rep.  641. 


§§  247-248)  FIDELITY  AND  GUARANTY   INSURANCE. 


595 


FIDELITY  AND  GUARANTY  INSURANCS. 

247.  DEFINITION— A  contract  of  fidelity  and  guaranty  insurance  Is 

one  whereby  the  insurer,  for  a  valuable  consideration,  agrees, 
subject  to  certain  conditions,  to  indemnify  the  insured  against 
loss  consequent  upon  the  dishonesty  or  default  of  a  designated 
employs. 

248.  The  contract  partakes  of  the  nature  both  of  insurance  and  of 

suretyship.  Hence,  even  in  the  absence  of  contract  stipula- 
tions to  such  efPect,  the  contract  is  avoided  by  the  failure  of  the 
insured  to  disclose  to  the  insurer,  at  the  time  of  making  the 
contract,  any  known  previous  acts  of  dishonesty  on  the  part  of 
the  employe,  or  any  dishonest  practices  that  may  occur  during 
the  currency  of  the  policy.  But  the  insured  is  not  required  to 
give  notice  of  mere  irregularities  not  involving  moral  turpi- 
tude; nor,  in  the  absence  of  agreement  to  that  effect,  does  the 
insured  owe  to  the  insurer  any  duty  of  watching  the  conduet 
and  accounts  of  the  employ^  concerned. 

The  term  "fidelity  and  guaranty  insurance,"  or,  in  its  more  ab- 
breviated and  frequent  form,  "guaranty  insurance,"  is  sometimes  held 
to  include  contracts  guarantying  titles  to  real  estate  and  the  solvency 
of  debtors,  as  well  as  those  granting  indemnity  for  losses  suffered  by 
reason  of  the  infidelity  or  dishonesty  of  employes."  Here,  however, 
only  the  latter  kind  of  contracts  will  be  treated  under  this  title,  the 
other  contracts  being  considered  under  the  subsequent  specific  titles 
of  "credit  insurance"  and  "title  insurance." 

Guaranty  Insurance  Subject  to  Principles  of  Suretyship, 

The  insurance  contract,  in  its  general  form  strikingly  analogous  to 
the  contract  of  suretyship,  becomes  almost  identified  with  it  in  the 
form  of  guaranty  insurance.  Indeed,  the  principal  reason  for  the 
existence  of  the  contract  of  guaranty  insurance  is  its  substitution  for 
the  older  official  and  fiduciary  bonds  with  their  personal  sureties: 
and  to  this  day  guaranty  insurance  contracts  are  drawn  in  the  form 
of  bonds,  and  are  ordinarily  so  called.  These  bonds  of  incorporated 
fidelity  and  guaranty  companies  are  generally  regarded  as  more  effi- 
cient than  the  personal  bond  with  sureties,  since  there  is  much  less 
danger  of  the  corporate  surety's  becoming  insolvent,  and  because  public 
policy  is  better  conserved,  in  the  case  of  criminal  default  of  the  prin- 
cipal, by  the  relentless  prosecution  carried  on  by  the  corporate  surety, 
who  is  usually  unaffected  by  those  considerations  of  sentiment  and 
local  expediency  which  frequently  induce  personal  sureties  to  shield 
a  criminal  principal  from  the  punishment  that  should  be  visited  upon 

"  And,  see,  State  v.  Hogan,  8  N.  D.  301,  78  N.  W.  1051,  45  L.  R.  A.  166  73 
Am.  St.  Rep.  759,  in  which  a  contract  guarantying  crop  return*  was  called 
guaranty  insurance* 


•I 


f-\! 


,:  I 


^'! 


lk^{ 


\ 


596 


QUABANTY,   CREDIT,   AND   LIABILITY   INSURANCE.  (Ch.  17 


i 


him.  In  many  states  statutes  have  been  passed  expressly  authorizing 
the  acceptance  of  these  fidehty  bonds  for  all  officers  and  fiduciaries 
instead  of  the  personal  bonds  formerly  required.^'  Such  legislative 
recognition  of  the  value  of  guaranty  insurance  renders  the  courts  even 
less  patient  of  technical  rules  and  unnecessary  conditions  in  these  con- 
tracts that  tend  unfairly  to  defeat  the  indemnity  contemplated  by  the 
parties,  than  might  otherwise  have  been  the  case.  While  there  are, 
as  yet,  few  cases  construing  these  contracts,  it  is  clear  that  the  courts 
will  go  far  to  prevent  them  from  affording  less  protection  than  the 
old  personal  bonds  which  they  have  displaced. ^^  But  it  is  settled  that 
guaranty  insurance  contracts,  when  properly  executed,  are  valid,  and 
not  contrary  to  public  policy  as  tending  to  reduce  the  care  which  em- 
ployers customarily  exercise  in  selecting  honest  employes,** 

Duty  of  Diligence  on  Part  of  Insured. 

In  the  absence  of  contract  to  that  effect,  there  is  no  obligation  on 
the  part  of  the  insured  to  watch  over  the  conduct  of  his  employe, 
and  his  failure  to  detect  instances  of  dishonesty,  even  though  clearly 
negligent,  will  not,  in  the  absence  of  bad  faith,  afford  a  ground  of 
defense  to  the  insurer.*®  But,  in  accordance  with  a  well-settled  rule 
applicable  to  suretyship,  the  insured  must  promptly  communicate  to 
the  insurer  any  actual  information  he  may  have  acquired  of  any  dis- 
honest acts  done  by  the  employe,  whose  fidelity  is  insured,  in  the 
course  of  his  employment;  and  failure  to  impart  such  information 
will  discharge  the  insurer,  just  as  it  would  any  other  surety.*®  But 
in  order  that  the  insurer  may  be  thus  discharged,  the  employer  must 
have  had  actual  knowledge  of  the  employe's  dishonesty;  mere  sus- 
picion is  not  enough.**     Further,  the  rule  applies  only  to  acts  involv- 

i«  See  Bank  of  Tarboro  v.  Deposit  C3o.,  126  N.  C.  320,  35  S.  B.  588,  83  Am. 
St  Rep.  682. 

IT  "It  would  be  contrary  to  public  policy  to  Inconsiderately  allow  the  pro- 
tection afforded  by  this  new  insurance  to  the  vast  business  interests  of  the 
country,  In  public  administration  as  elsewhere,  to  be  endangered  by  any  lesser 
indemnity  than  that  of  the  old  form  by  bond,  which  is  being  so  rapidly  dis- 
placed, the  new  contracts  being  offered  by  the  companies  as  superior  to  the  old 
in  safety."  Guarantee  Co.  of  North  America  v.  Trust  Co.,  80  Fed.  766,  26  C.  C. 
A.  146. 

18  FIDELITY  &  CASUALTY  CO.  v.  EICKHOFF,  63  Minn.  170,  65  N.  W.  351, 
30  L.  R.  A.  586,  56  Am.  St.  Rep.  464. 

i»  Fidelity  &  Casualty  Co.  v.  Bank,  97  Qa.  634,  26  S.  B.  392,  33  L.  R.  A.  821, 
54  Am.  St  Rep.  440;  Guarantee  Co.  of  North  America  v.  Trust  Co.,  80  Fed. 
766,  26  C.  C.  A.  146. 

»o  Capital  Fire  Ins.  Co.  v.  Watson.  76  Minn.  387,  79  N.  W.  601,  77  Am.  St 
Rep.  657 ;  Lancashire  Ins.  Co.  v.  Callahan,  68  Minn.  277,  71  N.  W.  261,  64  Am. 
St  Rep.  475 ;  Saint  v.  Manufacturing  Co.,  95  Ala.  362,  10  South.  539,  36  Am. 
St  Rep.  210;  Phillips  v.  Foxall,  L.  R.  7  Q.  B.  666. 

SI  American  Sure^  Co.  y.  Fauly,  170  U.  S.  144, 18  Sup.  Ct  552,  42  L.  Ed.  977« 


§§  247-248)  FIDELITY  AND  GUARANTY  INSURANCE. 


597 


ing  moral  turpitude,  in  which  case  the  failure  of  the  insured  to  inform 
the  insurer  of  those  facts  that  show  the  risk  to  be  greater  than  that 
contemplated  by  the  parties  when  making  the  contract  will  amount 
to  bad  faith.  The  insured  is  under  no  obligation,  in  the  absence  of 
contract,  to  report  mere  irregularities  or  neglect  on  the  part  of  his 
employ^,  not  involving  dishonesty,  so  long  as  there  is  no  bad  faith.** 

In  most  guaranty  insurance  contracts,  however,  it  is  specifically 
stipulated  that  notice  shall  be  given  to  the  insurer  of  irregularities  as 
well  as  dishonesty  of  the  employe,  when  known  to  the  insured.  In 
such  cases  this  requirement  must  be  strictly  complied  with  before  the 
insurer's  liability  becomes  fixed.*' 

Knowledge  of  Co-Bmploye  not  Imputed  to  Employer, 

In  the  stipulations  just  referred  to  provision  is  made  for  the  com- 
munication of  such  acts  of  dishonesty  as  come  to  the  knowledge  of  the 
"employer."  **  Since,  however,  the  employers  so  insured  are  usually 
corporations,  it  is  often  difficult  to  say  when  any  specific  acts  of  dis- 
honesty on  the  part  of  the  employe  have  come  to  the  knowledge  of  the 
corporate  employer.  Plainly  the  knowledge  of  the  peculating  employe 
cannot  be  imputed  to  the  corporate  employer,  on  the  well-known  prin- 
ciple that  the  law  will  not  presume  that  an  agent  will  communicate  to 
his  principal  information  that  would  prove  prejudicial  to  his  own  in- 
terests.*' But  an  equally  well  settled  rule  of  law  is  that,  in  the  ab- 
sence of  such  hostile  interest  in  the  agent,  the  principal  is  charged 
with  all  knowledge  acquired  by  the  agent  in  so  far  as  it  affects  those 
matters  intrusted  by  the  principal  to  the  agent.    Applying  this  rule 


i:J 


If 


u 


r 


»*  Atlantic  &  P.  Tel.  Co.  v.  Barnes,  64  N.  Y.  385,  21  Am.  Rep.  621 ;  Charlotte, 
C.  &  A.  R.  Co.  V.  Gow,  59  Ga.  685,  27  Am.  Rep.  403 ;  Watertown  Fire  Ins.  Co. 
V.  Simmons,  131  Ma«s.  85,  41  Am.  Rep.  196 ;  Richmond  &  P.  R.  Co.  v.  Kasey, 
30  Grat.  (Va.)  218.  But,  see,  Ida  County  Sav.  Bank  v.  Seidensticker  (Iowa) 
92  N.  W.  862. 

28  Guarantee  Co.  of  North  America  v.  Trust  Co.,  80  Fed.  766,  26  C.  C.  A. 
146;  Harbour  Com'rs  v.  Guarantee  Co.,  22  Can.  Sup.  Ct  Rep.  542.  In  the 
former  case  it  was  held  that  a  policy  which  stipulated  that  the  employer 
should  notify  the  insurer  of  any  speculation  in  which  the  employ6  might  en- 
gage, to  the  knowledge  of  the  employer,  was  not  avoided  by  failure  of  the  em- 
ployer to  give  notice  to  the  insurer  of  speculation  in  which  it  was  learned  the 
employe  had  formerly  been  engaged,  but  which  was  honestly,  though  mis- 
takenly, believed  to  have  been  discontinued. 

2*  A  typical  form  of  this  condition  is  as  follows :  'This  bond  will  become 
void  as  to  any  claims  which  may  arise  subsequent  to  the  occurrence  of  any  act 
on  the  part  of  the  employ^,  involving  loss,  for  which  the  company  is  responsible 
hereunder  to  the  employer,  if  the  employer  shall  fail  to  notify  the  company 
of  the  occurrence  of  such  act  at  the  earliest  practicable  moment  after  it  shall 
have  come  to  the  knowledge  of  the  employer,  and  on  receipt  of  such  notice 
the  company  shall  have  the  right  immediately  to  cancel  the  bond  as  to  subse- 
quent acts  or  defaults." 

SB  American  Surety  Ca  ¥.  Pauly,  170  U.  S.  144»  18  Sup.  Ct  6B^  42  L.  Ed.  977. 


11  f 


« 


598  QUABANTT,   CREDIT,   AND   LIABILITY   INSURANCB.  (Ch.  17 

to  the  ordinary  case  of  a  corporate  employer,  a  banking  corporation, 
for  example,  we  should  expect  to  find  the  cases  to  hold  that  knowledge 
by  one  employe  of  dishonest  practices  on  the  part  of  a  co-employe  of 
relatively  the  same  rank  would  not  affect  the  employer,  but  that  where 
an  employe  of  superior  rank  discovered  instances  of  dishonesty  among 
co-employes  of  subordinate  rank,  who  were  under  his  authority  and 
control,  and  over  whose  conduct  of  the  affairs  of  the  corporation  he 
exercised  supervisory  powers,  such  knowledge  would  necessarily  be  im- 
puted to  the  corporation,  provided,  of  course,  such  superior  officer  were 
not  an  accomplice  in  the  wrongdoing.    Thus  it  would  seem  clear  that  the 
knowledge  of  the  bookkeeper  that  the  teller  was  misappropriating  the 
funds  of  the  bank  would  not  affect  the  bank  with  notice  of  that  fact, 
smce  the  duty  of  the  bookkeeper  is  to  keep  books,  and  not  to  keep 
watch  upon  the  teller.     But  a  similar  knowledge  on  the  part  of  the 
cashier,  it  would  seem,  should  bind  the  bank,  irrespective  of  his  fidel- 
ity in  communicating  it,  since  it  is  the  duty  of  the  cashier,  on  behalf 
of  the  bank,  to  supervise  the  conduct  of  the  teller  as  well  as  of  his 
other  assistants  and  subordinates.     But  while  there  is  some  authority  " 
for  the  view  thus  suggested,  it  seems,  so  far  as  a  rule  may  be  deduced 
from  the  few  cases  in  which  such  a  provision  has  come  before  the  courts 
for  construction,  to  be  held  broadly  that  the  knowledge  of  one  employe 
of  dishonest  acts  done  by  a  co-employe  is  not  to  be  imputed  to  the  em- 
ployer so  as  to  defeat  the  rights  of  the  employer  as  against  the  insurer." 
Many  of  the  cases,  however,  that  are  cited  in  support  of  the  rule  thus 
broadly  stated,  in  reality  merely  decide  that,  where  the  cashier  or  other 
superior  officer  participates  in  the  wrongdoing  of  the  subordinate  em- 
ploye, the  former's  knowledge  of  the  wrongdoing  is  not  chargeable  to 
the  employer,  which  is  manifestly  correct  within  the  adverse  interest 
rule  stated  above,  as  the  superior  officer  could  hardly  be  expected  to  ex- 
pose the  crime  to  which  he  was  an  accomplice.     But  there  is  un- 
doubtedly a  tendency  to  introduce  an  exception  to  the  rule  of  agency 
stated  above,  in  order  to  increase  the  protection  afforded  to  banks  and 
similar  institutions  by  fidelity  bonds."     But  to  press  the  doctrine  as 

o.n*  ^.^/°ol^-  Manufacturing  Ck).,  95  Ala.  362,  10  South.  539,  36  Am.  St.  Rep. 
210 ;  McShane  v.  Howard  Bank,  73  Md.  135,  20  Atl.  776,  10  L.  R.  A  552 
coi"  ^i'^f '^o?  Casualty  Co.  v.  Bank.  97  Ga.  a34,  25  S.  E.  392,  33  L.  R.  A. 
fS'    t    ?•  ®     S^^'  ^^'    Pittsburg,  Ft.  W.  &  C.  Ry.  Co.  v.  ShaeflPer,  59  Pa. 
350;    Taylor  v.  Bank,  2  J.  J.  Marsh.  (Ky.)  564.     This  doctrine  applies  with 

f^'i^l£'''^r''^^''tlT^''^  °®^^^-  ^^  J°°««  ^-  United  States,  18  Wall, 
^u.  a.)  bbj,  ^1  jj.  Ed.  867.  i 

"  Sharswood,  J.,  In  Pittsburg.  Ft  W.  &  C.  Ry.  Co.  v.  ShaeflPer,  supra,  argues 
thus  powerfully  in  favor  of  this  doctrine:    "Corporations  can  only  act  by  of- 

S^fJ ^?  .T^'lt:  '^^'SL  ^"^  ""^^  guaranty  to  the  sureties  of  one  officer  the 
fidelity  of  the  others.  The  rules  and  regulations  which  they  may  establish  In 
regard  to  periodical  returns  and  payments  are  for  their  own  security,  and  not 
for  the  benefit  of  the  sureties.    The  sureties,  by  executing  tiie  bon^  b^ome 


§§  249-250)        LIABILITY  OF  THE   GUARANTT  INSURER.  599 

Stated  in  the  Georgia  case '•  to  its  logical  conclusion  would  render 
the  stipulation  in  question  meaningless  in  all  cases  in  which  the  in- 
sured employer  was  incorporated.  It  is  as  impossible  for  a  corporation 
to  know  anything  as  it  is  for  it  to  do  anything  save  through  some 
agent  of  high  or  low  degree.  If  it  be  true  that  no  agent  whatever 
can  acquire  such  notice  of  another  agent's  infidelity  as  will  be  charge- 
able to  the  metaphysical  corporate  principal,  the  condition  of  the  in- 
surer of  such  corporate  employes  is  hazardous  indeed. 


(' 


' 


LIABILITY  OF  THE  GUARANTY  INSURER. 

249.  The  liability  of  tl&e  gnaranty  insurer,  determined  in  aoeordanc^ 

with  the  provisions  of  the  policy,  is,  within  the  limit  of  the 
■nm  written  in  the  policy,  measured  by  the  amount  of  actual 
loss  suffered  by  the  insured. 

250.  SUBROGATION— Upon  payment  of  a  loss  caused  by  a  default  in- 

sured against,  the  insurer  has  a  comnion-law  right  to  be  sub- 
rogated to  all  rights  and  claims  of  the  insured  against  the  de- 
faulting employe  by  'which  such  default  n&ay  be  made  good. 

Whether  the  guaranty  insurer  is  liable  for  any  specific  loss  that  falls 
upon  the  employer  through  the  dishonesty  of  his  employe  depends, 
of  course,  upon  whether  that  loss  comes  within  the  terms  of  the  con- 
responsible  for  the  fidelity  of  their  principal.  It  is  no  collateral  engagement 
into  which  they  enter,  dependent  on  some  contingency  or  condition  different 
from  the  engagement  of  their  principal.  They  become  joint  obligors  with  him 
in  the  same  bond,  and  with  the  same  condition  underwritten.  The  fact  that 
there  were  other  unfaithful  oflScers  and  agents  of  the  corporation  who  knew 
and  connived  at  his  infidelity  ought  not  in  reason,  and  does  not  in  law  or 
equity,  relieve  them  from  the  responsibility  for  him.  They  undertake  that  he 
shall  be  honest,  though  all  around  him  are  rogues.  Were  the  rule  different 
by  the  conspiracy  of  the  officers  of  a  bank  or  other  moneyed  institution,  all 
their  sureties  might  be  discharged.  It  is  impossible  that  a  doctrine  leading  to 
such  consequences  should  be  sound.'*  ' 

2»  Fidelity  &  Casualty  CJo.  v.  Bank,  97  Ga.  634,  25  S.  B.  392,  33  L,  R.  A. 
821,  54  Am.  St  Rep.  440,  in  which  the  doctrine  is  thus  stated:  '*The  above 
authorities  will  suffice  to  show  that  the  doctrine  of  constructive  notice  has  no 
application  to  transactions  such  as  that  in  the  present  case.  Not' having  re- 
quired the  bank  to  insure  the  fidelity  of  all  its  other  employes  as  a  condition 
precedent  to  recovery  on  Redwine's  bond,  the  company  cannot  take  advantage 
of  the  failure  of  duty  on  the  part  of  one  of  the  bank's  employes.  Undoubtedly 
It  was  the  duty  of  McCandless,  the  cashier,  to  inform  the  bank  as  to  any  mis- 
doings of  Redwine  of  which  he  knew.  This  was,  however,  a  duty  he  owed 
the  bank,  and  not  the  company,  which  could  only  derive  a  benefit  therefrom 
by  express  stipulation  in  its  contract  to  the  effect  that  it  should  be  entitled 
to  have  such  duty  of  McCandless  to  the  bank  faithfully  performed.  The  bank 
suffered  from  such  neglect  to  a  far  greater  extent  than  did  the  company, 
whose  liability  under  its  bond  was  limited  in  amount  and  surely  the  bank  is 
not  equitably  estopped  from  claiming  a  benefit  under  the  bond  which  it  ex- 
pressly stipulated  for." 


j 


600  GUARANTY,   CREDIT,   AND    LIABILITY    INSURANCE.  (Ch.  17 

tract  as  reasonably  construed,  all  doubts  being  resolved  in  favor  of 
the  insured.  These  fidelity  contracts  vary  so  greatly  in  their  terms, 
and  the  cases  construing  them  are  so  few,  that  no  rules  of  construction 
having  general  application  can  safely  be  deduced.  We  may,  how- 
ever, profitably  note  some  of  the  more  frequently  occurring  terms. 

The  insurance  is  usually  against  the  dishonesty  of  employes,  and 
therefore  does  not  cover  losses  due  to  the  negligence,  incompetence,  or 
lack  of  sound  discretion  on  the  part  of  the  employe.'®  But  the  guar- 
anty may  include  losses  attributable  to  mere  negligence.  Under  such 
a  contract  it  was  held  that  when  a  bonded  railway  agent  negligently 
left  a  large  sum  of  the  insured  railway  company's  money  in  an  inse- 
curely locked  room,  whence  it  was  stolen  during  his  absence,  the 
railway  company  was  entitled  to  indemnity  from  the  insurer.** 

Period  of  Risk. 

Since  defalcations  by  employes  and  other  fiduciaries  are  usually  so 
well  concealed  as  not  to  be  discovered  for  a  considerable  time  after 
they  are  committed,  and  frequently  not  until  the  defaulter  has  quit 
the  service  that  he  abused,  it  is  customary  for  guaranty  insurance  con- 
tracts to  specify  that  the  insurer  shall  be  liable  only  for  those  defaults 
that  may  occur  during  the  currency  of  the  bond  and  are  discovered 
within  a  specified  period,  usually  six  months,  after  the  defaulting 
employe  quits  the  service  of  the  insured,  or  after  the  expiration  of 
the  bond.  Under  such  a  provision  the  federal  Supreme  Court  has 
recently  held  that  the  cashier  of  a  suspended  bank  was  not  to  be  con- 
sidered as  having  retired  from  the  service  of  the  bank  when  the  bank 
examiner  took  possession  of  it,  so  long  as  he  continued  to  render  any 
service  in  connection  with  the  affairs  of  the  bank.  As  a  consequence, 
the  surety  company  which  had  bonded  the  cashier  was  required  to 
make  good  a  defalcation  by  that  officer  discovered  more  than  six 
months  after  the  bank  suspended  business." 

In  many  fidelity  bonds  there  is  incorporated  an  additional  condition 
limiting  the  liability  of  the  insurer  for  embezzlements  or  other  acts  of 
dishonesty  by  the  employe  to  such  as  shall  be  discovered  within  some 
specified  time  after  their  commission. •• 

Subrogation. 

Policies  of  guaranty  insurance  usually  contain  an  express  stipula- 
tion subrogating  the  insurer  to  all  rights  of  the  insured  by  which  he 

•0  See,  for  example,  Reed  y.  Casualty  Co.,  189  Pa.  596,  42  Atl.  294. 

•1  In  re  Citizens'  Ins.  Co.,  16  U.  C.  Law  J.  334. 

»«  American  Surety  Co.  v.  Pauly.  170  U.  S.  144,  18  Sup.  Ct  B52,  42  L.  Bd. 

VT  T. 

»»  For  an  example  of  such  a  limitation,  see  Fidelity  &  Casualty  Co.  y.  Bank 
71  Fed.  116,  17  C.  a  A.  641. 


iK'ii' 


CBEDIT  INSURANCE. 


mi 


§  251) 

might  make  good  his  loss  against  the  defaulting  employe,**  but  apart 
from  contract  the  guaranty  insurer  is  entitled  to  such  subrogation 
under  a  settled  principle  of  the  law  of  suretyship."  The  contract 
also  usually  provides  that  the  insured  shall,  in  case  of  a  default  for 
which  the  insurer  is  liable,  render  to  the  insurer  all  aid  in  his  power 
in  procuring  the  defaulter's  arrest  and  conviction. 


CREDIT  INSURANCE. 

251*  Oredit  Insurance  is  a  contract  wltereby  the  Insurer  promises,  in 
consideration  of  a  premium,  paid,  and  subject  to  specified  condi- 
tions as  to  the  persons  to  urliom  credit  is  to  be  extended,  to 
indemnify  tbe  insured,  wholly  or  in  part,  against  loss  that  may 
result  from  the  insolvency  of  persons  to  whom  he  may  eartend 
oredit  within  the  term  of  the  insurance. 

This  kind  of  insurance,  like  guaranty  insurance,  to  which  it  is 
closely  related,  strikingly  analogous  to  suretyship,  has  been  recognized 
as  legal  and  proper.  As  was  said  by  the  Wisconsin  court  in  Shak- 
man  v.  United  States  Credit  System  Co. :  "  "The  peril  of  loss  by  the 
insolvency  of  customers  is  just  as  definite  and  real  a  peril  to  a  mer- 
chant or  manufacturer  as  the  peril  of  loss  by  accident,  fire,  lightning, 
or  tornado,  and  is,  in  fact,  much  more  frequent.  No  reason  is  per- 
ceived why  a  contract  of  indemnification  against  this  ever-present 
peril  is  not  just  as  legitimately  a  contract  of  insurance  as  a  contract 
which  indemnifies  against  the  more  familiar,  but  less  frequent,  peril 
by  fire."  But  however  great  may  be  the  need  of  such  insurance  to 
the  merchant  and  manufacturer,  it  is  manifest  that  the  very  nature 
of  the  risk  renders  the  business  most  hazardous  to  the  insurer.  Not 
only  are  the  elements  that  go  to  make  up  the  risk  numerous,  and  so 
uncertain  as  to  defy  accurate  calculation,  but  there  is  also  lacking  that 
guide  so  necessary  to  the  safe  conduct  of  any  insurance  business,  an 
extensive  experience,  since  credit  insurance  is  of  very  recent  origin, 
especially  in  the  United  States.'^     We  are  therefore  not  surprised  to 

«*A  stipulation  that  the  voucher  or  other  evidence  of  payment  by  the 
guaranty  company  to  the  employer  shall  be  conclusive  of  the  liability  of  the 
employ^  to  the  guaranty  company  has  been  held  invalid  as  contrary  to  public 
policy.  FIDELITY  &  CASUALTY  CO.  v.  EICKHOFF,  63  Minn.  170,  65  N.  W. 
351,  30  L.  R.  A.  586,  56  Am.  St.  Rep.  464. 

«5  FIDELITY  &  CASUALTY  CO.  v.  EICKHOFF,  63  Minn.  170,  65  N.  W.  351, 
30  L.  R.  A.  586,  56  Am.  St  Rep.  464;  London  Guaranty  &  Accident  Co.  t. 
Geddes  (C.  C.)  22  Fed.  639. 

««  92  Wis.  366,  66  N.  W.  528,  32  L.  R.  A.  383,  53  Am.  St.  Rep.  920. 

•T  "Insurance  against  mercantile  losses  is  a  new  branch  of  the  business  of 
underwriting,  and  but  few  cases  dealing  with  policies  of  that  character  have 
as  yet  found  their  way  into  the  courts.  The  necessarily  nice  adjustments  of 
the  respective  portions  of  loss  to  be  borne  by  insurer  and  insured,  the  some- 


mi 


c 

{ 


602  GUARANTY,   CREDIT,    AND    LIABILITY    INSURANCE.  (Ch.  17 

find,  among  the  few  cases  involving  this  kind  of  insurance  that  appear 
in  our  reports,  records  of  frequent  failures  among  such  insurers." 
The  busmess  appears  to  be  increasing,  however,  and,  with  the  aid  of 
experience  and  a  better  understanding  of  commercial  conditions,  credit 
insurance  may  become  a  very  useful  branch  of  tlie  underwriter's  busi- 
ness. 

The  business  being  still  in  a  formative  state,  it  is  natural  that  credit 
insurance  contracts  should  vary  greatly  in  form  and  in  terms.     Some 
of  these  contracts  assume  the  form  of  a  conditional  sale  of  uncollecti- 
ble debts,"  while  others  directly  promise  indemnity  for  loss  through 
insolvency  of  debtors  made  ascertainable   under  the  terms   of  the 
agreement.**     So  such  contracts  may  be  made  by  mutual  as  well  as 
by  stock  companies."     But  however  made,  they  are  all  equally  con- 
tracts of  insurance."     It  is  clear  that  the  insurer  could  not  attempt 
to  insure  a  trader  against  all  loss  by  bad  debts.     Under  such  insur- 
ance the  readiness  with  which  ambitious  merchants  extend  credit  un- 
der ordinary  conditions,  would  become  recklessness.     Consequently  it 
becomes  the  first  care  of  the  insurer  to  limit  his  responsibility  to  those 
debts  incurred  by  men  who  are  accustomed  to  paying  their  debts 
and  who  are  thought  to  be  able  to  pay  within  the  limits  of  the  credit 
pven.     The  insurer  thus  hopes  to  limit  the  risk  assumed  to  that  of 
business  misfortune  and  insolvency  overtaking  some  among  this  se- 
lect class  of  debtors,  such  a  risk  being  deemed  susceptible  of  estimation 
If  not  of  calculation.     The  basis  of  this  selection  of  persons  to  receive 
credit  IS  furnished  by  the  reports  of  one  of  the  great  mercantile 
agencies.     That  is,  the  insurance  extends  only  to  credit  sales  made 
to  persons  having  a  specified  rating  on  the  books  of  Bradstreet's  or 
of  Dun  s  agency,  as  the  case  may  be.     Insurance  limited  to  debtors 
rated  in  one  of  these  agencies  will  not,  of  course,  cover  losses  by  reason 
of  debtors  rated  in  the  other  only ;  but  where  a  general  agent  of  the 
insurer  indorsed  upon  a  policy,  covering  only  Dun's  rating,  permis- 

vvhat  intricate  provisions  which  are  required  in  order  to  make  such  business 
successful    and  the  lack  of  experience  in  formulating  the  stipulations  to  be 

^r^T^V  ."^  ^^  ^''}^  *^^  P^^*^^'  *^  '"^^  *  ^°t^^^t'  bave  naturally  tended  to 
make  the  forms  of  policies  crude  and  difficult  of  Interpretation."    Tebbets  v 
Guarantee  Ck).,  73  Fed.  95, 19  C.  C.  A.  281. 

in«H?  ^ll^""?*  ^^  *^^  *°^"'*^'*  constitutes  a  breach  of  contract  with  the 

IfTIfU^K.  ""^^^^^^  ^^  ^^"^^  ^^^^  ^^^  ^°t^*^  obligation  to  make  proofs 
of  loss  within  a  given  period  after  the  expiration  of  his  policy.  Smith  v.  In- 
surance Co.,  65  Minn.  283,  68  N.  W.  28,  33  L.  R.  A.  511 

5J8,  32  L.  R.  A.  383,  53  Am.  St.  Rep.  920. 
40  Mercantile  Credit  Guarantee  Co.  v.  Wood,  68  Fed.  529,  15  C.  a  A  663 
*»  See  Solvency  Mut.  Guarantee  Co.  v.  York,  3  Hen.  &  N  588 

KOfi' P^^i^  I'  ^""^^  ^^'*^°'  ^""^  ^^^  ^''^^'  ^1'  43  N.  E.  293,  52  Am.  St  Rep 
528,  In  which  a  credit  insurance  contract  was  held  void  for  noncompUaace  hi 
the  company  with  the  insurance  laws  of  the  state,  wmyuiuice  oj 


§251) 


CREDIT  INSURANCE. 


603 


sion  to  the  insured  to  sell,  under  the  protection  of  the  insurance,  to 
persons  not  rated  in  Dun's,  provided  they  were  properly  rated  in 
Bradstreet's,  it  was  held  to  be  binding  on  the  insurer.*^  Further,  it 
was  held  that  under  the  policy  in  suit  the  insurance  covered  a  loss  due 
to  the  insolvency  of  a  purchaser  to  whom  a  fair  credit,  but  no  capital 
rating,  was  given  in  Dun's  agency,  while  both  capital  and  credit  were 
rated  as  satisfactory  in  Bradstreet's.  The  court  considered  that  the 
debtor  in  question  was  not  rated  in  Dun's,  within  the  system  of  the 
insurer,  so  that  the  insured  was  entitled  to  have  recourse  to  Brad- 
street's.** 

The  policy  also  usually  limits  the  amount  of  credit  to  be  extended  to 
any  purchaser  to  some  percentage  of  his"  capital  as  recorded  on  the 
books  of  the  designated  mercantile  agency.  But  it  has  been  held 
that  giving  credit  in  excess  of  the  agreed  percentage  does  not  exclude 
the  entire  debt,  but  only  that  part  in  excess  of  the  stipulated  limit.** 
Considering  the  purpose  of  such  a  condition,  this  decision  seems  un- 
fortunate. The  efforts  of  an  overburdened  debtor  to  meet  his  obli- 
gations are  not  apt  to  be  so  strenuous  as  are  those  of  the  debtor  who 
carries  his  burden  easily.  In  order  still  further  to  stimulate  the  in- 
sured to  carefulness  in  deciding  when  credit  shall  be  given,  the  credit 
policy  usually  provides  that  the  insured  shall  be  co-insurer,  and  him- 
self bear  a  certain  initial  amount  of  loss,  only  losses  in  excess  of  that 
amount  falling  upon  the  insurer.*' 

Loss  by  Insolvency  of  Debtors. 

When  the  policy  provides  for  indemnity  for  loss  sustained  by  the 
insolvency  of  debtors,  it  is  held  that  the  term  "insolvency"  is  to  be 
interpreted  in  its  usual  sense.  No  adjudication  of  bankruptcy  is  nec- 
essary, nor  need  the  debtor's  assets  be  less  than  his  liabilities;  he  is 
insolvent  when  he  is  no  longer  able  to  meet  his  obligations  as  they  fall 
due  in  the  ordinary  course  of  business.*^  Therefore  a  debtor  who  has 
made  a  general  assignment  for  the  benefit  of  his  creditors  is  insolvent 
within  the  meaning  of  such  a  policy.*'  Of  course  the  form  of  the 
assignment,  whether  statutory  or  common-law,  whether  for  the  benefit 

*8  Shakman  v.  Credit  System  Co.,  92  Wis.  366,  66  N.  W.  528,  32  L.  R.  A.  383. 
53  Am.  St  Rep.  920.  See,  also,  Robertson  v.  Credit  System  Co.,  57  N.  J.  Law, 
12,  29  Atl.  421. 

**  Shakman  v.  Credit  System  Co.,  supra. 

*B  Shakman  v.  Credit  System  Co.,  supra. 

*•  See  Strouse  v.  Indemnity  Co.,  91  Md.  244,  259,  46  Atl.  328,  1063 ;  Smith 
▼.  Insurance  Co.,  65  Minn.  283,  68  N.  W.  28,  33  L.  R.  A.  511.  An  interesting 
discussion  of  such  a  provision  is  found  in  Mercantile  Credit  Guarantee  Co.  t. 
Wood,  68  Fed.  529,  15  C.  C.  A.  563. 

*7  Strouse  v.  Indemnity  Co.,  91  Md.  244,  46  Atl.  328. 

48  But  not  when  the  assignment  is  only  partiaL  Goodman  t.  Guarantee  Co.. 
17  App.  Div.  474.  45  N.  Y.  Supp.  508. 


N' 


II 


K  ' 


eo4 


GUARANTY,   CREDIT,   AND    LIABILITY    INSURANCE.  (Ch.  17 

of  all  his  creditors  equally  or  preferring  certain  ones  of  them,  is  imma- 
terial. It  is  sufficient  if  the  debtor  is  deprived  of  the  use  of  his  prop- 
erty so  as  to  be  unable  to  pay  his  debts  as  they  fall  due.** 


i' 


i^ 


252. 

Ca) 
Cb) 

253. 
(a) 

Cb) 


(•) 


EMPLOTERS'  LIABILITT  INSURANCE. 

Under  the  general  term  "employers'  liability  insnranoe"  is  Isp 
clnded  insurance  agains't— 

Liability  incurred  beoanse  of  personal  injury  sustained  by  em- 
ployes of  the  insured,  and 

Liability  imposed  upon  the  insured  by  the  negligence  of  employes 
in  causing  personal  injury  to  third  persons. 

THE  LIABILITT  OP  THE  INSURER  accrues  diiferently  under 
the  terms  of  differing  contracts. 

When  the  contract  is  for  insurance  against  'liability"  for  per- 
sonal injuries,  the  insurer  may  be  required  to  pay  upon  the 
determination  of  the  insured's  liability  by  Judgment  or  settle- 
ment, irrespective  of  actual  payment  by  the  insured. 

When  the  promise  of  the  insurer  is  to  indemnify  the  insured  for 
loss  actually  sustained  and  paid  on  account  of  such  personal 
injuries,  the  insurer  is  not  liable  under  the  policy  until  the 
Uability  of  the  insured  to  the  injured  person  has  been  actually 
discharged. 

The  insurer  is  also  liable,  under  the  terms  of  the  usual  policy,  to 
indemnify  the  insured  for  expenses  incurred  in  defending  ac- 
tions brought  on  account  of  such  personal  injuries  as  are  cov- 
ered by  the  policy. 


In  a  former  generation  persons  exposed  to  danger  of  accidental  in- 
jury secured  accident  insurance  for  their  own  protection.  In  latter 
days,  however,  it  is  the  employer  or  the  railway  carrier  who  needs 
the  protection  of  insurance,  while  the  injured  individual  relies  upon 
the  verdict  of  a  sympathetic  jury  to  indemnify  him,  not  onlv  for  his 
bodily  suffenngs,  but  also  for  his  mental  anguish.  Partly  on  account 
of  the  pernicious  activity  of  the  legal  ghoul  ordinarily  termed  the 
ambulance  chaser,"  the  numerous  suits  that  are  now  brought  for 
personal  injuries,  and  the  appalling  verdicts  that  are  sometimes  ren- 
dered and  sustained,  present  a  new  and  very  real  danger  to  the  suc- 
cess of  any  enterprise  requiring  the  employment  of  many  men.  This 
new  and  formidable  risk  has  given  rise  to  a  new  and  extensive  branch 
of  insurance  for  assuming  it  Employers'  liability  insurance,  thus 
originating  within  the  last  twenty  years,  has  already  become,  perhaps, 
the  most  important  of  the  special  insurances  discussed  in  this  chapter! 
This  kind  of  insurance  would  more  accurately  be  called  "liability 
insurance,"  for  it  embraces  not  only  insurances  against  the  employer's 
Hability  for  injury  suffered  by  his  employe,  but  also  those  that  in- 


*•  People  v.  Guarantee  Co,  166  N.  T.  416,  60  N.  B.  24 


g§  252-253)  employers'  liability  insurance.  605 

demnify  public  carriers  for  losses  incurred  through  injuries  to  passen- 
gers or  strangers,  or  protect,  in  similar  manner,  other  persons  engaged 
in  extensive  business  of  such  a  character  that  they  are  subject  to  the 
risk  of  incurring  liability  for  injuries  to  third  persons  not  employes. 
But  insurance  against  the  employer's  liability  to  his  injured  employe 
is  so  much  the  more  important  that  it  has  given  the  whole  group  of 
related  contracts  a  name  that  is  now  fixed  in  insurance  parlance. 

Liability  Insurance  not  Contrary  to  Public  Policy. 

It  has  been  contended  that  since  public  policy  requires  the  exercise 
of  the  highest  degree  of  diligence  by  masters  to  protect  their  servants 
from  injury,  and  especially  of  public  carriers  in  carrying  their  passen- 
gers safely,  it  is  contrary  to  that  policy  to  allow  these  persons  to  shift 
the  responsibility  for  their  negligence  upon  an  insurance  corporation, 
thus  indirectly  exempting  themselves  from  a  liability  which  the  law 
will  not  allow  them  to  avoid  directly  by  contract.  But  the  courts  have 
declined  to  press  the  rule  of  public  policy  so  far,  holding  without 
dissent  that,  since  these  contracts  of  liability  insurance  do  not  in  any 
wise  exempt  the  tortious  insured  from  liability  directly  to  the  person 
injured,  it  is  not  a  matter  of  proper  concern  to  the  public  that  the 
employer  or  carrier  makes  a  collateral  contract  for  indemnity.**  In- 
deed, the  value  of  employers'  liability  insurance  is  now  expressly  rec- 
ognized in  some  states  by  statutes  authorizing  employers  to  take  out 
insurance  for  the  benefit  of  their  employes."  There  can  be  no  doubt 
but  that  employers'  liability  insurances  are  supported  by  a  proper  in- 
surable interest**  ^ 

The  Liability  of  the  Insurer. 

Of  course  no  claim  can  be  enforced  against  the  liability  insurer  tin- 
less  it  can  be  brought  within  the  terms  of  the  policy  issued,  and  these 
are  found  to  vary  greatly.  Some  companies  insure  against  any  lia- 
bility for  personal  injury  which  the  insured  may  incur  under  any  cir- 
cumstances whatever;**  others  against  liability  for  injury  to  em- 
ployes only;  **  and  still  others  against  liability  so  incurred  to  all  but 
employes.    Again,  nearly  all  policies  granting  this  kind  of  insurance 

BO  Trenton  Pass.  Ry.  Co.  v.  Guarantor's,  etc.,  Co.,  60  N.  J.  Law,  246,  37  AtL 
609,  44  L.  R.  A.  213 ;  American  Casualty  Co.'s  Case,  82  Md.  535,  34  Atl.  778, 
88  L.  R.  A.  97;  Kansas  City,  M.  &  B.  R.  Co.  v.  News  Co.,  151  Mo.  373,  52 
S.  W.  205,  45  L.  R.  A.  380,  74  Am.  St.  Rep.  545.  See,  also,  California  Ins.  Ca 
V.  Compress  Co.,  133  U.  S.  387, 10  Sup.  Ct  365,  33  L.  Ed.  730. 

81  New  York  St  1892,  e.  690,  §  55. 

82  See  EMPLOYERS'  LIABILITY  ASSUR.  CORP.  v.  MERRILL,  155  Mass. 

404  29  N.  E.  529. 

b'«  Bain  v!  Atkins,  181  Mass.  240,  63  N.  E.  414,  57  L.  R.  A,  791.  92  Am.  St 

Rep.  411. 

54  Frye  ▼.  Electric  Co.,  97  Me.  241,  54  Atl.  395,  59  L.  E.  A.  444,  94  Am.  St 

Rep.  50a 


ill 


If 


II 


I'll 


llJ 


606  GUARANTY,   CREDIT,   AND   LIABILITY   INSURANCE.  (Ch.  IT 

fall  into  two  classes,  according  as  they  are,  by  their  terms,  "liability" 
policies  or  "indemnity"  policies. 

"Liability"  and  "Indemnity'*  Policies. 

When  the  agreement  of  the  insurer  is  to  pay  "all  damages  with 
which  the  insured  may  be  legally  charged,  or  be  required  to  pay,  or 
for  which  he  may  become  legally  liable,"  it  is  clear  that  the  insurer 
can  be  required  to  pay  as  soon  as  the  liability  of  the  insured  becomes 
legally  determined."     He  is  not  concerned  with  the  question  whether 
the  insured  has  paid  or  can  pay  the  judgment  entered  against  him. 
And  the  amount  of  the  liability,  when  so  fixed,  determines  the  measure 
of  the  insurer's  liability  to  pay,  provided,  of  course,  it  does  not  exceed 
the  sum  written  in  the  policy.     Thus,  in  an  Arkansas  case,"  a  cer- 
tain young  woman  had  secured  a  judgment  for  $1,200  for  personal 
injury  against  a  street  railway  company,  which  had  liability  insurance 
containing  a  term  similar  to  that  quoted  above.     The  railway  com- 
pany was  insolvent  and  wholly  unable  to  pay  the  judgment,  but  the 
receiver  nevertheless  demanded  of  the  insurer  payment  of  the  amount 
of  the  judgment.     This  demand  was  contested  by  the  insurer  on  the 
ground  that  an  insurance  contract  could  only  be  for  indemnity,  and 
that,  since  the  insolvent  insured  had  not  been  damnified  by  the  judg- 
ment in  question,  it  ought  not  ask  to  be  indemnified.     But  the  court 
held  the  insurer  liable  for  the  full  amount  of  the  judgment,  thus 
clearly  stating  its  reasons  for  so  doing:     "This  is  not  simply  a  con- 
tract of  indemnity.     It  is  more.     It  is  also  a  contract  to  pay  liabilities. 
The  diflFerence  between  a  contract  of  indemnity  and  one  to  pay  legal 
liabilities  is:     Upon  the  former  an  action  cannot  be  brought,  and  a 
recovery  had,  until  the  liability  is  discharged ;   whereas,  upon  the  lat- 
ter, the  cause  of  action  is  complete  when  the  liability  attaches.     ♦     *     ♦ 
The  measure  of  damages  is  the  amount  of  the  accrued  liabilities." 

In  Frye  v.  Bath  Gas  &  Electric  Co."  the  insurer  had  contracted  to 
indemnify  the  insured  "for  loss  actually  sustained  and  paid  by  him 
in  satisfaction  of  a  judgment  after  trial  of  the  issue."  A  judgment 
for  a  large  amount  was  recovered  against  the  insured  employer  for 
personal  injuries  that  came  within  the  terms  of  the  insurer's  policy. 
The  insured,  however,  had  become  insolvent,  and  an  execution  issued 
against  it  was  returned  unsatisfied.  The  plaintiflF  then  filed  his  bill 
against  the  insured,  its  assignees,  the  insurer,  and  other  parties  in  in- 

«»  American  Employers*  Liability  Ins.  Co.  ▼.  Fordyce,  62  Ark.  662,  86  S.  W. 
1051,  64  Am.  St  Rep.  305;  Anoka  Lumber  Co.  v.  Casualty  Co.,  63  Minn.  286] 
66  N.  W.  353,  30  L.  R.  A.  689 ;  Hoven  v.  Assurance  Corp.,  93  Wis.  201  67  N 
W.  46,  32  L.  R.  A.  388;  Bain  v.  Atkins,  181  Mass.  240,  63  N.  B.  414,  67  L.  r! 
A.  791,  92  Am,  St  Rep.  411 ;  Seeberger  v.  Wyman,  108  Iowa,  527,  79  N.  W  290 

B6  American  Employers*  Liability  Ins.  Co.  y.  Fordyce,  62  Ark.  562.  36  S.  W 
1051,  54  Am.  St  Rep.  306.  -«^  ou  o.  w. 

»»  97  Me.  241,  64  AtL  895,  69  L.  R.  A.  444,  94  Am.  St.  Rep.  50a 


§§  252-253) 


employers'   LIABILITT  INSURANCE. 


607 


terest,  praying  that  the  insurer  should  be  compelled  to  pay  in  satisfac- 
tion of  his  judgment  the  amount  due  under  the  employer's  liability 
policy.  But  the  court  held,  aside  from  the  question  whether  the  plain- 
tiff had  any  rights  in  the  premises,  that  no  payment  was  due  under 
the  insurer's  contract  until  the  insured  had  sustained  some  actual 
loss  by  making  actual  payment  under  the  judgment.  But  as  the  in- 
sured was  wholly  unable  ever  to  discharge  its  liability  to  the  plaintiff, 
the  insurer  had  incurred  no  liability  whatever.  "There  can  be  no 
reimbursement,"  said  the  court,  "where  there  has  been  no  loss.  The 
contract  of  insurance  contains  nothing  to  show  that  it  was  the  object 
or  intention  of  the  contracting  parties  that  the  insurer  should  guaranty 
the  gas  company's  liability  for  negligence  to  its  employes.  It  was 
not  a  contract  of  insurance  against  liability,  but  of  indemnity  against 
loss  by  reason  of  liability."  '*  In  a  recent  New  Jersey  case  '•  the  court, 
construing  a  provision  identical  with  that  in  the  case  just  discussed, 
held  that,  while  "not  the  amount  of  the  employe's  judgment,  but  the 
amount  paid  by  the  employer  thereon,  was  the  sum  for  which  the 
insurer  was  responsible,"  yet  a  transfer  of  the  employer's  property  to 
a  trustee  in  bankruptcy  was  a  sufficient  payment  to  satisfy  the  terms 
of  the  policy  and  perfect  the  liability  of  the  insurer.  Only  such  a  pro- 
portion of  the  judgment  was  held  to  be  paid,  however,  as  corresponded 
to  the  percentage  of  all  the  assets  of  the  insolvent,  excluding  the  in- 
surance claim,  to  all  of  its  debts,  excluding  this  judgment.  Such  an 
amount  the  insurer  was  required  to  pay  to  the  receiver  for  the  use  of 
the  complainant. 

Insurer  Liable  for  Expenses  of  Defense, 

The  insurer  agrees  to  indemnify  the  insured  only  for  liabilities  legal- 
ly ascertained.  Therefore  it  is  the  duty  of  the  insured  to  resist  claims 
made  against  him  for  personal  injuries,  and  to  give  due  notice  to  the 
insurer  of  the  pendency  of  any  action  brought,  so  that  the  latter  may 
take  steps  to  defend  the  action.*®  In  order  to  secure  prompt  notice 
of  a  possible  claim  against  him,  the  insurer  by  contract  usually  stipu- 
lates for  "immediate"  notice  of  any  injury  that  may  give  rise  to  lia- 
bility. As  we  have  seen,  notice  is  deemed  "immediate,"  under  the 
requirements  of  this  provision,  when  it  is  given  with  such  promptness 
•s  is  reasonable  under  all  the  circumstances  of  the  case.'*  If,  after 
igreeing  that  the  insurer  shall  have  control  of  all  litigation,  the  in- 
ured settles  the  claim  without  the  knowledge  and  consent  of  the  in- 

••  See,  to  the  same  effect,  Cushman  v.  Fuel  Co.  (Iowa)  98  N.  W.  509. 

»»  Travelers'  Ins.  Co.  v.  Moses,  63  N.  J.  Bq.  260,  49  Atl.  720,  92  Am.  St  Rep. 
663. 

80  Glens  Falls  Portland  Cement  Co.  v.  Insurance  Co..  162  N.  Y.  399,  66  N. 
E.  897. 

*i  See  cases  cited  in  note  14.  suprau 


I! 


II 


608 


GUARANTY,   CREDIT,   AND   LIABILITY   INSURANCE.  (Ch.  17 


§  254)        RIGHTS  OF  INJURED  PERSON   IN   INSURANCE   FUND. 


609 


iiri 


fit 


surer,  the  latter  is  released  from  any  liability  under  the  policy.'*  But 
if  the  insurer  had  proper  notice  of  the  pending  action,  the  failure  of 
the  insured  to  send  the  summons  served  on  him,  or  a  copy  thereof,  will 
not,  in  the  absence  of  stipulation  to  that  effect,  release  the  insurer.'* 
^  If,  after  due  notice  to  the  insurer,  he  fails  to  defend  the  pending  ac- 
tion, it  is  the  duty  of  the  insured  then  to  make  a  bona  fide  defense,  the 
expenses  of  which,  as  well  as  the  amount  of  the  judgment  entered, 
will  become  chargeable  to  the  insurer.'*  And  the  judgment  in  such 
an  action,  over  which  the  insurer  might  have  exercised  complete  con- 
trol, is  conclusive  evidence  against  him  as  to  the  liability  of  the  in- 
sured which  he  has  agreed  to  indemnify."  Likewise  the  insurer,  not 
defending  after  due  notice,  will  be  bound  by  a  judgment  entered 
against  the  insured  by  consent  as  the  result  of  a  bona  fide  compromise. 
In  that  event,  however,  the  judgment  is  only  prima  facie  evidence  of 
the  amount  of  the  insured's  liability." 

But  a  judgment  for  personal  injury  against  one  partner  only  of  a 
firm  will  not  render  an  insurer  liable  under  a  policy  promising  in- 
demnity to  the  firm  for  liability  for  such  damages.** 

BIGHTS  or  THE  INJURED  PERSON  IN  THE  INSURANCE  FUND. 

254.  The  fund  payable  under  a  liability  policy  is  not  snbject  to  any 
trust  in  favor  of  the  person  whose  right  to  damages  for  per- 
■onal  injury  gave  rise  to  the  insurer's  liability,  nor  has  such 
third  person  any  other  right  in  connection  with  the  insurance, 
save  the  conunon  right  of  reaching  the  fund,  when  payable,  by 
gamishn&ent  mat  other  proper  process. 

The  contract  between  the  employer  and  the  insurer  against  liabil- 
ity is  solely  for  the  benefit  of  the  employer.  The  injured  employe, 
whose  just  claim  may  fix  the  liability  of  the  insurer,  is  no  party  to  the 
insurance  contract,  nor  has  he  any  rights,  legal  or  equitable,  growing 

•«  Pickett  ▼.  Casualty  Co.,  60  S.  C.  477,  38  S.  B.  160,  629. 

•«  Ward  V.  Casualty  Co.,  71  N.  H.  262,  51  Atl.  900,  93  Am.  St.  Rep.  514. 

•4  Mott  V.  Hicks,  1  Cow.  (N.  T.)  513,  13  Am.  Dec.  550 ;  Curtis  v.  Banker,  136 
Mass.  355;  Howard  v.  Lovegrove,  L.  R.  6  Exch.  43.  It  has  been  held  that, 
under  a  contract  obligating  the  insured  to  permit  the  insurer  to  control  all 
claims  and  actions  brought  against  the  Insured  for  Injuries,  the  insurer  was 
not  liable  for  the  expenses  incurred  by  the  insured  in  defending  a  groundless 
action.  Cornell  v.  Insurance  Co.,  175  N.  Y.  239,  67  N.  E.  578.  But  see,  to 
the  contrary,  Chilson  v.  Downer,  27  Vt.  536;  also  the  dissenting  opinion  of 
Cullen,  J.,  in  Cornell  v.  Insurance  Co.,  supra. 

«»  City  of  St  Joseph  v.  Railway  Co.,  116  Mo.  636,  22  S.  W.  794,  38  Am.  St 
Rep.  626. 

««  Kansas  City,  M.  &  B.  R.  Co.  ▼.  News  Co.,  151  Mo.  378,  62  S.  W.  205,  45 
Jj.  R.  A.  380,  74  Am^  St.  Rep.  545 ;  Conner  v.  Reeves,  103  N.  Y.  527,  9  N.  E.  439. 
«7  Kelley  v.  Accident  Co.,  97  Mo.  App.  623.  71  S.  W.  711. 


out  of  it.*®  Of  course,  the  injured  employe  might  be  made  the  bene- 
ficiary under  the  contract  by  the  insurer's  promising  the  insured  to 
discharge  any  judgment  or  other  legally  ascertained  claim  for  personal 
injury  by  paying  the  amount  of  such  claim  to  the  owner  of  it  Under 
such  a  contract  the  injured  person  could,  in  most  jurisdictions,  recover 
from  the  insurer  by  an  action  brought  directly  on  the  policy.  But 
such  contracts  are  rarely,  if  ever,  made,  although  they  are  expressly 
authorized  by  statute  in  New  York." 

The  consequence  of  this  doctrine  is  that  a  judgment  recovered 
for  personal  injury  against  an  insolvent  employer  may  enable  him  to 
recover  the  full  amount  of  it  against  the  insurer  who  has  contracted 
to  indemnify  him  against  liability,  while  the  judgment  may  be  wholly 
worthless  in  the  hands  of  the  injured  person  or  his  representative.  It 
follows,  therefore,  that  the  insurer  may,  without  notice  to  the  injured 
person,  make  a  settlement  with  the  insured,  either  before  judgment 
against  the  latter,  or  after  it,  and  be  wholly  discharged  of  his  liability 
on  the  insurance  contract.''®  Likewise  the  injured  person  having  a 
claim  against  an  insolvent  employer  has  absolutely  no  rights  against 
an  insurer  who  has  contracted  to  indemnify  the  employer  for  loss  sus- 
tained by  actual  payment  of  damages  for  personal  injury,  even  when 
a  statute  allows  contracts  to  be  enforced  by  the  person  in  interest."* 

Of  course,  the  injured  person  or  his  representative,  like  any  other 
judgment  creditor,  can  by  garnishment  or  attachment  reach  any  fund 
in  the  hands  of  an  insurer  that  may  be  due  and  payable  to  the  judg- 
ment debtor.''* 

«•  Frye  v.  Bath  Gas  &  Electric  Co.,  97  Me.  241,  54  Atl.  395,  59  L.  R.  A.  444,  94 
Am.  St  Rep.  500 ;  Bain  v.  Atkins,  181  Mass.  240,  63  N.  E.  414,  57  L.  R.  A.  791, 
92  Am.  St  Rep.  411 ;  Travelers'  Ins.  Co.  v.  Moses,  63  N.  J.  Eq.  260,  49  Atl.  720, 
92  Am.  St  Rep.  663 ;  Cushman  v.  Fuel  Co.  (Iowa)  98  N.  W.  509 ;  Embler  v.  In- 
surance Co.,  158  N.  Y.  431,  53  N.  E.  212,  44  L.  R.  A.  512. 

«»  St  1892,  c.  690,  8  55.  For  two  interesting  cases  discussing  the  rights  of 
the  injured  person  in  contracts  of  liability  insurance,  see  Travelers'  Ins.  Co. 
V.  Moses,  63  N.  J.  Eq.  260,  49  Atl.  720,  92  Am.  St  Rep.  663,  and  Embler  v.  In- 
surance Co.,  158  N.  Y.  431,  53  N.  E.  212,  44  L.  R.  A.  512. 

70  Bain  ▼.  Atkins,  181  Mass.  240,  63  N.  B.  414,  57  L.  R.  A.  791,  92  Am.  St 
Rep.  411. 

71  See  Cushman  v.  Fuel  Co.  (Iowa)  98  N.  W.  509. 

Ts  Anoka  Lumber  Co.  v.  Fidelity  Co.,  63  Minn.  286,  65  N.  W.  353,  30  L.  R. 
▲.  689. 

Vanck  Ins. — 89 


^ 


I 


I 


APPENDIX. 


NEW  YORK  STANDARD^  FIRE  POLICY.! 

[References  are  to  pages  of  the  text  in  which  the  corresponding  provisions 
of  the  standard  policy  are  construed  or  considered.] 

The Insurance;  Company,  in  consideration  of  the  stip- 
ulations herein  named  and  of   dollars  premium,^  does 

insure for  the  term  •  of from  the 

day  of ,  at  noon,  to  the  day  of 

,  at  noon,  against  all  direct  loss  or  damage  by  fire,*  except 

as  hereinafter  provided,  to  an  amount  not  exceeding  '^  

dollars,  to  the  following  described  property  •  while  located  and  con- 
tained as  described  herein,  and  not  elsewhere,^  to  wit : 


This  company  shall  not  be  liable  beyond  the  actual  cash  value  of  the 
property  at  the  time  any  loss  or  damage  occurs,  and  the  loss  or  damage 
shall  be  ascertained  or  estimated  according  to  such  actual  cash  value, 
with  proper  deduction  for  depreciation  however  caused,  and  shall  in 
no  event  exceed  what  it  would  then  cost  the  insured  to  repair  or  replace 
the  same  with  material  of  like  kind  and  quality ;  •  said  ascertainment 
or  estimate  shall  be  made  by  the  insured  and  this  company,  or,  if  they 
differ,  then  by  appraisers,  as  hereinafter  provided ;  and,  the  amount  of 
loss  or  damage  having  been  thus  determined,  the  sum  for  which  this 
company  is  liable  pursuant  to  this  policy  shall  be  payable  sixty  days 
after  due  notice,  ascertainment,  estimate,  and  satisfactory  proof  of  the 
loss  have  been  received  by  this  company  in  accordance  with  the  terms 
of  this  policy.  It  shall  be  optional,  however,  with  this  company  to  take 
all,  or  any  part,  of  the  articles  at  such  ascertained  or  appraised  value,® 
and  also  to  repair,  rebuild,  or  replace  the  property  lost  or  damaged 
with  other  of  like  kind  and  quality  within  a  reasonable  time  on  giving 
notice,  within  thirty  days  after  the  receipt  of  the  proof  herein  requirecf, 
of  its  intention  so  to  do;  ^^  but  there  can  be  no  abandonment  to  this 
company  of  the  property  described. 

This  entire  policy  shall  be  void  ^^  if  the  insured  has  concealed  or 


5  In  full,  cc.  12, 13,  pp.  429-510. 

2  34.  175  et  seq. 

3  435. 
M75. 

Vance  Ins. 


»489. 

•  115,  note  74,  43S. 

T  439. 

8483. 


•488. 
10  488. 
ai433. 


P 


I 


( 


i!i 


(611) 


1 


1 


I:;  f  ' 


I 


612 


APPENDIX. 


iTiisrepresented,  in  writing  or  otherwise,  any  material  fact  or  cirGum- 
itance  concerning  this  insurance  or  the  subject  thereof;^'  or  if  the 
interest  of  the  insured  in  the  property  be  not  truly  stated  herein;  ^*  or 
m  case  of  any  fraud  or  false  swearing  by  the  insured  touching  any 
matter  relating  to  this  insurance  or  the  subject  thereof,  whether  before 
or  after  a  loss.** 

This  entire  policy,  unless  otherwise  provided  by  agreement  indorsed 
hereon  or  added  hereto,  shall  be  void  if  the  insured  now  has  or  shall 
hereafter  make  or  procure  any  other  contract  of  insurance,  whether 
valid  or  not,  on  property  covered  in  whole  or  in  part  by  this  policy;  *' 
or  if  the  subject  of  insurance  be  a  manufacturing  establishment  and  it 
be  operated  in  whole  or  in  part  at  night  later  than  ten  o'clock,  or  if 
it  cease  to  be  operated  for  more  than  ten  consecutive  days ;  *•  or  if  the 
hazard  be  increased  by  any  means  within  the  control  or  knowledge  of 
the  insured ;  *^  or  if  mechanics  be  employed  in  building,  altering,  or 
repairing  the  within  described  premises  for  more  than  fifteen  days 
at  any  one  time;  *®  or  if  the  interest  of  the  insured  be  other  than  un- 
conditional and  sole  ownership ;  *•  or  if  the  subject  of  insurance  be  a 
building  on  ground  not  owned  by  the  insured  in  fee-simple ;  *®  or  if 
the  subject  of  insurance  be  personal  property  and  be  or  become  incum- 
bered by  a  chattel  mortgage ;  **  or  if,  with  the  knowledge  of  the  insured, 
foreclosure  proceedings  be  commenced  or  notice  given  of  sale  of  any 
property  covered  by  this  policy  by  virtue  of  any  mortgage  or  trust 
deed ;  **  or  if  any  change,  other  than  by  the  death  of  an  insured,  take 
place  in  the  interest,  title,  or  possession  of  the  subject  of  insurance  (ex- 
cept change  of  occupants  without  increase  of  hazard)  whether  by  legal 
process  or  judgment  or  by  voluntary  act  of  the  insured,  or  otherwise;  *' 
or  if  this  policy  be  assigned  before  a  loss ;  **  or  if  illuminating  g^s  or 
vapor  be  generated  in  the  described  building  (or  adjacent  thereto)  for 
use  therein ;  ••  or  if  (any  usage  or  custom  of  trade  or  manufacture  to 
the  contrary  notwithstanding)  there  be  kept,  used,  or  allowed  on  the 
above  described  premises,  benzine,  benzole,  dynamite,  ether,  fireworks, 
gasolene,  greek  fire,  gunpowder  exceeding  twenty-five  pounds  in  quan- 
tity, naphtha,  nitro-glycerine  or  other  explosives,  phosphorus,  or  pe- 
troleum or  any  of  its  products  of  greater  inflammability  than  kerosene 
oil  of  the  United  States  standard,  (which  last  may  be  used  for  lights 
and  kept  for  sale  according  to  law  but  in  quantities  not  exceeding 
five  barrels,  provided  it  be  drawn  and  lamps  filled  by  daylight  or  at 
a  distance  not  less  than  ten  feet  from  artificial  light) ;  ••  or  if  a  building 
herein  described,  whether  intended  for  occupancy  by  owner  or  tenant, 
be  or  become  vacant  or  unoccupied  and  so  remain  for  ten  days.** 


is2S0et  tcq. 

1*442. 
1*454. 
"457. 


i«4«). 

IT  462. 
i«464. 


1*444. 
*0  44a 
«i447. 


1*466. 
s*449. 

t4  46a 


**469. 
*«462. 
«T471. 


APPENDIX. 


613 


•<l 


This  company  shall  not  be  liable  for  loss  caused  directly  or  indirectly 
by  invasion,  insurrection,  riot,  civil  war  or  commotion,  or  military  or 
usurped  power,  or  by  order  of  any  civil  authority;  or  by  theft;  or  by 
neglect  of  the  insured  to  use  all  reasonable  means  to  save  and  preserve 
the  property  at  and  after  a  fire  or  when  the  property  is  endangered  by 
fire  in  neighboring  premises ;  or  (unless  fire  ensues,  and,  in  that  event, 
for  the  damage  by  fire  only)  by  explosion  of  any  kind,  or  lightning ;  but 
liability  for  direct  damage  by  lightning  may  be  assumed  by  specific 
agreement  hereon.** 

If  a  building  or  any  part  thereof  fall,  except  as  the  result  of  fire,  all 
insurance  by  this  policy  on  such  building  or  its  contents  shall  immediate- 
ly cease.** 

This  company  shall  not  be  liable  for  loss  to  accounts,  bills,  currency, 
deeds,  evidences  of  debt,  money,  notes,  or  securities;  nor,  unless  lia- 
bility is  specifically  assumed  hereon,  for  loss  to  awnings,  bullion,  casts, 
curiosities,  drawings,  dies,  implements,  jewels,  manuscripts,  medals, 
models,  patterns,  pictures,  scientific  apparatus,  signs,  store  or  office 
furniture  or  fixtures,  sculpture,  tools,  or  property  held  on  storage  or 
for  repairs ;  •*  nor,  beyond  the  actual  value  destroyed  by  fire,  for  loss 
occasioned  by  ordinance  or  law  regulating  construction  or  repair  of 
buildings,**  or  by  interruption  of  business,  manufacturing  processes, 
or  otherwise;  nor  for  any  greater  proportion  of  the  value  of  plate 
glass,  frescoes,  and  decorations  than  that  which  this  policy  shall  bear 
to  the  whole  insurance  on  the  building  described. 

If  an  application,  survey,  plan,  or  description  of  property  be  referred 
to  in  this  policy  it  shall  be  a  part  of  this  contract  and  a  warranty  by  the 
insured.** 

In  any  matter  relating  to  this  insurance  no  person,  unless  duly  au- 
thorized in  writing,  shall  be  deemed  the  agent  of  this  company.** 

This  policy  may  by  a  renewal  be  continued  under  the  original  stipula- 
tions, in  consideration  of  premium  for  the  renewed  term,  provided  that 
any  increase  of  hazard  must  be  made  known  to  this  company  at  the  time 
of  renewal  or  this  policy  shall  be  void. 

This  policy  shall  be  canceled  at  any  time  at  the  request  of  the  insured ; 
OF  by  the  company  by  giving  five  days  notice  of  such  cancelation.  If 
this  policy  shall  be  canceled  as  hereinbefore  provided,  or  become  void 
or  cease,  the  premium  having  been  actually  paid,  the  unearned  portion 
shall  be  returned  on  surrender  of  this  policy  or  last  renewal,  this  com- 
pany retaining  the  customary  short  rate ;  except  that  when  this  policy 
is  canceled  by  this  company  by  giving  notice  it  shall  retain  only  the 
pro  rata  premium.** 

If,  with  the  consent  of  this  company,  an  interest  under  this  policy 
shall  exist  in  favor  of  a  mortgagee  or  of  any  person  or  corporation 


I 


r 


•1 


; 


«•  478. 
2*474. 


•0  482. 
•1484. 


•2  183.  492. 


••493. 


M491 


614 


APPENDIX. 


having  an  interest  in  the  subject  of  insurance  other  than  the  interest  of 
the  insured  as  described  herein,  the  conditions  hereinbefore  contained 
shall  apply  in  the  manner  expressed  in  such  provisions  and  conditions 
of  insurance  relating  to  such  interest  as  shall  be  written  upon,  attached, 
or  appended  hereto.  •• 

If  property  covered  by  this  policy  is  so  endangered  by  fire  as  to  re- 
quire removal  to  a  place  of  safety,  and  is  so  removed,  that  part  of  this 
policy  in  excess  of  its  proportion  of  any  loss  and  of  the  value  of  prop- 
erty remaining  in  the  original  location,  shall,  for  the  ensuing  five  days 
only,  cover  the  property  so  removed  in  the  new  location;  if  removed  to 
more  than  one  location,  such  excess  of  this  policy  shall  cover  therein  for 
such  five  days  in  the  proportion  that  the  value  in  any  one  such  new  loca- 
tion bears  to  the  value  in  all  such  new  locations ;  but  this  company  shall 
not,  in  any  case  of  removal,  whether  to  one  or  more  locations,  be  liable 
beyond  the  proportion  that  the  amount  hereby  insured  shall  bear  to  the 
total  insurance  on  the  whole  property  at  the  time  of  fire,  whether  the 
same  cover  in  new  location  or  not.** 

If  fire  occur  the  insured  shall  give  immediate  notice  of  any  loss  there- 
by in  writing  to  this  company,  protect  the  property  from  further  dam- 
age,^ forthwith  separate  the  damaged  and  undamaged  personal  property, 
put  it  in  the  best  possible  order,  make  a  complete  inventory  of  the  same, 
stating  the  quantity  and  cost  of  each  article  and  the  amount  claimed 
thereon;  and,  within  sixty  days  after  the  fire,  unless  such  time  is  ex- 
tended in  writing  by  this  company,  shall  render  a  statement  to  this 
company,  signed  and  sworn  to  by  said  insured,  stating  the  knowledge 
and  belief  of  the  insured  as  to  the  time  and  origin  of  the  fire;  the  in- 
terest of  the  insured  and  of  all  others  in  the  property ;  the  cash  value 
of  each  item  thereof  and  the  amount  of  loss  thereon;  all  incumbrances 
thereon;  all  other  insurance,  whether  valid  or  not,  covering  any  of 
said  property ;  and  a  copy  of  all  the  descriptions  and  schedules  in  all 
policies ;  any  changes  in  the  title,  use,  occupation,  location,  possession, 
or  exposures  of  said  property  since  the  issuing  of  this  policy ;  by  whom 
and  for  what  purpose  any  building  herein  described  and  the  several 
parts  thereof  were  occupied  at  the  time  of  fire;  and  shall  furnish,  if 
required,  verified  plans  and  specifications  of  any  building,  fixtures,  or 
machinery  destroyed  or  damaged ;  »^  and  shall  also,  if  required,  furnish 
a  certificate  of  the  magistrate  or  notary  public  (not  interested  in  the 
claim  as  a  creditor  or  otherwise,  nor  related  to  the  insured)  living  near- 
est the  place  of  fire,  stating  that  he  has  examined  the  circumstances 
and  believes  the  insured  has  honestly  sustained  loss  to  the  amount  that 
such  magistrate  or  notary  public  shall  certify.** 

The  insured,  as  often  as  required,  shall  exhibit  to  any  person  desig- 
nated by  this  company  all  that  remains  of  any  property  herein  described, 


■•  420,  note  106. 


••441. 


M49a 


••60& 


I'l' 


APPENDIX. 


615 


4tfii 


and  submit  to  examinations  under  oath  by  any  person  named  by  this 
company,  and  subscribe  the  same;  and,  as  often  as  required,  shall 
produce  for  examination  all  books  of  account,  bills,  invoices,  and  other 
vouchers,  or  certified  copies  thereof  if  originals  be  lost,  at  such  reason- 
able place  as  may  be  designated  by  this  company  or  its  representative, 
and  shall  permit  extracts  and  copies  thereof  to  be  made.*" 

In  the  event  of  disagreement  as  to  the  amount  of  loss  the  same  shall, 
as  above  provided,  be  ascertained  by  two  competent  and  disinterested 
appraisers,  the  insured  and  this  company  each  selecting  one,  and  the 
two  so  chosen  shall  first  select  a  competent  and  disinterested  umpire ; 
the  appraisers  together  shall  then  estimate  and  appraise  the  loss,  stating 
separately  sound  value  and  damage,  and,  failing  to  agree,  shall  submit 
their  differences  to  the  umpire ;  and  the  award  in  writing  of  any  two 
shall  determine  the  amount  of  such  loss;  the  parties  thereto  shall 
pay  the  appraiser  respectively  selected  by  them  and  shall  bear  equally 
the  expenses  of  the  appraisal  and  umpire.*® 

This  company  shall  not  be  held  to  have  waived  any  provision  or 
condition  of  this  policy  or  any  forfeiture  thereof  by  any  requirement, 
act,  or  proceeding  on  its  part  relating  to  the  appraisal  or  to  any  ex- 
amination herein  provided  for ;  *^  and  the  loss  shall  not  become  pay- 
able until  sixty  days  after  the  notice,  ascertainment,  estimate,  and  satis- 
factory proof  of  the  loss  herein  required  have  been  received  by  this 
company,  including  an  award  by  appraisers  when  appraisal  has  been 

required 

This  company  shall  not  be  liable  under  this  policy  for  a  greater  pro- 
portion of  any  loss  on  the  described  property,  or  for  loss  by  and  expense 
of  removal  from  premises  endangered  by  fire,  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not,  or  by 
solvent  or  insolvent  insurers,  covering  such  property,  and  the  extent  of 
the  application  of  the  insurance  under  this  policy  or  of  the  contribution 
to  be  made  by  this  company  in  case  of  loss,  may  be  provided  for  by 
agreement  or  condition  written  hereon  or  attached  or  appended  here- 
to."    Liability  for  re-insurance  shall  be  as  specifically  agreed  hereon." 

If  this  company  shall  claim  that  the  fire  was  caused  by  the  act  or 
neglect  of  any  person  or  corporation,  private  or  municipal,  this  company 
shall,  on  payment  of  the  loss,  be  subrogated  to  the  extent  of  such  pay- 
ment to  all  right  of  recovery  by  the  insured  for  the  loss  resulting  there- 
from, and  such  right  shall  be  assigned  to  this  company  by  the  insured 
on  receiving  such  payment.** 

No  suit  or  action  on  this  policy,  for  the  recovery  of  any  claim,  shall 
be  sustainable  in  any  court  of  law  or  equity  until  after  full  compliance 
by  the  insured  with  all  the  foregoing  requirements,**  nor  unless  com- 
menced within  twelve  months  next  after  the  fire.** 


•»  455. 
*o486. 


41  880,  493. 
4S54,485. 


48  61  et  seq. 
44  422,  426. 


MC02. 


MOOT. 


1 1 

i 

j 

1 

III 


j 


1 


616  APPENDIX. 

Wherever  in  this  policy  the  word  "insured"  occurs,  it  shall  be  held  to 
include  the  legal  representative  of  the  insured,  and  wherever  the  word 
"loss"  occurs,  it  shall  be  deemed  the  equivalent  of  "loss  or  damage." 

If  this  policy  by  made  by  a  mutual  or  other  company  having  special 
regulations  lawfully  applicable  to  its  organization,  membership,  poli- 
cies or  contracts  of  insurance,  such  regulations  shall  apply  to  and  form 
a  part  of  this  policy  as  the  same  may  be  written  or  printed  upon,  at- 
tached, or  appended  hereto. 

This  policy  is  made  and  accepted  subject  to  the  foregoing  stipulations 
and  conditions,  together  with  such  other  provisions,  agreements,  or 
conditions  as  may  be  indorsed  hereon  or  added  hereto,  and  no  officer, 
agent,  or  other  representative  of  this  company  shall  have  power  to  waive 
any  provision  or  condition  of  this  policy  except  such  as  by  the  terms 
of  this  policy  may  be  the  subject  of  agreement  indorsed  hereon  or 
added  hereto,  and  as  to  such  provisions  and  conditions  no  officer,  agent, 
or  representative  shall  have  such  power  or  be  deemed  or  held  to  have 
waived  such  provisions  or  conditions  unless  such  waiver,  if  any,  shall 
be  written  upon  or  attached  hereto,  nor  shall  any  privilege  or  permission 
affecting  the  insurance  under  this  policy  exist  or  be  claimed  by  the 
insured  unless  so  written  or  attached.*^ 

In  witness  whereof,  this  company  has  executed  and  attested  these 
presents  this day  of ,19 

This  policy  shall  not  be  valid  until  countersigned  by  the  duly  author- 
ized managrer  or  agent  of  the  company  at 

«v  827,  482. 


APPENDIX. 


617 


A  FORM   OF  POLICY   OF  MARINE  INSURANCE   UPON   CARGO. 

Thb Insurance  Company, ,  on  account 

of ,  in  case  of  loss  to  be  paid  in  funds  current  in  the 

United  States,  or  in  the  city  of  New  York,  to ,  do  make 

insurance,  and  cause to  be  insured,  lost  or  not  lost,  at 

and  from ,  upon  .  • ,  laden  or  to  be  laden  on 

board  the  good  ship ,  whereof is  master 

for  this  present  voyage  ,  or  whoever  else  shall  go  f of 

master  in  said  vessel,  or  by  whatever  other  name  or  names  the  said 
vessel,  or  the  master  thereof,  is  or  shall  be  named  or  called. 

Beginning  the  adventure  upon  the  said  goods  and  merchandises 
from  and  immediately  following  the  loading  thereof  on  board  of  the 

said  vessel,  at as  aforesaid,  and  so  shall  continue  and 

endure  until  the  said  goods  and  merchandises  shall  be  safely  landed  at 

as  aforesaid.    And  it  shall  and  may  be  lawful  for  the 

said  vessel,  in  her  voyage,  to  proceed  and  sail  to,  touch  and  stay  at,  any 
ports  or  places,  if  thereunto  obliged  by  stress  of  weather,  or  other  un- 
avoidable accident,  without  prejudice  to  this  insurance.  The  said  goods 
and  merchandises,  hereby  insured,  are  valued  (premium  included)  at 
dollars. 

Touching  the  adventures  and  perils  which  the  said 

Insurance  Company  is  contented  to  bear,  and  takes  upon  itself  in  this 
voyage,  they  are  of  the  seas,  men  of  war,  fires,  enemies,  pirates,  rovers, 
thieves,  jettisons,  letters  of  mart  and  countermart,  reprisals,  takings 
at  sea,  arrests,  restraints,  detainments  of  all  kings,  princes,  or  people,  of 
what  nation,  condition,  or  quality  soever,  barratry  of  the  master  and 
mariners,  and  all  other  perils,  losses,  and  misfortunes  that  have  or  shall 
come  to  the  hurt,  detriment,  or  damage  of  the  said  goods  and  mer- 
chandises, or  any  part  thereof.  And,  in  case  of  any  loss  or  misfortune, 
it  shall  be  lawful  and  necessary  to  and  for  the  assured,  his  factors, 
servants,  and  assigns,  to  sue,  labor,  and  travel  for,  in,  and  about  the 
defense,  safeguard,  and  recovery  of  the  said  goods  and  merchandises, 
or  any  part  thereof,  without  prejudice  to  this  insurance ;  nor  shall  the 
acts  of  the  insured  or  insurers  in  saving,  recovering,  and  preserving  the 
property  insured,  in  case  of  disaster,  be  considered  a  waiver  or  an  ac- 
ceptance of  an  abandonment ;  to  the  charges  whereof  the  said  insurance 
company  will  contribute  according  to  the  rate  and  quantity  of  the  sum 
herein  insured ;  having  been  paid  the  consideration  for  this  insurance, 

by  the  assured  or  his  assigns,  at  and  after  the  rate  of 

per  cent. 

And  in  case  of  loss,  such  loss  to  be  paid  in  thirty  days  after  proof  of 

loss,  and  proof  of  interest  in  the  said (the  amount  of  the 

note  given  for  the  premium,  if  unpaid,  being  first  deducted),  but  no 


4 

• 

i 


. 


I 


618 


APPENDIX. 


partial  loss  or  particular  average  shall  in  any  case  be  paid,  unless 
amounting  to  five  per  cent.  Provided  always,  and  it  is  hereby  further 
agreed,  that  if  the  said  assured  shall  have  made  any  other  assurance 
upon  the  premises  aforesaid,  prior  in  day  of  date  to  this  policy,  then 

the  said Insurance  Company  shall  be  answerable  only 

for  so  much  as  the  amount  of  such  prior  assurance  may  be  deficient 
towards  fully  covering  the  premises  hereby  assured;    and  the  said 

Insurance  Company  shall  return  premium  upon  so  much 

of  the  sum  by  them  assured  as  they  shall  be  by  such  prior  assurance 
exonerated  from.  And  in  case  of  any  assurance  upon  the  said  prem- 
ises, subsequent  in  day  of  date  to  this  policy,  the  said 

Insurance  Company  shall  nevertheless  be  answerable  for  the  full  ex- 
tent of  the  sum  by  them  subscribed  hereto,  without  right  to  claim  con- 
tribution from  such  subsequent  assurers,  and  shall  accordingly  be  en- 
titled to  retain  the  premium  by  them  received,  in  the  same  manner  as 
if  no  such  subsequent  assurance  had  been  made.  Other  assurance  upon 
the  premises  aforesaid,  of  date  the  same  day  as  this  policy,  shall  be 

deemed  simultaneous  herewith ;   and  the  said Insurance 

Company  shall  not  be  liable  for  more  than  a  ratable  contribution  in  the 
proportion  of  the  sum  by  them  insured  to  the  aggregate  of  such  simul- 
taneous insurance.  It  is  also  agreed  that  the  property  be  warranted  by 
the  assured  free  from  any  charge,  damage,  or  loss  which  may  arise  in 
consequence  of  a  seizure  or  detention,  for  or  on  account  of  any  illicit  or 
prohibited  trade,  or  any  trade  in  articles  contraband  of  war. 

Warranted  not  to  abandon,  in  case  of  capture,  seizure,  or  detention, 
until  after  condemnation  of  the  property  insured;  nor  until  ninety 
days  after  notice  of  said  condemnation  is  given  to  this  company. 
Also  warranted  not  to  abandon  in  case  of  blockade,  and  free  from  any 
expense  in  consequence  of  capture,  seizure,  detention,  or  blockade,  but 
in  the  event  of  blockade  to  be  at  liberty  to  proceed  to  an  open  port, 
and  there  end  the  voyage. 

In  Witness  Whereof  the  president  or  vice  president  of  the  said 

Insurance  Company  hath  hereunto  subscribed  his  name, 

and  the  sum  insured,  and  caused  the  same  to  be  attested  by  their  secre- 
taiy^in •••••,  the day  of » 19..*« 


TABLE  OF  CASES  CITED. 


[THE    FIGURES  REFER  TO  PAGES. 3 


Abbott  T.  Sebor,  120. 

Abel  V.  Potts,  657. 

Abell  v.  Insurance  Co.,  95,  197,  219. 

Accident  Ins.  Ck).  t.  Bennett,  526. 

V.  Crandal,  183,  520,  521,  568,  580. 
Ackley  v.  Insurance  Co.,  437,  464,  471. 
Adams  v.  Grand  Lodge,  402. 

y.  Insurance  Co.,  491. 

V.  Heed,  135. 
Adreveno  v.  Ass'n,  373. 
Mtn&  Fire  Ins.  Co.  y.  Boon,  479. 

y.  Tyler,  112,  444. 
-^tna  Ins.  Co.  y.  Bank,  506 

y.  Haryey,  87. 

T.  Jackson,  111,  114. 

T.  Jacobson,  451. 

T.  Resh,  70. 

T.  Shryer,  316. 

V.  Tucker,  490. 

V.  Webster,  169,  171. 
iOtna  Life  Ins.  Co.  y.  Dayey,  280. 

V.  Fallow,  318,  319,  381. 

V.  France,  104,  130,  273,  286,  291, 
516. 

▼.  Greene,  210. 

y.  J.  B.  Parker  &  Co.,  428. 

y.  Ragsdale's  Adm'r,  222. 
-ffitna  Liye  Stock  Fire  &  Tornado  Ins. 

Co.  V.  Olmstead,  304. 
Agen  y.  Insurance  Co.,  523. 
Agricultural  Ins.  Co.  y.  Hamilton,  70. 

V.  Montague,  117. 
Aitcbison  y.  Lobre,  562,  563. 
Akers  y.  Hite,  198. 

Alabama  Gold  Life  Ins.  Co.  ▼.  Insur- 
ance Co.,  416,  528. 

y.  Johnston,  288,  292. 
Alamo  Fire  Ins.  Co.  T.  Lancaster,  444, 
447. 


Albert  y.  Insurance  Go.,  128. 

Albion  Lead  Works  y.  Insurance  Ga, 

434,  435,  437. 
Alexander  y.  Ass'n,  513. 

T.  Insurance   Co.,   235,   335.   363, 
536. 
Alexandre  y.  Insurance  Co.,  563. 
Alford  y.  Insurance  Co.,  388. 
Alkan  y.  Insurance  Co.,  468. 
Allegre  y.  Insurance  Co.,  190. 
Allegre's  Adm'rs  y.  Insurance  Co.,  538. 
AUemania  Fire  Ins.  Co.  v.  Peck,  510. 
Allen  y.  Insurance  Co.,  312,  328,  329, 
363,  371,  419. 

V.  Railroad  Co.,  304. 

y.  Sugrue,  559. 
Allgeyer  y.  Louisiana,  76,  83,  89. 
Allison  y.  Insurance  Co.,  539. 
Alsop  y.  Coit,  153. 
Alston  y.  Insurance  Co.,  275-277. 
Amberg  y.  Insurance  Co.,  395. 
American  Accident  Co.  y.  Carson,  568. 

y.  Reigart,  429,  568,  569. 
American  Casualty  Co.'s  Case,  605. 
American  Cent  Ins.  Co.  y.  Haws,  441. 
American    Credit    Indemnity    Co.    y. 

Cassard,  592. 
American    Employers*    Liability    Ins. 
Co.  y.  Barr,  589. 

T.  Fordyce,  137,  606. 
American  Fire  Ins.  Co.  y.  Bank,  186. 

T.  Brooks,  202,  312,  313. 

y.  Center,  186. 

y.  Mfg.  Co.,  461,  472. 
American  Ins.  Co.  y.  Bryan,  553. 

T.  Francla,  560. 

V.  Griswold,  538. 

V.  Henley,  199. 

T.  KUnk,  199,  212. 

▼.  Ogden,  546. 

▼.  Stoy,  164^  184k  ISQi  20a 


I 


Vance  Ins. 


(619) 


620 


CASES  CITED. 
mi«  flffUTM  refer  to  pagea.] 


American  Legion  v.  Smith,  192. 
American   Life   Ins.    Co.   y.   Mabona, 

258,  331,  837,  86^  868L 
American   Life  Ins.   <&  Trust  Oo.  t. 

Shultz,  234. 
American  Mut  Aid  Soc.  t.  Helbum, 

238,  240. 
American  Mut  Life  Ins.  Co.  v.  Bert- 
ram, 248. 
American   Popular   Life   Ins.   Co.   ▼. 

Day,  184. 
American  Surety   Co.  t.  Pauly,  336, 

592,  596,  597,  600. 
American   Towing   Co.   T.   Insurance 

Co.,  478. 
Ames  V.  Insurance  Co.,  294,  308. 
Amicable  Soc.   v.   Holland,   189,  518, 

524. 
Amick  V.  Butler,  412,  528. 
Amsinck  v.  Insurance  Co.,  549. 
Anchor  Mar.  Ins.  Co.  v.  Keith,  546. 
Anctll  V.  Insurance  Co^  384,  532. 
Anderson  y.  Ass'n,  240. 
y.  Fitzgerald,  269. 
V.  Goldsmidt,  399. 
T.  Insurance  Co.,  214. 
y.  Thornton,  248. 
Anderson   Lumber   Co.   t.   Insurance 

Co.,  547. 
Andree  y.  Fletcher,  247. 
Andrews  y.  Heme,  126. 

y.  Insurance  Co.,  266. 
Andrus  y.  Ass'n,  395. 
Angell  y.  Insurance  Co.,  168,  301. 
Angler  y.  Assurance  Co.,  354,  463. 
Annapolis  &  B.  R.  Co.  y.  Insurance 

Co.,  441. 
Annen  y.  Woodman,  542,  547. 
Anoka  Lumber  Ca  y.  Casualty  Co., 
606. 
y.  Fidelity  Co.,  609. 
Anthony  v.  Insurance  Co.,  302. 
Anthracite  Ins.  Co.  y.  Sears,  406. 
Appleton  y.  Insurance  Co.,  353. 
Arff  V.  Insurance  Co.,  312,  S1&-S21, 
Arguimbau  y.  Insurance  Co.,  315. 
Armour  y.  Insurance  Co.,  268. 
Armstrong  y.  Insurance  Co..  161,  844, 

346,  373,  377,  378,  432. 
Amfeld  y.  Assurance  Co.,  495. 
Arnold  y.  Insurance  Co.,  458,  459,  549. 
Ash  brook  v.  Insurance  Co.,  21& 
Ashley  y.  Ashley,  144. 


Atherton  y.  Assurance  Co.,  456. 

Atkins  y.  Insurance  Co.,  203,  435,  48t. 

Atkinson  y.  Insurance  Co.,  158,  552. 

Atlantic  Ins.  Co.  v.  Storrows,  558. 

Atlantic  &  P.  TeL  Co.  y.  Barnes,  697, 

Attorney  General  y.  Insurance'  Ckkt 
213,  218,  220,  232. 

Audenreld  y.  Insurance  Co.,  549. 

Audubon  y.  Insurance  Co.,  159,  177. 

Augusta  Ins.  &  Banking  Co.  y.  Ab- 
bott, 549. 

Aurora  Fire  Ins.  Co.  y.  Eddy,  451. 

Au  Sable  Lumber  Ga  t.  Insurance  Go^ 
463,  464. 

Austin  y.  Drew,  477. 

Ayres  T.  Insurance  Go.,  113,  332,  448, 
504. 

B 

Babcock  y.  Insurance  Co.,  482. 
Backhouse  y.  Ripley,  538. 
Bacon  y.  Ass'n,  568. 

y.  Clyne,  198. 
Badger  y.  Insurance  Co.,  166,  167,  501. 

y.  Platts,  462. 
Balle  y.  Insurance  Co.,  499. 
Bain  y.  Atkins,  605,  606,  609. 
Baker  y.  Assurance  Co.,  157,  205. 

T.  Insurance   Co.,   181,   236,   308, 
331,  455,  550. 
Baldwin  y.  Fraternity,  191. 

V.  Insurance  Go.,  99,  108, 170,  175, 
177,  260. 
Ballard  y.  Insurance  Co.,  76. 
Baltimore  &  Ohio   Employes'   Relief 

Ass'n  y.  Post,  587. 
Baltimore  &  O.  B.  Go.  y.  Harris,  83. 
Bammessel  y.  Insurance  Co.,  490. 
Banco  de  Sonora  y.  Casualty  Co.,  380. 
Bane  y.  Insurance  Co.,  205,  210. 
Bangor  Say.  Bank  y.  Insurance  Co., 

354. 
Bangs  y.  Skldmore,  200. 
Bankers'  Ufe  Ins.  Co.  y.  Bobbins,  21. 
Bankers'    &    Merchants'    Mut    Ben. 

Ass'n  y.  Stapp,  327. 
Bank  of  Augusta  y.  Earle,  83. 
Bank  of  Columbia  y.  Patterson,  151. 
165. 

Bank  of  Tarboro  y.  Deposit  Co.,  692, 

593,  596. 
Barber  y.  Insurance  Co.,  600l 
Barbot  y.  Ass'n,  239. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


621 


f 


Barbour  y.  Insurance  Co.,  406,  408. 
Barbour's  Adm'r  y.  Larue's  Assignee, 

406. 
Barclay  y.  Cousins,  120. 
Baring  y.  Claggett,  287. 
Barker  y.  Insurance  Co.,  287,  556. 
Barnard  y.  Adams,  557. 
Barnes  y.  Ass'n,  273. 

T.  Insurance  Co.,  63,  65,  66,  177, 
214. 

T.  People,  83. 
Bamum  y.  Insurance  Co.,  470. 
Baron  y.  Brummer,  408. 
Barre  y.  Insurance  Co.,  499. 
Barrett  y.  Insurance  Co.,  363. 
Barron  y.  Burnside,  84,  85. 
Barry  y.  Ass'n,  573. 
Barteau  y.  Insurance  Co.,  268. 
Bartholomew  y.   Insurance  Co.,  326, 

337. 
Bartlet  y.  Walter,  115. 
Bartlett  y.  Insurance  Co.,  63. 
Barwlck  y.  Bank,  304. 
Basch  y.  Insurance  Co.,  180. 
Basye  y.  Adams,  192. 
Batchelder  y.  Insurance  Co.,  332,  363. 
Bates  y.  Ass'n,  532. 

y.  Hewitt  262. 
Bauble  y.  Insurance  Co.,  308. 
Baumgart  y.  Modern  Woodmen,  294. 
Baumgartel  y.  Insurance  Co.,  328,  329. 
Baxter  y.  Insurance  Co.,  81,  178,  225, 

315,  384. 
Bayly  y.  Insurance  Co.,  470. 
Beal  y.  Insurance  Co.,  332. 
Beals  y.  Insurance  Co.,  488,  489. 
Bean  y.  Insurance  Co.,  587. 
Beaty  y.  Downing,  417. 
Bebee  y.  Insurance  Co.,  255,  331,  332. 
Beck  y.  Railroad  Co.,  25. 
Beebe  y.  Insurance  Co.,  308. 
Beeber  y.  Walton,  87. 
Behllng  y.  Insurance  Co.,  391. 
Behrens  y.  Insurance  Co.,  456,  460. 
Bell  y.  Bell,  541. 

y.  Insurance  Co.,  149. 
Belleyue  Roller-Mill  Co.  y.  Insurance 

Co.,  467,  472. 
Benedict  y.  Insurance  Co.,  182. 
Ben  Franklin  Fire  Ins.  Go.  y.  Wllgus, 

445. 
Benham  t.  United,  etc.,  Go^  280. 


Bennett  y.  Featherstone,  421. 

y.  Insurance   Co.,   337,   343,   876^ 
505. 
BennlnghofT  y.  Insurance  Co.,  373. 
Bentley  y.  Insurance  Co.,  468. 
Benton  y.  Brotherhood,  193. 

y.  Insurance  Co.,  220. 
Berg  V.  Damkoehler,  403. 
Berliner  y.  Insurance  Co.,  676. 
Bermon  y.  Woodbridge,  545. 
Bernard  y.  Ass'n,  327. 
Bemheim  v.  Davitt,  405. 
Berry  y.  Indemnity  Co.,  87. 

y.  Insurance  Co.,  62,  308. 
Bersche  y.  Insurance  Co.,  489. 
Bevin  y.  Insurance  Co.,  135,  187. 
Biays  v.  Insurance  Co.,  558. 
Biddeford  Say.  Bank  y.  Insurance  Oo., 

75,  110. 
Bigelow  y.  Ass'n,  236. 

y.  Insurance  Co.,  521-523. 
Biggar  y.  Assurance  Co.,  363. 
Bilbrough  y.  Insurance  Co^  289. 
Bill  y.  Mason,  542. 
Billings  y.  Insurance  Co.,  283,  SSL 
Bills  y.  Insurance  Co.,  447. 
Bird  y.  Appleton,  189. 
Birmingham  y.  Insurance  Co.,  110. 
Birmingham  Fire  Ins.  Co.  y.  Pulyer, 

487,  507. 
Blsh  y.  Insurance  Co.,  510. 
Bishop  y.  Grand  Lodge,  191,  613. 

y.  Insurance  Co.,  378. 
Black  y.  Insurance  Co.,  510. 
Blackburn  y.  Vigors,  265,  271,  33a 
Blackerby  y.  Insurance  Co.,  182,  202. 
Blackstone  y.  Insurance  Co.,  64,  65, 

520,  522. 
Blaeser  y.  Insurance  Co.,  45,  241,  246. 
Blake  y.  Insurance  Co.,  231,  330. 
Blanchard  y.  Walte,  172. 
Block  y.  Insurance  Co.,  395. 
Bloom  y.  Insurance  Co.,  526,  527. 
Blooming  Groye  Mut.  £^e  Ins.  Go.  ▼. 

McAnemey,  326,  337. 
Bloomlngton  Mut  Ben.  Ass'n  y.  Blue, 

128,  186. 
Blossom  y.  Insurance  Co.,  502. 
Blue  Grass  Ins.  Co.  y.  Cobb,  174. 
Bobbitt  y.  Insurance  Co.,  183,  287. 
Bodlne  T.  Inforance  Oo^  178»  820,  821, 
868. 


i^ 


622 


Boehen  ▼.  Insurance  Co.,  177-180, 

Boetcher  v.  Insurance  Co.,  334. 

Bohn  Mfg.  Co.  t.  Sawyer,  lia. 

Boisseau  y.  Bass'  Adm'r,  400. 

Bolton  T.  Bolton,  68. 

Bond  V.  The  Brig  Cora,  649. 

Bondrett  v.  Hentigg,  558. 

Bonnert  v.  Insurance  Co.,  610. 

Boon  V.  Insurance  Co.,  479. 

Booth  V.  Galr,  563. 

Borden  v.  Insurance  Ob.,  53,  64. 

Born  V.  Insurance  Co.,  362. 

Borradaile  v.  Hunter,  518,  521. 

Bosley  v.  Insurance  Co.,  660. 

Boston,  The,  649. 

Boston  Ins.  Co.  v.  Insurance  Co.,  120. 

Boston  &  S.  Ice  Ca  y.  Insurance  Co.. 
110,  452. 

Bowden  y.  Vaughan,  273,  278. 

Bowman  y.  Insurance  Co.,  70,  178. 

Bowrlng  v.  Insurance  Co.,  116. 

Boyd  y.  Insurance  Co.,  373. 

Boyer  y.  Insurance  Co.,  463. 
Boyle  y.  Insurance  Co.,  500. 
Boynton  y.  Ass'n,  523. 
Bradbum  y.  Railroad  Co.,  428. 
Bradbury  y.  Insurance  Soc,  441. 
Bradford  y.  Insurance  Co.,  236. 
Bradley  v.  Insurance  Co.,  196.  215.  618. 

525,  526. 
Bradlle  y.  Insurance  Co.,  659,  560. 
Brady  y.  Ass'n,  204,  210. 

V.  Insurance   Co.,   186,   212,   631 
532. 
Bragdon  y.  Insurance  Co.,  172. 
Braker  y.  Ass'n,  500. 
Brannln  y.  Insurance  Co.,  226. 
Braswell  y.  Insurance  Co.,  243,  244. 
Breasted  y.  Trust  Co.,  518,  520. 
Breckinridge  y.  Insurance  Co.,  800. 
Breeyear  v.  Insurance  Go.,  458,  469. 
Breitung,  Estate  of,  390. 
Briggs  y.  Earl,  192,  414. 

y.  Insurance  Co.,  880,  481. 
Brighthope  Ry.  Co.  y.  Rogers,  65. 
British  America  Assur.  Co.  v.  Brad- 
ford, 484. 
▼.  Miller,  440. 

British  Bq.  Ins.  Co.  t.  Ralhx>ad  Co.. 
416. 

British  Ins.  Co.  v,  Magie  Cooke  A  AI- 
cock,  126b 


CASES  CITED. 
[Ttat  flguriM  refer  to  pages.] 


British  Mut  Banking  Co.  y.  Rallroa* 

Co.,  303. 
Britton  v.  Supreme  Council,  513. 
Brock  y.  Insurance  Co.,  355. 
Brockway  v.  Insurance  Co.,  128. 
Brooke  v.  Insurance  Co.,  559. 
Brooklyn   Life  Ins.   Oow  t.   Dutcher. 
283. 

y.  Miller,  180. 
Brough  V.  Higgins,  421. 

y.  Whitmore,  11,  164,  537. 
Brower  y.  Supreme  Lodge,  523. 
Brown  y.  Assurance  Co.,  498. 

y.  Grand  Lodge,  401,  403. 

T.  Insurance  Co.,  170,  177, 
180,  208,  444^  44^  448L 
460,544. 

T.  Mansur,  515. 

y.  Smith,  552. 

y.  Stapylton,  53L 
Browning  v.  Insurance  Co.,  254,  256w 
Brown's  Appeal,  399. 
Bruce  y.  Insurance  Co.,  182,  214^  234. 
Bryan  y.  Insurance  Co.,  283. 
Bryant  y.  Insurance  Co.,  435. 
Buchanan  y.  Insurance  Co.,  125,  46a 

y.  Supreme  Conclave,  226. 
Buck  y.  Insurance  Co.,  76,  262. 
Buell  y.  Grain  Co.,  87. 
Buelow,  In  re,  406. 
Bufe  y.  Turner,  252,  255. 
Buffalo  City  Bank  y.  Insurance  Co.^ 
561.  ^ 

Buffalo  Loan,  Trust  &  Safe-Deposit 
Co.  y.  Ass'n,  499,  500. 

Buffalo  Steam  Engine  Works  y.  In- 
surance Co.,  419. 

Bulger  y.  Insurance  Co.,  211. 

Bullard  y.  Insurance  Co.,  547,  550. 

Burden  y.  Ass'n,  220. 

Burgess  r.  Insurance  Co.,  548,  549. 

Burke  y.  Dulaney,  171. 

Burkhard  y.  Insurance  Co.,  582. 

Burleigh  y.  Insurance  Co.,  287. 

Burlington  Fire  Ins.  Co.  y.  Coffman,. 

Burlington  Ins.  Co.  v.  Brockway,  283. 

y.  Gibbons,  824. 

V.  Lowery,  308,  504. 

y.  Rivers,  352. 

y.  Toby,  376. 
Bumam  ?.  White,  416. 


B 


CASES  CITED. 
[The  flgurea  refer  to  pages.] 


623 


Burnett  y.  Insurance  Co.,  468. 
Bums  y.  Grand  Lodge,  77. 
Burridge  y.  Row,  201. 
Burritt  y.  Insurance  Co.,  188,  262,  253, 

293. 
Burrows  y.  Turner,  76. 
Burrus  y.  Insurance  Co.,  244. 
Burruss  y.  Ass'n,  150. 
Bursinger  y.  Bank,  144,  416. 
Burson  v.  Ass'n,  336,  362. 
Burt  V.  Insurance  Co.,  182,  188,  884, 

524,  533,  557. 
Burton  v.  English,  666. 

y.  Insurance  Co.,  126,  185. 
Burwell  v.  Snow,  391. 
Business  Men's  League  y.  Waddlll,  30. 
Bussing's  Ex'rs  v.  Insurance  Co.,  231. 
Butchers'  Union  Slaughter-House,  etc., 

Co.  y.  Live  Stock  Landing,  etc.,  Co., 

77,  88. 
Butler  y.  Wildman,  566. 
Byrne  y.  Insurance  Co.,  649. 


Caballero  t.  Insurance  Co.,  481. 
Caffery  y.  Insurance  Co.,  188. 
Caledonia  Ins.  Co.  y.  Traub,  487. 
California  Ins.  Co.  y.  Compress  Co., 

114,  439,  605. 
Camden  y.  Cowley,  541. 
Cameron  y.  Fay,  405. 
Cammack  y.  Lewis,  103,  139,  140. 
Campbell  y.  Insurance  Co.,  128,  156, 
282,  293,  294,  499. 
y.  Supreme  Conclave,  518 
T.  Supreme  liOdge,  311. 
Canavan  y.  Insurance  Co.,  403. 
Cannon  y.  Insurance  Co.,  478,  502. 
Canton  Ins.  Office  y.  Woodside,  482. 

558. 
Capen  y.  Insurance  Co.,  546. 
Capital  City  Ins.  Co.  y.  Caldwell,  438. 

y.  Jones,  75,  77. 
Capital   City   Mut   Fire   Ins.  Co.   t. 

Boggs,  239. 
Capital  Fire  Ins.  Co.  y.  Watson,  594, 

596. 
Caplis  y.  Insurance  Co.,  447. 
Caraher  y.  Insurance  Co.,  472. 
Carey  v.  Insurance  Co.,  324,  352,  446. 
Carlock  v.  Insurance  Co.,  177. 
Carmichael  y.  Ass'n,  616. 


Games  y.  Ass'n,  523,  568. 
Carpenter  y.  Ass'n,  97,  2ia 

T.  Insurance  Co.,  49,  100.  Ill,  112, 
121,  132,  253,  329,  368»  879^ 
418-420,  426,  427,  502. 

T.  Knapp,  402. 

y.  Snelling,  161. 
Carr  y.  Insurance  Co.,  438,  581. 
Carrigan  y.  Insurance  Co.,  444. 
Carrington  y.  Insurance  Co.,  447. 
Carrollton  Furniture  Mfg.  Co.  Y.  In- 
demnity Co.,  251,  369,  370. 
Carson  v.  Insurance  Co.,  258. 
Carstairs  v.  Insurance  Co.,  427. 
Carter  v.  Boehm,  252,  261-264. 

y.  Insurance   Co.,   206,   225,   229, 
230. 
Case  y.  Insurance  Co.,  476,  509. 
Cason  y.  Owens,  402. 
Cassimus  y.  Insurance  Co.,  433. 
Cassity  y.  Insurance  Co.,  55. 
Castellaln  y.  Preston,  55,  423-125. 
Castner  y.  Insurance  Co.,  224. 
Catlin  y.  Insurance  Co.,  283,  289. 
Catt  y.  Olivier,  171. 
Cauffleld  v.  Insurance  Co.,  199,  215. 
Cawthon  y.  Perry,  127. 
Cayon  v.  Insurance  Co.,  490. 
Cazenove  y.  Assurance  Co.,  258. 
Centennial   Mut    Life   Ass'n   v.  Par- 
ham,  326,  337. 
Center  y.  Insurance  Co.,  560. 
Central  Bank  y.  Hume,  102. 
Central  City  Ins.  Co.  v.  Gates,  498. 
Central  Nat  Bank  y.  Hume,  390,  392. 

408-410,  412. 
Chadsey  v.  Guion,  182. 
Chaffee  v.  Insurance  Co.,  287. 
Chamberlain  v.  Butler,  416, 

y.  Insurance  Co.,  162. 

y.  Williams,  528. 
Chambers  v.  Insurance  Co.,  288,  609. 
Chandler  y.  Insurance  Co.,  509. 
Chapin  y.  Fellowes,  399. 
Chapman  y.  Pole,  456. 
Charlotte,  C.  &  A.  R.  Co.  v.  Gow,  597. 
Chartbrand  y.  Brace,  59. 
Charter  Oak  Life  Ins.  Co.  v.  Rodel, 

521. 
Ohartiers  &  R.  Turnpike  Co.  y.  Mc- 

Namara,  151. 
Chase  v.  Insurance  Co.»  281,  547. 

▼.  Swayne,  406. 


i 


1 1; 


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i 


624 


CASES  CITED. 
[The  figures  refer  to  pages.] 


Chesapeake  Ins.  O).  t.  Allgre's  Heirs, 

538. 
Chicago,  B.  ft  Q.  R.  Co.  t.  Curtis,  25. 
Chicago  Guaranty  Fund  Ldfe  Soc.  y. 

Dyon,  145. 
Chicago  Lift  Ins.  Co.  t.  Warner,  211. 
Chicago  Mut  Life  Indemnity  Ass'n  y. 

Hunt,  90,  191. 
Chickasaw  County  Farmers'  Mat  Fire 

Ins.  Co.  V.  Weller,  426. 
Childs  y.  Insurance  Co.,  561, 
Chilson  V.  Downer,  608. 
Chippewa   Lumber  Co.  t.   Insurance 

Co.,  481. 
Chisholm  y.  Insurance  Co.,  125,  136. 
Chosen  Friends  y.  Fairman,  59. 
Chrisman  y.  Insurance  Co.,  121. 
Church  y.  Insurance  Co.,  205. 
Cincinnati  Ins.  Ga  t.  Bakewell,  559, 
561. 
y.  Duffleld,  561. 
Cincinnati  Mut.  Health  Assur.  Go.  y. 

Rosenthal,  87,  88. 
Cincinnati  Mut  Ins.  Co.  y.  May,  647. 
Citizens'  Ins.  Co.,  In  re,  600. 
y.  Glasgow,  661. 
y.  McLaughlin,  470. 
y.  Marsh,  189. 
y.  Stoddard,  330,  383. 
City  Fire  Ins.  Co.  y.  Carrugl,  186. 

y.  Corlies,  480. 
City  of  Dayenport  T.  Insurance  Co., 

172. 
City  of  New  York  y.  Insurance  Co., 

110,  118,  509. 
City  of  Petersburg  y.  Ass'n,  60. 
City  of  St  Joseph  y.  Railroad  Ca,  606. 
City  Planing  &  Shingle  Mill  Go.  y.  In- 

surance  Co.,  381,  461,  473. 
Claflin  y.  Credit  System  Co^  48.  691, 
592,  602. 
y.  Insurance  Co.,  466. 
Clapham  v.  Cologan,  287. 
Clapp  y.  Ass'n,  273. 

y.  Insurance  Ass'n,  118. 
Clark  y.  Allen,  144,  410. 
y.  Ass'n,  166,  811. 
y.  Durand,  890. 

y.  Insurance   Co.,   117,   188,  243, 
254r-267,  291,  460. 
Clarke  y.  Assurance  Co.,  480b 
y.  Insurance  Co.,  118. 
T.  Schwarzenberg,  414 


Clay  Fire  &  Marine  Stock  Ins.  Co.  y. 

Beck.  444,  447. 
Cleaver  v.  Ass'n,  392,  393. 

y.  Insurance   Co.,    324,   326,    827 
843. 
Clemans  y.  Assembly,  357. 

V.  Supreme  Assembly,  370. 
Clement  y.   Insurance   Co.,   384,  528. 

532. 
Clements  y.  Insurance  Co.,  532. 

v.  Railroad  Co.,  25. 
Clemmltt  y.  Insurance  Co.,  84,   18&^ 

220. 
Clemson  y.  Trammell,  458. 
Clendlning  y.  Church,  125. 
Clidero  y.  Insurance  Co.,  668. 
Clift  y.  Schwabe,  6ia 
Cline  y.  Assurance  Co.,  20,  327. 
Clinton  y.  Insurance  Co.,  50,  111,  121, 

450. 
Cluff  y.  Insurance  Co.,  624. 
Cobb  y.  Ass'n,  286,  291. 

V.  Insurance  Co.,  647. 
Cockerill  y.  Insurance  Co.,  122,  149. 
Cockrell  v.  Cockrell,  395. 
Coffin  y.  Insurance  Co.,  549. 
Cohen  y.  Insurance  Co.,  64,  80,  82,  84, 

220. 
Colt  V.  Smith,  551. 
Coker  v.  Insurance  Co.,  161. 
Colburn,  Appeal  of,  415,  528. 
Colby  y.  Investment  Co.,  222. 
Cole  y.  Haven,  44. 

y.  Insurance  Co.,  178,  308. 
Coles  y.  Insurance  Co.,  334,  650. 
Collett  y.  Morrison,  185,  272. 
Collins  V.  FideUty  &  Casualty  Co.,  581. 

y.  Insurance  Co.,  446. 

y.  Locke,  487. 
Columbia  Bank  y.  Society,  406. 
Columbia  Ins.  Co.  y.  Buckley,  224. 

y.  Cooper,  110,  116. 

T.  Lawrence,  418,  602,  507. 

y.  Masonheimer,  316. 
Columbia  Paper  Stock  Co.  t.  Casualty 

Co.,  594. 
Columbian  Ins.  Co.  ▼.  Lawrence^  113, 

257. 
Combs  y.  Insurance  Co.,  868. 
Commack  y.  Lewis,  411. 
Commercial  Fire  Ins.  Go.  T.  Iiunumnot 
Co.,  121,  123. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


625 


Commercial  Ins.  Go.  y.  Hallock,  161, 
170,  259. 
y.  Huckberger,  507. 
y.  Ives,  334. 
Commercial  League  Ass'n  ▼•  People, 

69. 
Commercial  Mut  Ace.  Co.  y.  Bates, 

289,  292. 
Commercial  Mut   Ins.   Co.  y.   Insur- 
ance Co.,  61,  63,  150,  156,  315. 
Commercial  Mut.  Marine  Ins.  Co.  y. 

Insurance  Co.,  168,  175,  177. 
Commercial  Nat  Bank  y.  Armstrong, 

249. 
Commercial  Union  Assur.  Co.  y.  In- 
surance Co.,  64. 
y.  Urbansky,  149. 
Commonwealth  v.  Andrews,  45. 
y.  Ass'n,  59,  60,  90,  400. 
y.  Insurance  Co.,  113. 
v.  Nutting,  83,  299. 
V.  Philadelphia  Inquirer,  43. 
y.  Society,  196. 
y.  Vrooman,  76,  77. 
y.  Wetherbee,  59,  591. 
Commonwealth  Ins.   Co.   y.   Cropper, 
548. 
y.  Insurance  Co.,  62. 
y.  Sennett  488. 
Commonwealth  Mut  Fire  Ins.  Co.  v. 
Hayden,  87. 
y.  Mfg.  Co.,  312. 
y.  Place,  86. 
Conboy  y.  Ass'n,  526. 
Connecticut  Fire  Ins.  Co.  y.  Railroad 
Co.,  423,  426. 
y.  Tilley,  72. 
Connecticut    Mut.    Life    Ins.    Co.    y. 
Akens,  521. 
y.  Baldwin,  514. 
y.  Burroughs,  201,  399. 
y.  Duerson's  Ex'r,  220. 
y.  Groom,  517,  520. 
y.  Lathrop,  521. 
y.  Luchs,  75,  137,  139,  258. 
y.  McWhlrter,  523. 
y.  Moore,  522. 
y.  Railroad  Co.,  428. 
y.  Schaefer,  30,  58,  98,  101,  104, 
105,  126,  127,  129,  416. 
Connelly  y.  Ass'n,  190. 
Conner  y.  Reeves,  608. 

Vance  Ins. — 40 


Conrad's  Estate,  In  re,  394,  398. 
Consolidated  Fire  Ins.  Co.  v.  Cashow, 

65. 
Constant  v.  Insurance  Co.,  152. 
Continental  Fire  Ass'n  v.  Norris,  310. 

y.  Wbitaker,   295,   297,   305,   48i. 
502. 
Continental  Ins.  Go.  y.  Allen,  312. 

V.  Boykin,  199. 

v.  Browning,  353,  433. 

y.  Daniel,  495. 

y,  Delpeuch,  523. 

y.  Dorman,  184,  223. 

y.  Kasey,  268,  284,  293^ 

y.  Kyle,  472. 

y.  Miller,  220. 

y.  Munns,  50. 

y.  Pearce,  825,  326,  335,  339. 

y.  Pruitt,  483. 

T.  Ruckman,   310,   317,   318,   320, 
329. 

y.  Wilson,  354. 
Continental  Ins.  Co.  of  New  York  y. 

Browning,  350. 
Continental  Life  Ins.  Co.  y.  Chamber- 
lain,   21,   300,   310,   337,   340, 
366,  368. 

y.  Chew,  337. 

y.  Houser,  241. 

y.  Palmer,  396,  514. 

y.  Pearce,  331. 

y.  Rogers,  292. 

y.  Volger,  125,  129,  131,  183. 

y.  Webb,  394,  514. 

y.  Yung,  294. 
Cook  y.  Allee,  895. 
Cooke  V.  Insurance  Co.,  159. 
Coon  y.  Swan,  412. 
Cooney  y.  Cooney,  405. 
Cooper  y.  Insurance  Co.,  621. 

y.  Shaeffer,  139. 

y.  Weaver's  Adm'r,  139. 
Copeland  y.  Insurance  Co.,  459,  646^ 

547. 
Corbett  y.  Insurance  Co.,  492. 
Cornell  y.  Insurance  Co.,  608. 
Cornish  y.  Insurance  Co.,  582. 
Corson,  Appeal  of,  58,  103,  104^  127, 
129,  134. 

y.  Insurance  Co.,  381. 
Corson's  Appeal,  189,  412. 
Cory  y.  Patton,  170,  269,  201* 


li 


lit 


I 


626 


CASES  CITED. 
[The  flgurss  refer  to  pages.] 


Gotten  y.  Casualty  Co.,  205,  210. 
Cottingham  t.  Insurance  Co.,  449,  452. 
Cotton    States   Life   Ins.    Co.   T.   Ed- 
wards, 230. 
Conch  ▼.  Insurance  Co.,  166. 
Cousins  V.  Nantes,  126, 
Covenant  Mut  Life  Ass'n  y.  Kentner, 

239. 
Coventry  Mut.  Live  Stock  Ins.  Ass'n 

V.  Evans,  502. 
Cowan  V.  Assurance  Corp.,  87. 
y.  Insurance  Co.,  449. 
V.  Robberds,  46. 
Cowart  y.  Insurance  Co.,  459. 
Cowles  y.  Insurance  Co.,  214. 
Cowman  v.  Rogers,  397,  398. 
Crane  y.  Bell,  7,  8. 

y.  Insurance  Co.,  429. 
Craufurd  y.  Hunter,  126. 
Cravens  y.   Insurance   Co.,   187,  212, 

228,  229,  231. 
Crawford    County    Mut    Ins.    Co.    T. 

Cochran,  207. 
Creed  y.  Fire  Office,  109. 
Crescent  Ins.  Co.  y.  Moore,  406. 
Crikelalr  y.  Insurance  Co.,  443,  448. 
Critchett  v.  Insurance  Co.,  310. 
Crocker  y.  Hogln,  529. 

y.  Jackson,  549. 
Croft  y.  Insurance  Co.,  150,  176,  205. 

313. 
Cromwell  y.  Insurance  Co.,  468. 
Cronin  y.  Ass'n,  458,  461. 

y.  Insurance  Co.,  132,  135. 
Cronkhite  v.  Insurance  Co.,  170,  173. 
Crosby  y.  Ball,  515. 

y.  Insurance  Co.,  557. 
Cross  y.  Insurance  Co.,  546. 
Crosswel  v.  Ass'n,  56,  98,  103-105,  130, 

144,  416. 
Crotty  y.  Insurance  Co.,  136,  411. 
Crowley  v.  Cohen,  113. 
Cruikshank  y.  Janson,  541. 
Culbertson  y.  Cox,  421. 
Cullen  y.  Butler,  543. 

y.  Harris,  405. 
Cumberland    Valley    Mut.    Protection 

Co.  y.  Douglas,  283.  437,  462. 
Cummins  y.  Insurance  Co.,  474. 
Cunningham  y.  Smith's  Adm'r,  143. 
Currier  y.  Insurance  Co.,  101,  132,  136, 

204. 
Curry  y.  Insurance  Co.,  109,  253. 


Curtis  y.  Banker,  608. 
Curtlsa  y.  Insurance  Co.,  414, 
Cushman  y.  Fuel  Co.,  607,  609. 
Cuthbertson  y.  Insurance  Co.,  82Bw 


Dabney  y.  Insurance  Co.,  549. 

Dacey  v.  Insurance  Co.,  53. 

Daggs  y.  Insurance  Co.,  83,  165,  800^ 

491. 
Dailey  y.  Ass'n,  168,  173. 
Dalby  y.  Assurance  Co.,  57,  68,  101, 

102,  126,  127,  412. 
Dale  y.  Brumbly,  414. 
Daniels  y.  Insurance  Co.,  183,  187,  255, 

257,  268,  287,  292,  293. 
Daniher  y.  Grand  Lodge,  59. 
Dannhauser  y.  Wallenstein,  414. 
Darrow  y.  Society,  392,  402,  517,  519, 

525. 
Daul  y.  Insurance  Co.,  455. 
Davenport  v.  Insurance  Co.,  332. 
Davey  y.  Insurance  Co.,  286,  373. 
David  y.  Insurance  Co.,  110. 
Davidson  y.  Society,  193. 
Davis  y.  Brown,  528. 

y.  Insurance   Co.,   101,    123,   312, 

488,  500. 
T.  King,  317. 
Day  V.  Insurance  Co.,  183,  244,  294, 

308,  406. 
Dayton  Ins.  Co.  y.  Kelly,  149,  166,  30a 
Dean  y.  Dicker,  536. 

y.  Insurance  Co.,  521. 
De  Armand  y.  Insurance  Co.,  444. 
De  Camp  y.  Insurance  Co.,  301,  309. 
De  Costa  y.  Edmunds,  538. 

V.  Firth,  538. 
Decrow  y.  Insurance  Co.,  550. 
Dederer  v.  Insurance  Co.,  552. 
De  Forest  y.  Insurance  Co.,  115. 
De  Frece  y.  Insurance  Co.,  353. 
De  Graff  y.  Insurance  Co.,  440,  441. 
Deitz  y.  Insurance  Co.,  319,  331,  334. 
Delahunt  v.  Insurance  Co.,  425,  541. 
De  Lancey  y.  Insurance  Co.,  18. 
De   La    Vergne   Refrigerating  MaclL 

Co.  V.  Institution,  186. 
Delaware  Ins.  Co.  y.  Greer,  420,  467. 
De  Longuemere  v.  Insurance  Co.,  262. 
Delouche  y.  Insurance  Co.,  247. 


i: 


CASES  CITED. 
[The  figures  refer  to  pages.] 


627 


Deming  y.  Storage  Co.,  425. 

Denison  y.  Ass'n,  508. 

Dennis  y.  Insurance  Co.,  522,  528. 

Dennison  v.  Insurance  Co.,  268,  273. 

Dennistoun  y.  Lillie,  276. 

Denoon  y.  Insurance  Co.,  539. 

Denver  Fire  Ins.  <So.  v.  McClelland, 

186. 
De  Peau  y.  Russel,  543. 
De  Peyster  y.  Insurance  Co.,  659. 
Des  Moines  Ice  Go.  y.  Insurance  Co., 

462,  463. 
Devaux  y.  J' Anson,  539. 
Devens  y.  Insurance  Co.,  812. 
Dewees  y.  Insurance  Co.,  360. 
Dewey  y.  Davis,  245. 
Dezell  y.  Casualty  Co.,  568,  677. 
Dibble  v.  Assurance  Co.,  174. 
Dick  y.  Insurance  Co.,  111. 
Dickenson  y.  Insurance  Co.,  263. 

y.  Jardine,  555. 
Dickerman  y.  Insurance  Co.,  123. 
Dickerson  v.  Insurance  Co.,  242,  523. 
Dickey  y.  Insurance  Co.,  542,  561. 
Dickinson  y.  A.  O.  U.  W.,  193. 
Dillard  v.  Insurance  Co.,  93,  97,  197, 

219. 
Dilleber  ▼.  Insurance   Co.,  314,  345, 

353. 
Dlmick  y.  Insurance  Co.,  361,  363. 
Disbroi^  y.  Jones,  49. 
Diver  y.  insurance  Co.,  459. 
Dixon  y.  Heed,  552. 
V.  Sadler,  546. 
Dobbel's  Estate,  In  re,  528. 
Dobyns  y.  Association,  180. 
Dogge  V.  Insurance  Co.,  456. 
Dolan  V.  Ass'ti,  516. 

y.  Court,!  191. 
Dolliver  v.   insurance  Co.,  444,   448, 

506. 
Domett  y.  T</ung,  559. 
Donald  y.  Railway  Co.,  00. 
Donaldson  v.   Uhlfelder,  171. 
Donnell  y.  Donnell,  116. 
Dooly  y.  Insurance  Co.,  256,  272. 
Dorr  y.  Insurance  Co.,  231,  232. 
Douglas  y.  Insurance  Co.,  231. 
Dover   Glassworks   Co.   y.    Insurance 

Co.,  372,  461. 
Dow  y.  Insurance  Co.,  120. 
Dowdale's  Case,  8. 
Dowling  y.  Insurance  Co.,  362,  383. 


Doyle  y.  Insurance  Co.,  23,  84,  85. 
Dozier  y.  Fidelity  &  Casualty  Go.,  668| 

580. 
Drake  y.  Stone,  396. 
Drennen  y.  Assurance  Corp.,  463. 
Drury's  Adm'x  v.  Insurance  Co.,  229, 

231. 
Dudgeon  v.  Pambroke,  560. 
Dudgeon  y.  Pembroke,  646. 
Duff  V.  Mackenzie,  538. 
Dugger  y.  Insurance  Co.,  490,  491. 
Duluth  Nat  Bank  y.  Insurance  Co., 

318. 
Duncan  v.  Insurance  Co.,  183,  470. 
Duncombe's  Estate,  In  re,  388. 
Dupreau  v.  Insurance  Co.,  444,  446. 
Dupuy  y.  Insurance  Co.,  327. 
Duran  v.  Insurance  Co.,  527. 
Duvall  y.  Goodson,  394,  404,  612,  614. 
Dwelling  House  Ins.  Co.  y.   Brodie^ 
510. 
T.  Dowdall,  446. 
V.  Hardie,  236. 
y.  Snyder,  316,  33a 
Dwyer  v.  Edie,  137. 
Dyson  y.  Bowcroft,  668b 


Eagan  v.  Insurance  Co.,  178. 
Eagle  Ins.  Co.  v.  Insurance  Co.,  88. 

y.  State,  297. 
Eames  v.  Insurance  Co.,  163,  164^  163, 

177,  301,  308,  364,  368. 
Earl  y.  Shaw,  536. 
Earle  y.  Rowcroft,  552. 
Early  y.  Insurance  Co.,  677,  678. 
Easley  y.  Insurance  Co.,  190. 
Eastabrook  v.  Insurance  Co.,  517,  521. 
Eastern  B.  Co.  y.  Insurance  Co.,  370, 

382. 
East  Texas  Fire  Ins.  Co.  y.  Blum,  313. 

y.  Brown,  313. 

y.  Clarke,  451. 
Eaton  V.  Insurance  Co.,  585. 
Ebert  v.  Association,  239,  245. 
Ebsworth  y.  Insurance  Co.,  100. 
Eckel  y.  Renner,  143,  416. 
Eclectic  Life  Ins.  Ca  y.  Fahrenkrug, 

315. 
Eddy  y.  Insurance  Co.,  211,  214. 
Edgerly  y.  Insurance  Go,  507. 


♦ 


I 


C2S 


CASES  CITED. 
[The  figures  refer  to  pages.] 


f 


Edwards  v.  Footner,  277. 
V.  Insurance  Co.,  495. 
Eenrorn,  The,  189. 
Egan  V.  Insurance  Ck).,  63,  150. 
Eggenberger  v.  Association,  585. 
Eggleston  v.   Insurance  Co.,  510. 
Eilenberger  v.  Insurance  Co.,  81,  334. 
Eliot   Five  Cents   Sav.   Bank  v.   As- 
surance Co.,  488. 
Elkhart   Mut.  Aid  B.  &   R.  Ass'n  »v. 

Houghton,  128. 
Elkins  V.  Insurance  Co.,  178. 
EHorbe  v.  Barney,  198,  238. 
Elliott  V.  Insurance  Co.,  448 
Elliott's  Ex'rs'  Appeal,  408. 
Ellis  V.  Insurance  Co.,  50,  384,  413, 

444,  447,   509. 
Ellison  V.  Straw,  390,  395,  396. 
El  Paso   Reduction  Co.  v.  Insurance 

Co.,  461,  495. 
Embler  v.  Insurance  Co.,  609. 
Embry's  Adm'r  v.  Harris,  138. 
Emery  v.  Insurance  Co.,  149,  460. 
Employers'  Liability  Assurance  Corp. 
V.  Back,  584,  585. 
V.  Merrill,  43,  137,  605. 
Endowment    Rank   K.    P.   v.   Cogbill, 
281,  294,  335. 
T.  Rosenfeld,  281,  282. 
Endowment  &  Benev.  Ass'n  t.  State, 

59. 
English  V.  Insurance  Co.,  441. 
Entwistle  v.  Insurance  Co.,  399. 
Equitable  Fire  Ins.  Co.  v.  Alexander, 

174. 
Equitable  Life  Assur.   Soc  v.  Bank, 
232. 
T.  Cole,  205-207. 
T.  Com.,  75,  196,  205. 
▼.  McElroy,  149,  161,  373. 
T.  Nixon,  188,  225,  226. 
▼.  Paterson,  136,  521. 
V.  Pettus,  297. 
T.  Spillman,  233. 
V.  Trimble,  188. 
Equitable  Life  Ins.  Co.  v.  Hazelwood, 

100,  104,  130,  137,  138,  140,  316. 
Erb  T.  Insurance  Co.,  452. 
Erman  v.  Insurance  Co.,  455. 
Ermentrout  v.  Insurance  Co.,  477,  498, 

504. 
Essex   Say.  Bank  ▼.   Insurance  Co., 
113. 


Estes  V.  Insurance  Co.,  309. 
Eury  V.  Insurance  Co.,  205,  210. 
Evans  v.  Insurance  Co.,  97,  220. 

V.  Opperman,  515. 
Ewing  V.  Association,  589. 
Excelsior  Fire  Ins.  Co.  v.  Insurance 

Co.,  112,  419. 
Exchange  Bank  v.  Loh,  127,  140. 
Exchange  Bank  of  Macon  v.  Loh,  57, 

411,  412,  417. 
Exchange  Bank  of  St  Louis  ▼.  Bice, 

66. 
Byre  v.  Grover,  539. 


Fabbrl  v.  Insurance  Co.,  191. 

Failey  v.  Fee,  193. 

Fairchild  v.  Association,  144,  416. 

Falkuer  v.  Ritchie,  552. 

Faneuil    Hall   Ins.   Co.   V.    Insurance 

Co.,  64,  68. 
Farley  v.  Insurance  Co.,  234. 
Farmers'   Bank  of  Saratoga  v.  Max- 
well, 235. 
Farmers'  Feed  Co.  v.  Insurance  Co.. 

485. 
Farmers'  Fire  Ins.  Co.  v.  Baker,  383. 
Farmers'  Ins.  Co.  v.  Williams,  337. 
Farmers'  Ins.  &  Loan  Co.  v.  Snyder, 

184,  269. 
Farmers'  Loan  &  Trust  Co.  v.  Glass 

Co.,  418. 
Farmers'  Mut  Fire  Ins.  Ass'n  v.  Kry- 

der,  441. 
Farmers'  Mut  Fire  Ins.  Co.  v.  Barr, 
509. 
T.  Marshall,  429. 
Farmers*  Mut.  Ins.  Co.  v.  Insurance 
Co.,  242. 
V.  Taylor,  504. 
V.  Turnpike  Co.,  76,  118. 
Farmers'  &  Drovers'  Ins.  Co.  v.  Curry, 

285,  296. 
Farmers'   &   Mechanics'   Benev.    Fire 

Ass'n  v.  Williams,  362. 
Farmers'   &    Merchants'   Ins.   Co.   v. 
Dobney,  483. 
T.  Hahn,  446. 
V.  Jensen,  449. 
Farmers'  &  Traders'  Bank  v.  Johnson. 
143. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


629 


Farnum   v.   Insurance   Co.,   178,  180, 

215,  308,  354. 
Farrell  v.  Insurance  Co.,  441,  507. 
Farrow  v.  Insurance  Co.,  75. 
Faust  V.  Insurance  Co.,  182. 
Fawcus  V.  Sarsfield,  546. 
Fayerweather  v.  Insurance  Co^  426, 

427. 
Fearn  v.  Ward,  410. 
Feder  v.  Association,  569. 
Feibelman  v.  Assurance  Co.,  189. 
Feise  v.  Parkinson,  247,  248. 
Ferdon  v.  Canfield,  75. 
Ferebee  v.  Insurance  Co.,  209. 
Ferguson  v.  Insurance  Co.,  412. 
Fernandez  v.  Insurance  Co.,  549. 
Ferree  v.  Insurance  Co.,  468. 
Fetter  v.  Fidelity  &  Casualty  Co.,  570. 
Fidelity   Mut.   Life  Ass'n  v.  Ficklin, 
285,  296. 
T.  Jeffords,  281. 
v.  Mettler,  483. 
V.  Miller,  285,  298. 
Fidelity  &  Casualty  Co.  T.  Alpert,  293. 
V.  Ballard,  158. 
V.  Bank,  596,  598-600. 
V.  Chambers,  177. 
V.  Eickhoff,  596,  601. 
V.  Johnson,  205,  210,  667. 
V.  Waterman,  431. 
Fidelity  &  Casualty  Co.  of  New  York 
V.  AlUbone,  484. 
V.  Teter,  574. 
V.  Waterman,  580. 
Fifth  Ave.  Bank  v.  Railroad  Co.,  304. 
Findlay  v.  Insurance  Co.,  449,  467. 
Fineisen   v.    Insurance   Co.,   373. 
Fink  V.  Fink,  403. 
Flnlay  v.  Liverpool,  554. 
Finley  v.  Insurance  Co.,  372. 
Fire   Ass'n   of   Philadelphia    T.   Hog- 
wrood,  312. 
V.  Rosenthal,  488,  489. 
Fire  Ins.  Ass'n  v.  Transportation  Co., 

76,  115,  116,  182. 
Fireman's  Fund  Ins.  Co.  v.  Barker, 
451. 
▼.  Buckstaff,  509. 
T.  McGreevy,  254. 
T.  Norwood,  309,  324,  325.  368. 
V.  Refrigerating  Co.,  330,  510. 
Fireman's  Ins.  Co.  v.  Cecil,  429. 
▼.  Kuessner,  177. 


First  Baptist  Church  Trustees  v.  In- 
surance Co.,  176. 
First  Congregational  Church  v.  Insur- 
ance Co.,  434,  463.  464. 
First  Nat.  Bank  v.  Insurance  Co.,  292, 
456. 
▼.  Speece,  127. 
V.  Terry's  Adm'r,  127. 
Fischer  v.  Insurance  Co.,  487. 
Fish  V.  Cottenet,  151. 
Fisher  v.  Donovan,  192. 

V.  Insurance  Co.,  50,  53,  G8,  244, 
246,  248. 
Fitch  v.  Insurance  Co.,  278,  279,  287, 

292,  392,  519,  530. 
Fitchburg  Sav.  Bank  v.  Insurance  Co„ 

350,  443. 
Fithian  v.  Insurance  Co.,  236. 
Fitzgerald  v.  Insurance  Co.,  143,  416. 
Fitzherbert  v.  Mather,  264. 
Fitzsimmons  v.  Express  Co.,  305. 
Flagg  V.  Baldwin,  126. 
Flanagan  v.  Insurance  Co.,  49. 
Flatley  v.  Insurance  Co.,  502. 
Fleming  v.  Smith,  559. 
Fletcher  v.  Insurance  Co.,  186,  498. 

V.  Staples,  405. 
Flinn  v.  Headlam,  277. 

V.  Tobin,  277. 
Flint  V.  Flemyng,  539. 
Flippen  v.  Insurance  Co.,  286. 
Flyn  V.  Association,  500. 
Flynn  v.  Flynn,  109. 

V.  Insurance  Co.,  318. 
Folb  V.  Insurance  Co.,  169. 
Foley  V.  Insurance  Co.,  Ill,  112,  525. 
Follette  V.  Association,  331,  362. 
Follis  V.  Association,  582. 
Folmer's  Appeal,  515. 
Fontaine  v.  Insurance  Co.,  547. 
Forbes  v.  Aspinall,  538. 
V.  Church,  45. 
T.  Insurance  Co.,  102,  438. 
Ford  V.  Relief  Co.,  182. 
Forward  v.  Insurance  Co.,  304,  337. 

432. 
Foster  v.  Gile,  390,  396,  397. 
V.  Insurance  Co.,  426. 
V.  Van  Reed,  108,  112,  419. 
Fowle  V.  Insurance  Co.,  500. 
Fowler  v.  Insurance  Co.,  121,  185,  213, 
214,  253,  288. 
y.  Rathbone,  5561 


»l 


If 


N 


^^ 


63U 


Fox  J,  Insurance  Co.,  112. 
Fraue  7.  Insurance  Co.,  308, 
Fra  ik  v.  Assurance  Co.,  238. 
Fra-ikiin   Fire  Ins.   Ca   v.  Bradford, 
319. 
T.  Colt.    150,    152,    153.    168,    170, 

172,  174,  176,  177,  205. 
T.  Hamill,  488. 
V.  Ice  Co.,  110,  330. 
V.  Martin,  112,  360,  361. 
V.  Vaugtian,  54. 
Franklin  Ins.  Co.  v.  Villeneuve,  532. 
Franklin  Life  Ins.  Co.  v.  Galligan,  284, 
395. 
V.  Hazzard,  528. 
Franklin  Marine  &  Fire  Ins.  Co.  v. 

Drake,  109,  458. 
Fraternal  Mystic  Circle  v.  Crawford, 

273. 
Fred  Miller  Brewing  Co,  v.  Insurance 

Co.,  310. 
Freedman  v.  Insurance  Co.,  380. 
Freeman  v.  Association,  53,  570. 

V.  Pope,  408. 
Fried  v.  Insurance  Co.,  174. 
Friedlander  v.  Railway  Co.,  304. 
Frierson  ▼.  Brenham,  110. 
Friezen  v.  Insurance  Co.,  444,  447,  508, 

509. 
Frisbie  v.  Insurance  Co.,  290. 
Fritchburg   Sav.   Bank   v.   Insurance 

Co.,  448. 
Fritts  V.  Palmer,  88. 
Fritz  V.  Insurance  Co.,  472. 
Frost  V.  Insurance  Co.,  235. 
Frye  v.  Electric  Co.,  605. 

V.  Gas  &  Electric  Co.,  606,  609. 
Fullam  T.  Insurance  Co.,  508. 
Fuller  V.  Insurance  Co.,  413,  450,  504, 
505,  561. 
T.  Llnzee,  397,  398. 
Fulton  Ins.  Co.  v.  Goodman,  559,  661. 
Funke  ▼.  Insurance  Ass'n,  460. 

e 

Gabay  ▼.  Lloyd,  551, 

Galbraith's  Adm'r  T.  Insurance  Co., 

326,  357. 
Gale  y..  Association,  573. 

T.'  Laurie,  538. 

V.  Machell,  242. 
Galyln  v.  Insurance  Co-  235. 


CASES  CITBD. 
[Tli«  figures  refer  to  pages.J 


Gans  V.  Insurance  Co.,  334. 
Garland  v.  Gaines,  151. 
Garner  v.  Insurance  Co.,  221, 
Garretson  v.  Association,  238,  292. 

V.  Insurance  Co.,  438. 
Garver  v.  Insurance  Co.,  445. 
Gates  V.  Insurance  Co.,  254,  463. 
Gauch  V.  Insurance  Co.,  513,  514. 
Gaysvllle  Mfg.  Co.  v.  Insurance  Ca. 

313. 
Gee  V.  Insurance  Co.,  458. 
General  Ins.  Co.  v.  Insurance  Co.,  316. 
General    Mut.   Ins.   Co.  v.   Sherwood. 

476. 
Georgia  Home  Ins.  Co.  v.  Allen,  482. 
V.  Bartlett,  450. 

V.  Kinnier's  Adm*x,  302,  309,  344, 
472. 
Gerling  v.  Insurance  Co.,  453. 
German-American  Ins.   Co.  T.   Buck- 
staff,  473. 
T.  Etlierton,  486. 
T.  Humphrey,  328,  352. 
V.  Norris,  256,  354,  507. 
German  Fire  Ins.  Co.  v.  Eddy,  492. 
V.  Gray,  328. 
V.  Hick,  331. 
German  Fire  Ins.  Co.  of  Freeport  t. 

York,  453. 
Germania   Fire  Ins.  Co.  v.  Deckard, 
434. 
T.  Klewer,  460. 
V.  Pitcher,  316,  354,  376. 
Germania  Ins.  Co.  v.  Ashby,  188. 
V.  Bromwell.  350. 
V.  Rudwig,  52,  186,  285,  296. 
Germania    Life    Ins.    Co.    v.    Lunken- 
heimer,  324. 
T.  Saur,  232. 
German  Ins.  Co.  v.  Ass'n,  459. 
V.  Davis,  502. 
▼.  Fairbank,  509. 
V.  Gibe,  449. 
▼.  Gibson,  379,  381. 
V.  Gray.  314,  331,  337,  352,  354. 
▼.  Heame,  465. 
V.  Helduk,  55. 
T.  Hyman,  108. 
▼.  Shader,  433. 
T.  Wright,  462. 
German  Ins.  Co.  of  Freeport  T.  Da- 

vis,  509. 
Germier  y.  Insurance  Co.,  286L 


CASKS  CITBB. 
[The  figures  refer  to  pages.] 


631 


tiermond  v.  Insurance  Co.,  452. 
(iibb  V.  Insurance  Co.,  444,  452, 
Gibbons  v.  Insurance  Co.,  476. 
Gibson  v.  Bradford,  539. 

V.  Small,  546. 
Gibson  Electric  Co.  T.  Insurance  Co., 

329,  373,  377,  380. 
Giddings  v.  Insurance  Co.,  174,  176. 
Giffey  v.  Insurance  Co.,  468. 
Gillan  v.  Sempkin,  539. 
Gilliat  V.  Insurance  Co.,  289,  290. 
Gilligan  v.  Insurance  Co.,  507. 
Gilman  v.  Curtis,  415. 

V.  Insurance  Co.,  112,  113. 
Girard   Fire   &    Marine   Ins.   Co.   v. 
Field,  406. 
V.  Hebard,  329. 
Girard  Life  Ins.,  Annuity  &  Trust  Co. 

V.  Insurance  Co.,  225. 
Girard  Life  Ins.  Co.  v.  Insurance  Co., 

211,  221. 
Gladstone  v.  King,  264,  266,  336. 
Glanz  V.  Gloeckler,  390,  396. 
Glen  V.  Insurance  Co.,  66-68. 
Glendale  Woolen  Co.  v.  Insurance  Co., 
287,  289,  290. 

Glenn  v.  Burns,  394. 

Glens  Falls  Ins.  Co.  v.  Porter,  420. 

Glens  Falls  Portland  Cement  Co.  v. 
Insurance  Co.,  607. 

Globe  Ace.  Ins.  Co.  v.  Reld,  166. 

Globe  Ins.  Co.  v.  Sherlock,  560. 

C.lobe  Mut.  Ben.  Ass'n,  In  re,  90. 
.  Globe  Mut.  Life  Ins.  Co.  v.  Wolflf,  326, 
344,  345,  371,  372. 

Glover  v.  Wells,  117. 

Goddard  v.  Insurance  Co.,  186,  287. 

Godin  V.  Assurance  Co.,  54,  4S5. 

Godsall  V.  Boldero,  58,  126,  412. 

Goetzman  v.  Insurance  Co.,  526. 

Gold  V.  Insurance  Co.,  499. 

Goldbaum  v.  Blum,  411. 

Golden  Rule  v.  People,  191,  192. 

Goldman  v.  Insurance  Co.,  183. 

Gomila  v.  Insurance  Co.,  560. 

Good  V.  Elliot,  126. 

Goode  V.  Insurance  Co.,  318-321. 

Goodhue  v.  Insurance  Co.,  441. 

Goodman  v.  Guarantee  Co.,  603. 

Goodrich's  Appeal,  65,  66. 

Goodwin  V.  Ass*n,  336,  531. 
V.  Insurance  Co.,  134,  196. 

Goold  V.  Shaw,  560. 


Gordon  v.  Insurance  Co.,  113,  500. 

Goucher  v.  Association,  281. 

Gould  V.  Insurance  Co.,  70,  324,  327. 

502. 
Gove  V.  Insurance  Co.,  46. 
Grace  v.  Ass'n,  403. 

V.  Insurance  Co.,  190,  313. 
Grady  v.  Insurance  Co.,  317. 
Graham   v.  Insurance   Co.,   119,  5(H, 

549. 
Grandin  v.  Insurance  Co.,  447. 
Grand  Lodge  v.  Wieting,  45. 
Grand  Lodge  A.  O.  U.  W.  v.  Brand, 
219. 
v.  Child,  404. 
V.  Noll,  404. 
Grand  Lodge   Independent  Order  of 
Mutual    Aid  v.   Wieting,   517,   519- 
522. 
Grant  v.  Insurance  Co.,  225,  289,  510. 

V.  King,  541. 
Grant's  Adm'rs  v.  Kline,  139,  412. 
Grattan  v.  Insurance  Co.,  294,  316,  331. 
Gray  v.  Insurance  Co.,  350. 
V.  Supreme  Lodge,  192. 
Great  Western  Ins.   Co.  v.   Fogarty. 

558. 
Greeff  v.  Society,  41,  78,  80. 
Greeley  v.  Insurance  Co.,  219. 
Greely  v.  Insurance  Co.,  560. 
Green  v.  Green,  421. 

V.  Insurance  Co.,  441. 
Greene  v.  People,  82. 

V.  Insurance  Co.,  263. 
Greenlee  v.  Insurance  Co.,  454. 
Greenwich  Ins.  Co.  v.  Imp.  Co.,  210. 
Greenwood  Ice  &  Coal  Co.  v.  Insur- 
ance Co.,  74,  305. 
Grevemeyer  v.  Insurance  Co.,  100,  108. 
Grieve  v.  Young,  266. 
Griffin  v.  Association,  526,  527. 
Griffith  V.  Insurance  Co.,  188,  208,  225, 

235,  390. 
Grimbley  v.  Harrold,  403. 
Gristock  v.  Insurance  Co.,  376. 
Griswold  v.  Insurance  Co.,  415. 

V.  Sawyer,  514. 
Grubbs  v.  Insurance  Co.,  322,  352,  373, 

379. 
Guarantee  Co.   of  North  America  v. 

Trust  Co.,  592,  596,  597. 
Guaranty   Co.   of   North  America   T. 
Trust  Co.,  594, 


. 


1) 


1      ^ 


I 


•ir 


:  t  ' 


632 


CASES  CITED. 
[The  figures  refer  to  pages.] 


Guardian  Mut  Life  Ins.  Co.  v.  Hogan, 

125,  129,  131,  133,  135. 
Guerlain  v.  Insurance  Co.,  182. 
Guest  V.  Insurance  Co.,  111. 
Gulf,  O.  &  S.  F.  R.  Co.  V.  ElUs,  484. 
Gulnare,  The,  116,  550. 
Gunther  v.  Insurance  Co.,  185. 
Gwaltney  y.  Society,  244,  328, 

H 

Hackett  ▼.  Supreme  Council,  372. 
Hackney  r.  Insurance  Co.,  314. 
Haden  v.  Ass'n,  157,  158. 
Hagan  v.  Insurance  Co.,  331,  451. 
Haider  y.  Insurance  Co.,  445,  448. 
Haire  v.  Insurance  Co.,  362. 
Hale  V.  Investment  Co.,  523. 
Haley  v.  Insurance  Co.,  418. 
Halford  v.  Kymer,  57,  132. 
Hall  V.  Assurance  Co.,  487. 

V.  Insurance    Co.,    256,    258,    272, 
413,  435,  470,  549. 

V.  Janson,  539,  556. 

V.  Railway  Co.,  426. 
Ha  Hock  V.  Insurance  Co.,  209. 
Halpin  v.  Insurance  Co.,   472. 
Hamblet  v.  Insurance  Co.,  313. 
Hamburg-Bremen  Fire  Ins.  Co.  v.  Gar- 

lington,  492. 
Hamilton,  In  re,  115. 

V.  Insurance   Co.,    158,    163,   873, 
486,  487,  508. 
Hammel  v.  Insurance  Co.,  454. 
Hammond  v.  Insurance  Co.,  203. 
Hancock  Mut  Life  Ins.  Co.  v.  War- 
ren, 297. 
Hancox  v.  Insurance  Co.,  115. 
Hand  v.  Insurance  Co.,  510. 
Hani  v.  Insurance  Co.,  528. 
Hanley  v.  Supreme  Tent,  514. 
Hanover  Fire  Ins.  Co.  v.  Botm,  100, 
117. 

T.  Brown,  428,  467. 

V.  Lewis,  453,  486. 
Hanson  v.  Ass'n,  513. 
Harbour  Com'rs  v.  Guarantee  Co.,  697. 
Hardin  v.  Insurance  Co.,  310. 
Harding  v.  Townshend,  428. 
Hardman  t.  Insurance  Co.,  257. 
Hardy  v.  Insurance  Co.,  185,  460, 
Harford  v.  Maynard,  553. 
Harley  v.  Heist,  390,  395,  396. 
Harlow  v.  Insurance  Co.,  230. 


Harnden  v.  Insurance  Co.,  498,  504. 
Harnickell  v.  Insurance  Co.,  170,  171. 
Harper  v.  Insurance  Co.,  435,  437. 
Harper's  Adm'r  v.  Insurance  Co.,  518, 

527. 
Harris  v.  Carson,  190. 

V.  Insurance  Co.,  53,  54,  109,  118, 
182. 
Harrison  v.  Ingram,  408. 

V.  Pepper,  421. 
Harron  v.  Insurance  Co.,  308. 
Hart  V.  Insurance  Co.,  509,  510. 

V.  Railroad  Corp.,  426. 
Hartford  Fire  Ins.  Co.  v.  Court,  188, 
384,  490-492. 
V.  Haas,  109. 
y.  Hon,  48G. 
y.  Hotel  Co.,  488,  489. 
y.  Josey,  322. 
y.  Keating,  444-446. 
y.  Reynolds,  313. 
y.  Ross,  453. 
y.  Warbritton,  452. 
y.  Williams,  189,  458. 
y.  Wilson,  170,   171,  173. 
Hartford  Ins.  Co.  v.  Haas,  362. 
y.  Hyde,  225,  238. 
y.  Williams,  463. 
Hartford  Life  &  Annuity  Co.  y.  Hay- 
den's  Adm'r,  327. 
Hartford  Life  &  Annuity  Ins.  Co.  v. 

Unsell,  190,  353. 
Hartford  Live  Stock  Ins.  Co.  T.  Mat- 
thews, 87. 
Hartford  Protection  Ins.  Co.  y.  Bann- 
er, 253,  287,  293. 
Hartford  Steam  Boiler  Insi)ection  & 
Ins.  Co.  y.  Henry  Sonneborn 
&  Co.,  477. 
y.  Stocking  Co.,  163,  169,  173. 
Harvey  v.  Cherry,  113,  116. 
Haskell  v.  Society,  40,  213. 
Haskin  y.  Insurance  Co.,  149,  157. 
Haskins  v.  Insurance  Co.,  488. 
Hastings  v.  Insurance  Co.,  75,  315. 
Hatch  V.  Insurance  Co.,  527. 
Hathaway  y.  Insurance  Co.,  453,  546. 
Hatha  way's  Adm'r  y.  Insurance  Co., 

521. 
Haughton  v.  Insurance  Co.,  541. 
Haven  v.  Gray,  120. 
Havens  y.  Insurance  Co.,  71,  459,  490, 
492. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


63a 


Haverhill  Ins.  Co.  v.  Prescott,  87. 
llawkshaw  v.  Supreme  Lodge,  219 
Haws  V.  Ass'n,  185,  441. 

V.  Insurance  Co.,  182,  441. 
Haxall's  Ex'rs  v.  Shippen,  421. 
Hay  V.  Insurance  Co.,  509. 
Hayden  v.  Pierce,  508. 
Hayes  v.  Casualty  Co.,  503. 

y.  Insurance   Co.,    119,   355,    380, 
467. 
Hayner  v.  Insurance  Co.,  221. 
Flazard  v.  Insurance  Co.,  208,  550. 
Hazleton  v.  Insurance  Co.,  555,  556, 
Hea<^  V.  Insurance  Co.,  151,  166. 
Hearing's  Succession,  144. 
Hearne  v.  Insurance  Co.,  190,  548. 
Hebdon  v.  West,  137. 
Heebner  v.  Insurance  Co.,  187. 
Hefifron  v.  Insurance  Co.,  481. 
Heilbron,  In  re,  408. 
Ileilmaun  v.  Insurance  Co.,  488,  489. 
Heilner  v.  Insurance  Co.,  545. 
Heiman   v.   Insurance   Co.,    169,    170, 

174,  176,  196. 
Helnlein  v.  Insurance  Co.,  221. 
Helbing  v.  Insurance  Co.,  456. 
Hellenberg  v.  I.  O.  B.  B.,  192. 
Ilelme  v.  Insurance  Co.,  225,  244. 
llelmetag  v.  Miller,  127. 
Helmetag's  Adm'r  v.  Miller,  125,  528. 
Helvetia  Swiss  Fire  Ins.  Co.  y.  AUis 

Co.,  110. 
Henderson  y.  Insurance  Co.,  189,  462, 
463. 
y.  Reynolds,  435. 
Ilendrick  y.  Assurance  Corp.,  575. 
Hendricks  y.  Insurance  Co.,  45,  174, 

241. 
Hendrie  &  Bolthoflf  Mfg.  Co.  y.  Piatt, 

390,  409. 
Henn  v.  Insurance  Co.,  255,  286. 
Henning  v.  Insurance  Co.,  152. 
Heni-y  v.  Staniforth,  248. 
Henton  v.  Insurance  Co.,  452. 
Herkimer  v.  Rice,  108. 
Hermann  y.  Insurance  Co.,  313. 
Hermany  y.  Ass'n,  186,  189,  285,  296. 
Herrick  v.  Insurance  Co.,  282,  289. 
Herrman  v.  Insurance  Co.,  473,  474. 
Hess  V.  Ass'n,  583. 
Heuer  v.  Insurance  Co.,  481. 
HeusinkTeld  y.  Insurance  Co.,  501. 


Heusner  y.  Insurance  Co.,  415,  417. 

Hewins  v.  Baker,  529. 

Hewlett  y.  Home  for  Incurables,  395, 

528. 
Hexter  y.  Insurance  Co.,  232. 
Heydorf  y.  Conrack,  404. 
Hibernia   Ins.   Co.   y.   O'Connor,   167, 

376. 
Hickerson  v.  Insurance  Co.,  188,  355, 

490.  491. 
Hicks  V.  Assurance  Co.,  150,  154r-156, 
167,  432,  499. 
V.  Insurance  Co.,  225. 
Higgle  V.  American  Lloyd's,  268,  293, 

545,  547. 
High  Court  Independent  Order  of  For- 
esters V.  Schweitzer,  311. 
Highlands  v.  Insurance  Co.,  426. 
Hildenbrandt  v.  Ames,  398. 
Hill  V.  Insurance  Co.,  110,  225. 

y.  Secretan,  113. 
Hillier  v.  Insurance  Co.,  53. 
Hillyard  v.  Insurance  Co.,  219. 
Hilton  V.  Assurance  Co.,  455. 
Himely  v.  Insurance  Co.,  246,  257,  549. 
Hinckley  v.  Insurance  Co.,  434. 
Hine  v.  Woolworth,  450. 
Hinman  v.  Insurance  Co.,  70. 
Hitchcock  V.  Insurance  Co.,  449. 
Hoadley  v.  Purifoy,  77. 
Hobbs  V.  Ass'n,  194. 
Hobson  V.  Lord,  556. 
Hocking  v.  Insurance  Co.,  509. 
Hodge's  Appeal,  514. 
Hodgson  V.  Glover,  120. 

V.  Grover,  539. 
Hoeft    v.    Supreme    Lodge,    399,    401, 

402. 
Hoffman  y.  Insurance  Co.,  120,  205- 

208,  310,  450,  507. 
Hogarth  v.  Walker,  537. 
Hogben    y.    Insurance   Co.,    161,   247, 

248. 
Hogue  y.  Provision  Co.,  529. 
Holdom  v.  Ancient  Order,  392. 
Holiday  v.  Ass'n,  584. 
Holland  v.  Taylor,  192. 
Hollingsworth  v.  Insurance  Co.,  242. 
Hollingworth  v.  Brodrick,  546. 
Hollowell  v.  Insurance  Co.,  204,  209, 

210,  244. 
Holly  y.  Insurance  Co.,  223,  236-238. 


I 


4 


f 
> 


!1 


fi34 


CASES  CITEL 
[The  figures  refer  to  pages.] 


!i 


f 


ll:  h 


U 


Uolman  v.  Insurance  Co.,  214. 
Holmes  y.  Blogg,  91. 

V.  Davenport,  408. 

V.  Oilman,  390,  392,  393,  407,  408. 

V.  Insurance  Co.,  53,   183. 
Holt  V.  Everall,  406. 
Home  Ben.  Ass'n  v.  Sargent,  505,  523. 
Home  Fire  Ins.  Co.  v.  Bean,  188,  490- 
492. 

V.  Kuhlman,  376. 

V.  Pbelps,  379. 
Home   Forum   Ben.    Order   v.   Jones, 

161. 
Home  Ins.  Co.  v.  Adler,  158. 

V.  Allen,  110. 

V.  Cary,  186. 

V.  Curtis,  169,  172-174. 

V.  Davis,  84. 

V.  Favorite,  439. 

V.  Field,  109. 

T.  Gibson,    109, 

V.  Oilman,  110,  207. 

▼.  Owathmey,  483. 

V.  Heck,  495. 

▼.  Koob,  458,  459. 

V.  Marple,  224,  373. 

V.  Marshall,  419. 

T.  Mendenhall,   108,  362,  456w 

T.  Morse,  23,  84. 

V.  Scales,  472. 

T.  Warehouse  Co.,  114,  115,  439, 
459. 

▼.  Wood,  219,  473. 
Home  Ins.  &  Banking  Co.  v.  Myer, 

510. 
Home  Mut  Fire  Ins.  Co.  t.  Garfield, 

488,  489. 
Home   Mut    Ins.   Co.   ▼.   Railway   & 
Nav.  Co.,  423. 

T.  Tomkies  &  Co.,  452,  474. 
Home   Protection  of   North   Alabama 

V.  Avery,  353. 
Homer  v.  Insurance  Co.,  215. 
Hong  Sling  v.  Insurance  Co.,  509. 
Hood  V.  Insurance  Co.,  537. 
Hooker  v.  Sugg,  390,  394,  395,  398. 
*•  Hooper  v.  California,  83. 

V.  Insurance  Co.,  120,  588. 

V.  Pike,  375. 
'   V.  Robinson,  76,  116,  123,  124. 
T.  Whitney,  561. 
Hoose  V.  Insurance  Co.,  286,  287,  451. 
Hoover  ▼.  Insurance  Co.,  472. 


Hopkins  v.  Assurance  Co.,  519. 

▼.  Hopkins,  399. 
Horneyer  v.  Lushington,  542. 
Horsch  V.  Insurance  Co.,  118. 
Horsfall  v.  Insurance  Co.,  572, 
Horst  v.  Insurance  Co.,  610. 
Horton  v.  Insurance  Co.,  467. 
Horwitz  V.  Insurance  Co.,  332. 
Hosford  V.  Insurance  Co.,   283,  290, 

435. 
Hoskins  v.  Pickersgill,  538, 
Hosmer  v.  Welch,  134. 
Hotchkiss  V.  Insurance  Co.,  473. 
Hough  V.  Insurance  Co.,  112,  115,  439. 
Houghton  V.  Lee,  405. 
Hoven  v.  Assurance  Corp.,  606, 
How  V.  Insurance  Co.,  181. 
Howard   v.    Insurance   Co.,   121,    124, 
219,  551. 

y.  Lovegrove,  608. 

v.  Society,  247. 
Howard  Fire  Ins.  Co.  v.  Chase,  111. 

V.  Transportation  Co.,  543,  544. 
Howard  Ins.  Co.  v.  Bruner,  332. 

T.  Hocking,  459,  508. 
Howard's  Case.  203. 
Howell  V.  Insurance  Co.,  215,  219,  550. 

v.  Society,  434. 
Howland  v.  Edmonds,  235. 
Hoxie  v.  Insurance  Co.,  344,  546. 
Hubbard  v.  Ass'n,  335. 
Hubbard,  Price  &  Co.  v.  Turner,  513. 
Hubbell  V.  Insurance  Co.,  560. 
Huck  V.  Insurance  Co.,  474,  492. 
Huckins  v.  Insurance  Co.,  463. 
Hudson  V.  Compere,  208. 
Hugg  V.  Insurance  Co.,  558. 
Hughes  V.  Insurance  Co.,  459. 
Huguenin  v.  Rayley,  252. 
Humphreys  v.  Association,  587. 
Hunt  V.  Insurance  Co.,  433,  448,  478. 
Hunter  v.  Cobb,  151. 

V.  Potts,  550. 
Hunton  v.  Society,  78. 
Hurd  V.  Doty,  133. 
Hurlbut  V.  Hurlbut,  528. 
Hustace  v.  Insurance  Co.,  481. 
Huston  V.  Insurance  Co.*,  456. 
Hutchcraft's   Ex'r  v.   Insurance  Cto^ 

567. 
Hutchins  v.  Ford,  46. 
Hutchinson  v.  Insurance  Co.,  329. 
Hutchison  T.  Insurance  Co.,  280, 


i 


I 


Ida  County  Say.  Bank  T.  Seidenstlck- 

er,  597. 
Illinois  Live  Stock  Ins.  Co.  v.  Baker, 

510. 
Illinois  Mut  Fire  Ins.  Co.  y.  Insur- 
ance Co.,  62,  65. 
Imperial  Fire  Ins.  Co.  y.  Coos  County, 
434,  464,  465. 
V.  Dunham,   112,  413,  444,  445. 
▼.  Murray,  110. 
Imperial  Life  Ins.  Co.  y.  Glass,  236. 
Independent  Mut  Ins.  Co.  v.  Agnew, 

476. 
Indiana  Ins.  Co.  y.  Hartwell,  312. 
Indian  River  State  Bank  v.  Insurance 

Co.,  308,  381,  383,  384,  502. 
Inghram  v.  Union,  523. 
Inhabitants  of  Town  of  Stoughton  y. 

Baker,  317. 
Inman  v.  Railway  Co.,  427. 
Insurance  Co.  v.  Kittle,  373. 
y.  Nonnent,  354. 
y.  Pyle,  45,  247. 
Insurance   Co.  of  North  America   v. 
Bachler,  484,  490,  492. 
T.  Hegewald,  487. 
T.  Hope,  488. 
y.  Insurance  Co.,  62.    , 
V.  McDowell,  354,  434. 
y.  Thornton,  158,  319,  321. 
International  Life  Ins.  &  Trust  Co.  v. 

Trust  Co.,  242. 
International   Nav.   Co.   y.  Insurance 

Co.,  563. 
International  Trust  Co.  y.  Boardman, 

116,  418,  426. 
lonides  v.  Insurance  Co.,  543. 

v.  Pender,  252. 
Iowa  Cent.  Building  &  Loan  Ass*n  y. 

Insurance  Co.,  488. 
Iowa  Life  Ins.  Co.  v.  Lewis,  237,  483. 
Irving  y.  Manning,  559. 
Isaacs  y.  Insurance  Co.,  203,  435. 

J 

Jackson  y.  Assurance  Co.,  183. 

y.  Insurance  Co.,  63,  64,  111, 
Jackson  Co.  y.  Insurance  Co.,  425,  468. 
Jacobs  y.  Insurance  Co.,  161. 
Janda  y.  Union,  513. 
Janson  y.  Consolidated  Mines,  554. 


CASES  CITED.  635 

£Tlie  figures  refer  to  pages.] 

Jarvis  v.  Binkley,  399,  414. 
Jaskulski  v.  Insurance  Co.,  420. 
J.  C.  Smith  &  Wallace  Co.  v.  Insur- 
ance Co.,  158,  159. 
Jefferson  Ins.  Co.  v.  Cotheal,  257,  281, 

287,  288,  291-293. 
Jeffrey  y.  United  Order,  282. 
Jeffries  y.  Insurance  Co.,  286,  291. 
Jenkins  v.  Insurance  Co.,  363. 
Jennings  y.  Insurance  Co.,   183,  302, 

362. 
Jersey  City  Ins.  Ca  y.  Carson,  258. 

V.  Nichol,  460. 
Jinks  y.  Banner  Lodge,  404. 
Johannes  v.  Insurance  Co.,  68. 
John  Davis  &  Co.  y.  Insurance  Co., 

430,  475. 
John  Hancock  Ins.  Co.  y.  Schlink,  205, 

207,  208. 
John  Hancock  Mut  Life  Ins.  Ca  y. 
Moore,  517,  520. 
v.  Warren,  295. 
John  R.  Davis  Lumber  Co.  y.  Insur- 
ance Co.,  301,  312.  313,  495. 
Johnson  v.  Alexander,  408,  409. 
V.  Hall,  395. 

Y.  Insurance  Co.,  47,   89,   91,  92, 
158,   232,   242,   256,   305,   373, 
380,  463,  476,  506. 
Johnson  v.  Knights  of  Honor,  513. 
Jones  v.  Ass'n,  220,  526. 

y.    Insurance   Co.,    176,   203,   247, 

285,  288,  435,  436,  546. 
y.  Nicholson,  552. 
y.  U.  S.,  598. 
Jory  y.  Supreme  Council,  402. 
Joseph,  The,  100. 

Joshua  Hendy  Mach.  Works  y.  Insur- 
ance Co.,  45,  241. 
Joyce  V.  Insurance  Co.,  283i. 
Juhel  y.  Church,  125. 


Kaiser  y.  Insurance  Co.,  487. 

Kansal  y.  Ass'n,  81. 

Kansas  City,  M.  &  B.  B.  Co.  y.  News 

Co.,  605,  608. 
Kansas  Ins.  Co.  y.  Berry,  110. 
Kantrener  y.  Insurance  Co.,  220. 
Karow  y.  Insurance  Co.,  45,  189,  392. 

462. 
Kase  y.  Insurance  Co.,  49,  50. 


X 

I 


;. 


Ill 


636 


CASES  CITED. 
[The  figures  refer  to  pages.] 


W 


Kausal  y.  Ass'n,  304,  333. 

Y.  Insurance    CJo.,    325,   334,   384, 
385. 
Kearney  v.  Kearney,  421. 
Keefer  t.  Modern  Woodmen,  401,  522. 
Keels  V.  Association,  522,  523. 
Keener  v.  Grand  Lodge,  515,  516. 
Keet-Rountree  Dry  Goods  Co.  v.  In- 
surance Co.,  380. 
Kehler  v.  Insurance  Co.,  313. 
Keim  v.  Insurance  Co.,  170,  175,  177, 

260. 
Keith  V.  Insurance  Co.,  420,  536. 
Kelley  v.  Accident  Co.,  608. 
Kelley-Goodfellow  Shoe  Co.  t.  Insur- 
ance Co.,  186. 
Kells  V.  Insurance  Co.,  594.. 
Kelly  V.  Clearing  Co.,  286. 
V.  Insurance  Co.,  462. 
T.  Sun  Fire  Office,  488. 
Kemble  v.  Browne,  541. 
Kendrick  v.  Insurance  Co.,  204: 
Kennedy  v.  Insurance  Co.,  362,  425. 
Kenniston  v.  Insurance  Co.,  482. 
Kensington  Nat  Bank  v.  Yerkes,  182. 
Kenton  Ins.  Co.  v.  Downs,  502,  603. 

V.  Wigginton,  273,  448. 
Kentucky  Farmers'  Mut   Ins.  Ck).  v. 

Mathers,  200. 
Kentucky  Life  &  Accident  Ins.  Co.  v. 

Franklin,  584. 
Kentucky  Mut  Ins.  Co.  v.  Jenks,  205, 

206. 
Kentucky  &  L.  Mut  Ins.  Co.  v.  South- 
ard, 183. 
Kentzler  v.  Ass'n,  504. 
Kenyon  v.  Ass'n,  204,  205,  352,  362. 
Kerlin  v.  Association,  209. 
Kerman  v.  Howard,  396. 
Kerns  v.  Insurance  Co.,  238. 
Kerr  v.  Ass'n,  517,  519,  525,  62a 
Kershaw  v.  Kelsey,  93. 
Kessler  y.  Kuhns,  417. 
Kettell  V.  Wiggin,  54a 
Key  V.  Insurance  Co.,  468. 
Keystone   Mut    Ass'n    t.   Beayerson, 

135. 
Kidston  v.  Insurance  Co.,  562,  563. 
Kieman   y.   Insurance  Co.,   346,   377, 

379,  380. 
Klllips  V.  Insurance  Co.,  609,  610. 
Kimball   y.   Insurance   Co.,   168,  275, 
276.  I 

King  V.  Cram,  143. 


King  y.  Insurance  Co.,  112,  419,  5ia 

V.  Preston,  49. 
King  Brick  Mfg.  Co.  ▼.  insurance  G^ 

187. 
Ivingsley  v.  Insurance  Co.,  75, 
Kirby   v.   Insurance   Co.,   561. 
Kircher  y.  Insurance  Co.,  463,  464. 
Kister  y.  Insurance  Co.,  324,  337. 
Kittel  y.  Domeyer,  409,  410. 
Klein  y.  Insurance  Co.,  97,  150,  166, 

157,  197,  213,  219. 
Kline  y.  Ass'n,  180,  530. 
Knapp  y.  Ass'n,  584. 

y.  Insurance  Co.,  232. 
Knecht  y.  Insurance  Co.,  275,  289. 
Knickerbocker  Ins.  Co.  y.  Gould,  378. 

T.  McGinnis,  498. 
Knickerbocker  Life  Ins.  Co.  y.  Diets, 
214. 
V.  Foley,  280. 
V.  Norton,  302,  324,  325,  329,  343, 

346,  352,  353,  354,  382. 
V.  Pendleton,    156,   205,   209,   211. 
V.  Peters,  521-523. 
Knight  y.  Insurance  Co.,  460. 
Knights  of  Honor  y.  Dickson,  294. 

y.  Watson,  401. 
Knights  Templar  &  Masons*  Life  In- 
demnity Co.  V.  Berry,  187. 
▼.  Jarman,  21,  186,  194,  518. 
KnlU  V.  Hooper,  545,  647. 
Knox  y.  Rossi,  151. 

y.  Wood,  539. 
Koebel  y.  Saunders,  547. 
Koehler  y.  Beeber,  239. 
Koerts  y.  Grand  Lodge,  338. 
Kohl  y.  Beach,  317. 
Kortlander  y.  Elston,  49. 
Kratzenstein   y.   Assurance   Co.,    182, 
441. 
▼.  Lehman,  406. 
Kronk  y.  Insurance  Co.,  111. 
Kruh  V.  Insurance  Co.,  80. 
Krulevitz  y.  Railroad  Co.,  304. 
Krumm  y.  Insurance  Co.,  319. 
Kulp  y.  Brant  515. 
Kyte  y.  Assurance  Co.,  109,  327,  S48, 
382,  434,  463,  465. 


La  Belle  t.  Insurance  Soc.,  498. 
Ladd  y.  Insurance  Co.,  461. 
Laird  y.  LitUefield,  448. 


CASES  CITED. 
[The  figures  refer  to  pages.] 
Laker  v.  Fraternal  Union,  192,  193.     \  Leonard  v.  Harney,  388. 


t>a7 


Lakings  v.  Insurance  Co.,  441. 
Lamberton  y.  Insurance  Co.,  314,  382. 
Lament  y.  Grand  Lodge,  513. 
Lampasas  Hotel  &  Park  Co.  v.  Insur- 
ance Co.,  451. 
Lampkin  y.  Insurance  Co.,  136. 
Lancashire  Ins.  Co.  v.  Bush,  484. 

V.  Callahan,  594,  596. 
Lancaster  Silver  Plate  Co.  v.  Assur- 
ance Co.,  435. 

V.  Insurance  Co.,  435,  470. 
Landis  y.  Insurance  Co.,  205,  210. 
Lane  y.  Insurance  Co.,  120,  434,  451, 

506. 
Lange,  In  re,  406. 
Langstaflf  y.  Insurance  Co.,  161. 
Lappin  y.  Insurance  Co.,  450. 
Larkin  y.  Insurance  Co.,  484. 
Larsen  y.  Insurance  Co.,  495. 
Larson  y.  Ass'n,  309. 
Lasher  y.  Insurance  Co.,  344. 
Latham  y.  Smith,  151. 
Laughlin  y.  Ass'n,  184. 

y.  Norcross,  392. 
Laurent  y.  Insurance  Co.,  109. 
Law  V.  Policy  Co.,  127,  132,  137. 
Lawrence  y.  Aberdein,  551. 

y.  Fox,  66. 

y.  Insurance  Co.,  571. 
Lawwill  y.  Lawwill,  513. 
Leach  y.  Insurance  Co.,  486. 
Leary  y.  Blanchard,  315. 
Leavitt  v.  Dunn,  513. 
Lebanon   Mut.   Ins.   Co.  v.   Erb,   309, 
444,445. 

V.  Hoover,  301. 

y.  Kepler,  258,  507. 

Y.  Leathers,  461. 

y.  Losch,  287. 
Le  Cheminant  v.  Pearson,  29. 
Lee  V.  Boardman,  561. 

V.  Insurance  Co.,  120,  363. 
Leftwich  y.  Wells,  78,  201,  399-401. 
Lehman  y.  Indemnity  Co.,  525. 
Leiber  y.  Insurance  Co.,  475,  476. 
Leigh  y.  Insurance  Co.,  203. 
Leman  v.  Insurance  Co.,  505,  523. 
Lemelin  r.  Assurance  Co.,  645. 
Le  Mesurier  v.  Vaughan,  287. 
Lemon  y.  Insurance  Co.,  391,  394. 
Leonard  T.  Assurance  Co.,  816,  332, 
833. 


Leslie  v.  French,  201. 
Lester  y.  Webb,  235. 
Lett  y.  Insurance  Co.,  49. 
Lever  y.  Fletcher,  550. 
Levie  v.  Insurance  Co.,  255,  284,  456. 
Levy  y.  Baillie,  456. 
Lewis  v.  Insurance  Co.,  134,  370,  448. 
538. 
v.  Thatcher,  287. 
Lidgett  V.  Secretan,  542. 
Life  Ass'n  v.  Waller,  521. 
Life  Ins.  Clearing  Co.  y.  O'Neill,  130- 

133. 
Light  y.  Insurance  Co.,  108. 
Lightbody  v.  Insurance  Co.,  161. 
Limburg  v.  Insurance  Co.,  472. 
Lindauer  y.  Insurance  Co.,  166,  174. 
Lindenau  y.  Desborough,  252. 
Lindley  v.  Insurance  Co.,  460. 
Lindsay  y.  Pettigrew,  153. 
Lipman   y.    Insurance   Co.,    154,    160, 

313. 
Liscom  y.  Insurance  Co.,  459. 
Lithgaw  y.  Supreme  Tent  193. 
Little  v.  Insurance  Co.,  308. 
Liverpool  &  G.  W.  Steam  Co.  y.  In- 
surance Co.,  114,  423. 
Liverpool  &  L.  &  G.  Ins.  Co.  v.  Buck- 
staff,  473. 
V.  Cochran,  445,  446. 
y.  Gunther,  462,  464,  470. 
V.  Kearney,  455,  482. 
y.  Verdier,  494. 
Livingston  v.  Insurance  Co.,  257,  550. 
Lobdill  V.  Ass'n,  588. 
Lockhart  v.  Cooper,  115.  121,  439. 

y.  Vandyke,  395. 
Lockwood  y.  Assurance  Co.,  473. 
y.  Bishop,  77,  78. 
V.  Insurance  Co.,  546. 
Lockyer  y.  Offley,  542. 
Lodge  y.  Insurance  Co.,  454. 
Loeb  y.  Insurance  Co.,  453. 
Lohnes  y.  Insurance  Co.,  332,  333. 
Lohre  v.  Aitchison,  562. 
London  Assur.  v.  Mansel,  252,  258. 
London  Guaranty  &  Accident  Co.  ▼. 

Geddes,  601. 
London  &  L.  Fire  Ins.  Co.  t.  Crunk, 
435,  474. 
T.  Graves,  441. 
Long  T.  Allen,  242. 


It 


w    .1     * 


038 


Long  ▼.  Britannia  Co.,  406,  417 

V.  Insurance   Co.,    178,   204,    801, 
508. 
Longueville  y.  Assurance  Ca,  441. 
Loomis  V.  Insurance  Co.,  71,  100,  104, 
130,  132,  134. 
V.  Shaw,  120. 
Loos  V.  Insurance  Co.,  513. 
Lord  V.  Dall,  15,  100,  132,  134. 
Lorillard  Fire  Ins.  Co.  v.  McCullougb, 

258. 
I.orscher  r.  Supreme  Lodge,  311. 
Louis  V.  Insurance  Co.,  256. 
Louisiana  Mut  Ins.  Co.  v.  Tweed,  476, 

481.  482. 
Lovelace  v.  Ass'n,  567. 
Lovell  V.  Insurance  Co.,  221,  231,  244, 

245,  582. 
Loventhal  v.  Insurance  Co.,  445. 
Lovick  V.  Ass'n,  244. 
Lowry  v.  Bourdieu,  248. 

▼.  Insurance  Co.,  77. 
Lucas  V.  Insurance  Co.,  54,  55. 
Lucena  v.  Craufurd,  99,  107-109. 
Lutz  V.  Insurance  Co.,  285,  296,  463, 

464,  471. 
Lycoming    County    Mut    Ins.    Co.   y. 

Schollenberger,  332. 
Lycoming  Fire  Ins.  Co.  v.  Haven,  110. 
V.  Jackson,  111,  184. 
T.  Schwenk,  479. 
y.  Storrs,  226. 
V.  Woodworth,  81. 
Lyman  v.  Insurance  Co.,  434. 
Lynch  V.  Dalzell,  49. 
y.  Hamilton,  257. 
Lynchburg  Fire  Ins.  Co.  v.  West,  337, 
362. 

Lynn  v.  Burgoyne,  166,  235,  321. 
Lynn  Gas  &  Electric  Co.  y.  Insurance 

Co..  53,  476. 
Lyon  V.  Assurance  Co.,  587. 

y.  Insurance  Co.,  205,  210. 

V.  Jerome,  317. 
Lyons  v.  Insurance  Co.,  441. 

y.  Yerex,  388,  513. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


McAllister  y.  Insurance  Co.,  178,  236. 
McAndrews  y.  Thatcher,  556. 
McArthur  v.  Ass'n,  337. 
Macauley  y.  Bank,  528. 
McBryde  y.  Insurance  Co.,  354. 


McCall  V.  Insurance  Co.,  243,  244,  337. 
McCarthy  v.  Supreme  Lodge,  403,  615. 
McClain  v.  Society,  294. 
McCIare  v.  Ass'n,  161. 
McClave  v.  Ass'n,  174. 

McClelland  v.  Insurance  Co.,  854.  447. 
454. 

McCluer  v.  Insurance,  441. 
McClurg  V.  Price,  70. 
McCounell  v.  Society,  225,  226. 
McConochie  v.  Insurance  Co.,  560. 
McCorkle  v.  Ass'n,  224,  353. 
McCormick  v.  Bank,  186. 
McCoy  V.  Ass'n,  192,  391. 

V.  Insurance  Co.,  81,  385. 
McCraw  v.  Insurance  Co.,  302. 
McCrea  v.  Insurance  Co.,  435. 
McCreery  v.  Day,  351. 
McCroskey  v.  Hamilton,  318. 
McCulloch  V.  Insurance  Co.,  161,  163. 
McCully's  Adm'r  v.  Insurance  Co.,  16L 
169. 

McCutcheon  y.  Ingraham,  110. 
McDermott  v.  Insurance  Co.,  344. 
McDonald  v.  Black's  Adm'r,  49,  111. 

V.  Humphries,  201. 

y.  Order,  524. 

V.  Ross-Lewln,  198. 

y.  Society,  209. 

y.  Triple  Alliance,  518. 
McDonnell  v.  Insurance  Co.,  230. 
McDonough  v.  Insurance  Co.,  528. 
Mace  y.  Ass'n,  137. 
McElhone  v.  Ass'n,  510. 
McElroy  v.  Assurance  Co.,  368. 

y.  Insurance  Co.,  97,  406,  504,  509; 
510. 
McFarland  v.  Ass'n,  97. 

V.  Insurance  Co.,  352. 
McGammon  v.  Insurance  Co.,  462. 
McGannon  v.  Insurance  Co.,  205,  434. 
McGarry  v.  Nicklin,  187. 
McGlinchey  y.  Casualty  Co.,  569,  572. 
McGIother  v.  Accident  Co.,  578. 
McGlynn  y.  Curry,  391. 
McGonlgle  v.  Insurance  Co.,  310. 
McGurk  V.  Insurance  Co.,  315. 
McHale  v.  McDonnell,  416. 
Maclntyre  y.  Insurance  Co.,  185,  202. 
236. 

McKee  v.  Insurance  Co.,  243,  244. 
McKeesport  Mach.  Co.   y.   Insurance 
Co.,  441. 

McKelvy  y.  Insurance  Co.,  459. 


CASES  CITED. 
[Tlitt  figures  refer  to  pages.] 


t>39 


I 


McKenna  v.  Insurance  Co.,  224,  225. 
McKenzie  v.  Insurance  Co.,  461. 
McKinuey  v.  Assurance  Co.,  467. 
McKinnon  v.  Vollmar,  317. 
McLanahan  y.  Insurance  Co.,  252,  266. 
McLaughlin  y.  Insurance  Co.,  76. 
McLoon  V.  Insurance  Co.,  288. 
McMaster  v.  Insurance  Co.,  215,  217, 

325,  326,  340,  348,  364,  507. 
McNally  v.  Insurance  Co.,  97,  506. 
McNeilly  v.  Insurance  Co.,  202. 
McQuitty  V.  Insurance  Co.,  182. 
McSbane  v.  Bank,  598. 
McVey  v.  Grand  Lodge,  268. 
Macy  V.  Insurance  Co.,  538,  546. 
Magnus  v.  Buttemer,  551. 
Mahoney  v.  James,  408. 
Maier  v.  Ass'n,  338. 
Mailhoit  v.  Insurance  Co.,  241,  247. 
Maine  Ben.  Ass'n  v.  Parks,  282. 
Maisel  v.  Ass'n,  437. 
Majestic,  The,  182. 
Males  V.  Sovereign  Camp,  398. 
Malinckrodt  v.  Insurance  Co.,  542. 
Mallery  v.  Frye,  153. 
Malley  v.  Insurance  Co.,  453. 
Mallory  v.  Insurance  Co.,  254. 
Manchester  Fire  Assur.  Co.  y.  Glenn, 
71. 

V.  Koemer,  355. 
Mandell  v.  Casualty  Co.,  97,  594. 
Manhattan  Fire  Ins.  Co.  v.  Weill,  52, 

256,  345,  444. 
Manhattan  Life  Ins.  Co.  y.  Broughton, 
521. 

y.  Myers,  184,  236. 

V.  Patterson,  231,  232. 

T.  Pentecost,  236. 

y.  Smith,  211,  221. 

V.  Warwick,  57,  94,  186,  187,  220. 
Manitoba,  The,  561. 
Mann  v.  Insurance  Co.,  49. 
Manning  v.  Ancient  Order,  402,  404. 
Manson  v.  Insurance  Co.,  111. 
Manufacturers'  Ace.  Indemnity  Co.  y. 

Dorgan,  580. 
Manufacturers'  Fire  &  Marine  Ins.  Co. 

V.  Assurance  Co.,  62. 
Manufacturers*  &  Merchants'  Ins.  Co. 

V.  Armstrong,  328,  352. 
Manufacturers'    &    Merchants*   Mut. 

Ins.  Co.  V.  Zeitinger,  501. 
Marcardier  v.  Insurance  Co.,  551,  552. 
March  v.  Insurance  Co.,  296. 


Marcus  v.  Insurance  Co.,  327. 
Marden  v.  Insurance  Co.,  187. 
Mareck  y.  Ass'n,  531. 
Mariatiqui  v.  Insurance  Co.,  542. 
Maril  v.  Insurance  Co.,  470. 
Mark  y.  Insurance  Co.,  185. 
Markey  v.  Insurance  Co.,  172. 
Marston  y.  Insurance  Co.,  339. 
Marthinson  v.  Insurance  Co.,  379. 
Martin  v.  Insurance  Ca,  77,  126,  510, 
514,  548,  550. 
V.  Stubbings,    59,    143,    192,    401, 
402,  404,  416. 
Martine  v.  Society,  220. 
Marvin  v.  Insurance  Co.,  324,  327,  844, 

379. 
Maryland  Casualty  Co.  v.  Gehrmann, 
564. 
v.  Hudgins,  501,  568,  678. 
Maryland  Fire  Ins.  Co.  v.  Whiteford, 

463. 
Maryland  Ins.  Co.  v.  Bathurst,  561. 
V.  Bossiere,  540. 
y.  Ruden,  257. 
y.  Woods,  164. 
Mascott  V.  Insurance  Co.,  185. 
Mason  v.  Insurance  Co.,  498,  537. 
y.  Mason,  403. 
V.  The  Blaireau,  549. 
Masonic  Mut.  Ben.  Soc.  y.  Burkhart, 

192,  403. 
Masonic  Mut.  Life  Ass'n  y.  Paisley. 

409. 
Massachusetts  Ben.  Life  Ass'n  y.  Rob- 
inson, 235,  335,  532. 
V.  Sibley,  173. 
Massasoit  Steam  Mills  Co.  v.  Assur- 
ance Co.,  495. 
Mathers  v.  Ass'n,  162,  300. 
Matkin  v.  Supreme  Lodge,  191. 
Matthes  v.  Ass'n,  582. 
Matthews  v.  Insurance  Co.,  445,  505. 
Mauck  V.  Insurance  Co.,  179,  202,  500. 
Maupin  v.  Insurance  Co.,  370. 
Mayer  v.  Insurance  Co.,  190.  225,  320. 
Meacham  v.  Insurance  Co.,  521. 
Mead  v.  Insurance  Co.,  434,  508. 
Meams  v.  Ancient  Order,  514. 
Mears  v.  Insurance  Co.,  463,  464. 
Mechanics*  Nat  Bank  y.  Comins,  137, 

144,  416. 
Mechanics'  Sav.  Bank  &  Trust  Co.  v. 

Guarantee  Co.,  592. 
Mechler  y.  Insurance  Co.,  113. 


<>40 


CASES  CITED. 
[The  figures  refer  to  pages.] 


Medley  t.  Insurance  Co^  366,  370,  383. 

Meier  v.  Meier,  201. 

Meigs  y.  Assurance  Co.,  459. 

y.  Insurance  Co.,  459,  486,  542. 
Meuk  y.  Insurance  Co.,  337,  362. 
Menneily  y.  Assurance  Corp.,  572,  580. 
Mentz  y.  Insurance  Co.,  486. 
Mercantile   Credit   Guarantee   Co.   y. 

Wood,  602,  603. 
Mercantile  Ins.  Co.  y.  Calebs,  561. 
Mercantile  Marine  Ins.  Co.  y.  Clark, 

561. 
Mercantile  Mut  Ins.  Co.  y.  Folsom, 

537. 
Merchants'  Ins.  Co.  y.  Brown,  467. 
V.  Morrison,  545-647. 
V.  Nowlin,  110. 
V.  Stephens,  491. 
Merchants'  Mut.  Ins.  Go.  y.  Insurance 
Co.,  63. 
V.  Lyman,  170,  177,  260. 
Merchants*  S.  S.  Co.  y.  Insurance  Co., 

557. 
Merchants'  Trading  Co.  y.  Marine  Co., 

550. 
Merchants'  &  Manufacturers'  Ins.  Co. 
V.  Curran,  314. 
y.  Shillito,  555. 
Merchants'  &  Miners*  Transp.  Co.  v. 

Borland,  410. 
Merrett  y.  Insurance  Co.,  118. 
Merrlam  y.  Insurance  Co.,  434,  464. 
Merrill  y.  Insurance  Co.,  529. 
Merritt  y.  Insurance  Co.,  230. 
Merry  v.  Prince,  62. 
Messelback  y.  Norman,  328,  329,  382, 

446. 
Messonier  y.  Insurance  Co.,  552. 
Mesterman  y.  Insurance  Co.,  304,  336, 

362. 
Metropolitan  Ace.  Ass'n  v.  Froiland, 

578. 
Metropolitan  Ins.  Co.  v.  Trende,  145. 
Metropolitan  Life  Ins.  Co.  y.  Blesch, 
145. 
y.  Brown,  143,  416. 
y.  Dempsey,  294. 
y.  Dimlck,  338. 
V.  Howie,  294. 
y.  McCormick,  241. 
y.  Monohan,  145,  248. 
y.  People,  299. 

y.  Rutherford,  286,  288,  295,  605. 
▼.  Sehlborst,  145,  248. 


Metropolitan  Life  Ins.  Co.  y.  Smith, 
145,  248. 
y.  Trende,  248. 
Metropolitan  Safety  Fund  Ace.  Ass'n 

y.  Windover,  191,  193. 
Mey  y.  Insurance  Co.,  540. 
Meyer  v.  Casualty  Co.,  580. 
y.  Gregson,  242. 
y.  Insurance    Co.,    176,    190,   211, 

220,  221,  223,  230,  552. 
y.  Krohn,  224. 
Meyers  y.  Insurance  Co.,  329. 
Miaghan  y.  Insurance  Co.,  507. 
Michael  y.  Insurance  Co.,  424. 
Michigan  Fire  &  Marine  Ins.  Co.  y. 

Wich,  302,  309. 
Michigan  Mut  Life  Ins.  Co.  ▼.  Bowes, 
209,  234,  235. 
V.  Leon,  324,  328. 
V.  Naugle,  521. 
Michigan  Pipe  Co.  v.  Insurance  Co., 

170,  172,  259,  439. 
Mickey  y.  Insurance  Co.,  510. 
Miles  V.  Insurance  Co.,  221. 
Millandon  y.  Insurance  Co.,  64. 
Millard  v.  Brayton,  393. 
Miller  y.  Casualty  Co.,  571. 

y.  Insurance    Co.,     132,    177-179, 
205,   208,  445,   447,   456,  508, 
509. 
y.  Insurance  Soc,  554. 
y.  Railroad  Co.,  26. 
y.  Russell,  549. 
y.  Tuttle,   194. 
Millers'    Nat.    Ins.   Co.   v.   Kinneard, 

316. 
Milliken  y.  Woodward,  312,  313. 
Millville  Mut.  Marine  &  Fire  Ins.  Co. 

y.  Collerd,  170,  174. 
Milwaukee  Mechanics*  Ins.  Co.  y.  B. 
S.  Rhea  &  Son,  446. 
T.  Niewedde,  372. 
y.  Russell,  490,  491. 
y.  Schallman,  355. 
Milwaukee  &  St  P.  R.  Co.  t.  Kellogg, 

476. 
Minett  y.  Anderson,  542. 
Minneapolis  Mut  Fire  Ins.  Co.,  In  re 

243. 
Minnock  y.  Insurance  Co.,  182. 
Misselhom  y.  Ass'n,  169,  173. 
Mississippi    Fire    Ass*n    t.    Dobblni, 
433. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


641 


Mississippi    Valley    Life   Ins.    Co.    y. 

Neyland,  178. 
Missouri,  K.  &  T.  Trust  Co.  y.  Bank, 

292,  293. 
Missouri  Valley  Life  Ins.  Co.  y.  Kel- 
so, 234. 

y.  McCrum,  417, 
Mitchell  y.  Edie,  562. 

y.  Insurance   Co.,    101,    109,   132, 
166,  481. 
Mix  y.  Insurance  Co.,  308,  509. 
Mobile  Ins.  Co.  y.  Railroad  Co.,  423. 
Mobile  Life  Ins.  Co.  y.  Brame,  428. 

y.  Pruett,  350. 
Monaghan  y.  Insurance  Co.,  89,  90. 
Monmouth  County  Mut  Fire  Ins.  Co. 

y.  Hutchinson,  426. 
Monniea  y.  Insurance  Co.,  405. 
Monroe  y.  Insurance  Co.,  557. 
Monroe  County  Mut  Ins.  Co.  ▼.  Rob- 
inson, 110. 
Montgomery   y.    Insurance   Co.,   231, 

232,  236,  237. 
Moody  y.  Insurance  Co.,  473. 
Mooney  y.  Ancient  Order,  402,  618. 

y.  Grand  Lodge,  193. 

y.  Insurance  Co.,  190. 
Moore  y.  Ass'n,  372. 

V.  Insurance  Co.,  71,  360, 885, 466, 
509,  523. 

T.  Moore,  151. 
Moores  y.  Bank,  304. 

y.  Louisville    Underwriters,    647. 
More  y.  Insurance  Co.,  321. 
Morean  y.  Insurance  Co.,  668. 
Morel  y.  Insurance  Co.,  46. 
Morey  y.  Insurance  Co.,  220. 
Morgan  y.  Mather,  161. 
Morotock  Ins.  Co.  y.  Rodefer,  256,  272, 

444,  447,  448,  451. 
Morrell  y.  Insurance  Co.,  137,  489. 
Morris  y.  Assurance  Co.,  46,  392,  619. 

y.  Banking  Co.,  628. 

V.  Dodd,  406. 

y.  Insurance  Co.,  519. 
Morrison  y.  Insurance  Co.,  174,  193, 
262,  329,  373. 

V.  Muspratt,  252. 
Morrow  y.  Insurance  Co.,  373. 
Morse  y.  Insurance  Co.,  84,  463. 
Morton  v.  Hart,  153. 

y.  Supreme  Council,  518. 
Moses  y.  Insurance  Co.,  262,  643,  569. 
Moss,  In  re,  395. 

Vancb  Ins.— 41 


Moss  V.  Smith,  559. 

Mosser  v.  Donaldson,  76. 

Mott  V.  Hicks,  608. 

Motteux  y.  Assurance  Co.,  541. 

Moulor  y.  Insurance  Co.,  281,  287,  292, 

294.  — 

Mount  y.  Larkins,  549. 
Mowry  y.  Insurance  Co.,  127,  134. 
Moyer  y.  Insurance  Office,  354,  506. 
Mueller  y.  Insurance  Co.,  373. 
Muhleman  y.  Insurance  Co.,  236,  314. 
Mullen  y.  Reed,  388,  513. 
Mullet  y.  Shedden,  557. 
Mulrey  y.  Insurance  Co.,  81,  178,  385. 
Mulville  y.  Adams,  257,  293. 
Munroe  y.  Ass'n,  77. 
Murdock  y.  Insurance  Co.,  114,  115, 

183,  609. 
Murphy  y.  Red,  144,  416,  528. 
Murray   y.   Insurance   Co.,   626,   627, 
531,  640. 

y.  Strang,  514. 
Murrin,  In  re,  406. 
Mutual  Assur.  Soc.  y.  Faxon,  200. 

y.  Insurance  Co.,  813. 

y.  Korn,  166. 

y.  Stone,  200. 

y.  Watts,  200. 
Mutual  Ben.  Life  Ins.  Co.  y.  Atwood'a 
Adm'x,  94,  220,  396. 

y.  Bank,  213,  415,  512. 

y.  Daviess'  Ex'r,  622. 

y.  Dunn,  221. 

▼.  Hillyard,  77,  80,  94,  220. 

V.  Miller,  294. 

y.  Robertson,  197,  353. 

y.  Robison,  187,  300,  310. 

y.  Ruse,  185. 
Mutual  Fire  Ins.  Co.  y.  Deale,  118. 

y.  Shoe  Factory,  434. 

y.  Ward,  116,  305. 
Mutual  Life  Ins.  Co.  y.  Allen,  130,  136, 
144,  416,  628. 

V.  Armstrong,  415,  514. 

y.  Baker,  255. 

y.  Cohen,  184,  187,  226,  298. 

V.  French,  236,  353. 

y.  Hill,  225,  226,  285,  391. 

V.  Insurance  Co.,  211, 

V.  Jarboe,  232. 

V.  Phinney,  225,  226. 

y.  Richards,  417. 

V.  Sears,  226. 

?.  Simpson,  280,  528.  * 


« 


ii 


[ '  I 


^ 


642 


CASES  CITED. 
[The  figures  refer  to  pages.] 

Co.  T.  Terry,  392,    New   England 


Mutual  Life  Ins. 
521,  523. 
▼.  Thomson,  170,  174,  259. 
V.  Walden,  522. 
T.  Wiswell,  523. 
V.  Young,  311. 
Mutual  Protection  Ins.  Co.  t.  Hamil- 
ton, 144,  529. 
Mutual   Reserve  Fund  Life  Ass*n  y. 
Payne,  531. 
V.  Taylor,  240,  244. 
Mutual  Reserve  Ins.  Co.  t.  Kane,  134. 
Mutual  Safety  Ins.  Co.  v.  Hone,  65. 
Myers  v.  Insurance  Co.,  167,  174,  547. 

N 

Nail  y.  Society,  211,  223,  226. 
Names  v.  Insurance  Co.,  45,  472. 
Nashville  Life  Ins.  Co.  y.  Mathews, 

234. 
Natchez  Ins.  Co.  v.  Stanton,  548. 
National  Ace.  Soc.  v.  Taylor,  584. 
National  Ben.  Ass'n  y.  Jackson,  209, 

210. 
National  Life  Ass'n  y.  Brown,  236. 

V.  Hopkins'  Adm'r,  254,  415. 
National  Life  Ins.  Co.  y.  Globe,  209. 
y.  Haley,  393. 
y.  Twiddell,  205. 
National  Mut  Aid  Soc.  y.  Lupoid,  403. 
National  Mut  Ben.  Ass'n  y.  Hickman, 
350. 
y.  Miller,  203. 
National  Mut  Ins.  Co.  y.  Society,  221. 
National  Trust  Co.  y.  Hughes,  402. 
National  Wall  Paper  Co.  y.  Insurance 

Corp.,  501. 
Nease  v.  Insurance  Co.,  51. 
Nebraska  &  Iowa  Ins.  Co.  y.  Chris- 
tiensen,  177. 
y.  Seivers,  499. 
Neidlinger  v.  Insurance  Co.,  550. 
Nelson  v.  Insurance  Co.,  182,  474. 
Nenendorff  v.  Insurance  Co.,  74. 
Newark   Fire   Ins.   Co.   y.    Sammons, 

495. 
Newark  Mach.  Co.  y.  Insurance  Co., 
149,  154,  168,  169,  172,  174,  178,  353. 
Newby  v.  Reed,  54. 
Newcomb  y.  Insurance  Co.,  426. 
New  England  Fire  &  Marine  Ins.  Co. 
V.  Robinson,  156. 
•   ▼.  Wetmore,  434. 


Loan  &  Trust  uo.  y. 
Kenneally,  50. 
New  England  Marine  Ins.  Co.  y.  Dun- 
ham, 4,  6,  8. 
New  Era  Life  Ass'n  v.  Rossiter,  193. 
Newhall  v.  Supreme  Council,  194. 
New  Hampshire  Mut  Fire  Ins.  Co.  y. 

Noyes,  91. 
New  Home  Ass'n  y.  Hagler,  522. 
New    Jersey    Mut    Life    Ins.    Co.    T. 

Baker,  310. 
Newmark  v.  Insurance  Co.,  476. 
New  Orleans  Ins.  Ass'n  y.  Matthews, 

330. 
New  Orleans  Ins.  Co.  y.  Albro  Oo^ 
552. 
y.  Gordon,  450. 
y.  Piaggio,  560. 
Newport  Imp.  Co.  y.  Insurance  Co^ 

434,  465. 
Newson's  Adm'r  y.  Douglass,  75,  76. 
New  York  Cent.  Ins.  Co.  y.  Insurance 

Co.,  305. 
New  York  Equitable  Ins.  Co.  y.  Lang- 
don,  482. 
New  York  Gas  Light  Co.  y.  Insurance 

Co.,  120. 
New  York  Life  Ins.  Co.  y.  Babcock, 
161,    162,    168-170,    172.    174, 
185. 
y.  Clopton.  94,  204,  220. 
y.  Curry,  214. 
y.  Davis,  202,  219,  417. 
y.  Eggleston,   190,  222,  224,  351, 

353. 
y.  Flack,  529. 

y.  Fletcher,    167,    186,    246,    248, 
805,     324-326,    338,    339-341, 
357,  364,  368,  370,  383,  385. 
y.  Hendren,  94,  220. 
y.  Russell,  310. 
y.  Statham,  92,  94,  07,  102,  197, 

213,  218,  219. 
y.  Weaver,  532. 
New  York  Mut.  Life  Ins.  Co.  y.  Arm- 
strong, 189.  392,  395,  528. 
New  York  State  Marine  Ins.  Co.  T. 

Insurance  Co.,  64. 
New  York  &  N.  H.  R.  Co.  y.  Schuyler, 

803,  304. 
Niagara  Fire  Ins.  Co.  t.  Elliott,  440. 
y.  Heflln,  53,  120. 
y.  Scammon,  502; 


CASES  CITED. 
[The  figures  refer  to  pages.) 
Niblo  V.  insurance  Co.,  120. 
Nichols  V.  Insurance  Co.,  228,  258. 
Nicholson  v.  Chapman,  562. 
Nickels  v.  Ass'n,  166. 
Nicolet  y.  Insurance  Co.,  182. 
Nielsen  y.  Society,  40,  188,  212. 
Nimick  v.  Insurance  Co.,  521. 
Nitsch  V.  Insurance  Co.,  495. 
Noble  V.  Mitchell,  83,  300,  310. 
Noone  v.  Insurance  Co.,  507. 
Norcross  v.  Insurance  Co.,  111. 
Norris  v.  Insurance  Co.,  262. 
North  America  Life  Ins.  Co.  y.  Wil- 
son, 77,  78. 
North    American    Fire    Ins.    Co.    y. 

Throop,  258. 
North  American  Life  &  Accident  Co. 

V.  Burroughs,  571. 
North   British   &    Mercantile    Co.    y. 

Freeman,  467. 
North  British  &  Mercantile  Ins.  Co. 
y.  Estes,  445. 
y.  Freeman,  447. 
Northern  Assur.  Co.  y.  Ass'n,  364,  369, 
370,  383. 
y.  Hanna,  502. 
North   of   England    Iron    S.    S.    Ins. 

Ass'n  y.  Armstrong,  561. 
Northrup  v.  Assurance  Co.,  574. 
Northwestern  Benev.  Soc.  v.  Dudley, 

582. 
Northwestern  Life  Assur.  Co.  v.  Stur- 

divant  204,  210. 
Northwestern   Masonic  Aid   Ass'n   v. 

Jones,  59,  128,  400,  513. 
Northwestern   Mut   Life  Ins.   Co.   v. 
Bank,  280. 
y.  Barbour,  232. 
y.  Fort's  Adm'r,  214,  232. 
y.  Montgomery,  255,  457. 
y.  Umerman,  353. 
y.  Woods,  294.  ' 

Northwestern   Transp.   Co.  y.   Insur- 
ance Co.,  561. 
Norton  v.  Insurance  Co.,  167,  354,  561. 
Norwich  Fire  Ins.  Co.  y.  Boomer,  419. 
Norwich  Union  Fire  Ins.  Soc.  y.  Well- 
house,  485. 
Nurney  v.  Insurance  Co.,  354. 
Nussbaum  v.  Insurance  Co.,  111. 
Nutt  V.  Bourdien,  552. 
Nutting  V.  Massachusetts,  83,  299,  300. 
Nye  y.  Grand  Lodge,  57. 


64a 


Oakes  y.  Insurance  Co.,  868. 
Obermeyer  v.  Insurance  Co.,  484. 
O'Brien   v.   Insurance  Co.,    178,   272, 

327,  528. 
O'Connell  y.  Knights  of  Damon,  288. 
Ogden  V.  Insurance  Co.,  459,  486,  56S. 
Ohde  V.  Insurance  Co.,  214. 
Ohio  Farmers'  Ins.  Co.  y.  Stowman, 
212. 
y.  Vogel,  121,  124. 
O'Keefe  v.  Insurance  Co.,  492. 
O'Leary  v.  Insurance  Co.,  315,  388. 
Oliver  v.  Greene,  115,  252. 

y.  Insurance   Co.,    158.   169,    176, 
310,  549. 
Olmsted  v.  Keyes,  416. 
Olney  v.  Insurance  Co.,  451. 
Omaha  Fire  Ins.  Co.  v.  Drennan,  508. 
Omberg  v.  Ass'n,  568,  577,  578. 
O'Niel  V.  Insurance  Co.,  289,  290,  488, 

464. 
Oom  V.  Bruce,  248. 
O'Reilly  v.  Gonne,  54a 
Orient,  The,  547. 
Orient  Ins.  Co.  v.  Adams,  114. 
V.  Clark,  502. 

y.  Daggs,  22,  83,  165,  300,  490. 
y.  McKnight  352,  370,  373. 
y.  Peiser,  255. 
v.  Prather,  458. 
Orient  Mut  Ins.  Co.  y.  Adams,  ISKKk 

V.  Wright  158,  191. 
Ormond  v.  Ass'n,  174,  176,  180. 
O'Rourke  v.   Insurance  Co.,  90,  132, 

332,  363,  372. 
Oscanyan  v.  Arms,  550. 
Osceola,  The,  6,  9. 
Oshkosh   Gaslight   Co.    T.    Insurance 

Co.,  187,  379,  490. 
Oshkosh  Packing  &  Provision  Co.  y. 

Insurance  Co.,  492. 
Ougier  v.  Jennings,  541. 
Overhiser's   Adm'x  y.   Overhlser,   58. 

127,  392. 
Overseers  of  Poop  of  Norfolk  y.  Bank, 

249. 
Owen  y.  Insurance  Co.,  203,  509i. 


Pace  V.  Pace,  406,  518. 
I  Pacific  Mut  Ins.  Co.  t.  Guse,  24a 


I 


I 


G4^ 


CASES  CITED. 
[The  figures  refer  to  pages.] 


i 


Pacific  Mut.  Ins.  Co.  v.  Shaffer,  149. 

V.  Williams,  210. 
Pacific  Mut.  Life  Ins.  C!o.  v.  Snowden, 
585. 
V.  Williams,  205. 
Padelford  v.  Boardman,  556. 
Page  V.  Burnstine,  415. 
Palatine  Ins.  Co.  v.  Weiss,  492. 
Palmer  v.  Insurance  Co.,  204. 
V.  Pratt,  538. 
V.  Welch,  515. 
Palmeri  v.  Railroad  Co.,  304. 
Paltrovitch  v.  Insurance  Co.,  97. 
Parker  v.  Ass'n,  519. 

V.  Insurance  Co.,  385,  518. 
T.  Jones,  550. 
Parks  V.  Insurance  Co.,  115,  499. 
Parmelee  v.  Insurance  Co.,  507. 
Parmeter  v.  Cousins,  541. 
Pamo  V.  Insurance  Co.,  339,  342,  384. 
Parsons  v.  Insurance  Co.,  337. 
Partridge  v.  Insurance  Co.,  499,  500. 
Patapsco  Ins.  Co.  v.  Biscoe,  53. 
V.  Coulter,  120,  540,  552. 
V.  Southgate,  560,  561. 
Paterson  v.  Harris,  550. 
Patrick  v.  Insurance  Co.,  309. 

V.  Ludlow,  541,  549. 
Patterson  v.  Insurance  Co.,  415,  517, 
519,  525,  531,  532. 
V.  Powell,  126. 
Patton  V.  Janney,  266. 
Paul  V.  Insurance  Co.,  569,  579. 

V.  Virginia,  83. 
Pawson  V.  Watson,  281. 
Payne  v.  Ass'n,  582. 
Peabody  v.  Satterlee,  501. 
Pechner  v.  Insurance  Co.,  368. 
Peck  V.  Insurance  Co.,  364,  451. 
Peele  v.  Society,  97. 
Pelton  V.  Insurance  Co.,  445. 
Pelzer  Mfg.  Co.  v.  Fire  Office,   113, 

256. 
Pence  v.  Makepeace,  410. 
Penn  Mut.  Life  Ins.  Co.  v.  Bank  & 
Trust   Co.,   254,    255-257,    268,   270, 
285,  288,  296,  297. 
Penn   Plate   Glass   Co.    T.    Insurance 

Co.,  202,  435,  436. 
Pennsylvania  Fire  Ins.  Co.  y.  Doug- 
herty, 444. 
Pennsylvania  Fire  Ins.  Co.  ▼.  Drack- 
ett,  384,  491,  492. 
T.  Hughes,  445, 


Pennsylvania  Ins.  Co.  v.  Gottsman's 

Adm'rs,  444,  448. 
Pennsylvania    Mut.    Life    Ins.  Co.   T. 

Bank  &  Trust  Co.,  187. 
Pennsylvania  R.  Co.  v.  Wolfe,  403. 
Pennsylvania  Training  School  v.  In- 
surance Co.,  224. 
Penny  packer  v.  Insurance  Co.,  88,  308, 

501. 
People  V.  Dimick,  536. 
V.  Guarantee  Co.,  604. 
V.  Insurance   Co.,    197,   214,   220, 

231. 
Y.  Insurance  &  Annuity  Co.,  78. 

245. 
Y.  Manhattan  Co.,  346. 
V.  Phelps,  514. 
People's  Fire  Ins.  Co.  Y.  Hartshome. 

200. 
People's  Ice  Co.  y.  Assurance  Corp.. 

593. 
People's  Mut.  Ben.  Soc.  v.  Lester,  87. 

V.  Templeton,  132,  133,  532. 
People's  Mut  Ins.  Fund  v.  Bricken, 

243. 
Peoria  Marine  &  Fire  Ins.  Co.  Y.  Hall 

470. 
Peoria   Sugar   Refinery   v.   Insurance 

Co.,  178. 
Perkins  v.  Insurance  Co.,  172. 
Perry  v.  Insurance  Co.,  189,  308. 
Peters  v.  Insurance  Co.,  476. 
Phadenhauer  v.  Insurance  Co.,  523. 
Phelan  v.  Insurance  Co.,  225. 
Phenix  Ins.  Co.  v.  Bank,  418,  420,  427. 

v.  Bowdre,  352. 

Y.  Guano  Co.,  185. 

Y.  Hart,  308,  328,  484. 

Y.  Lamar,  458. 

Y.  Lodge,  510. 

Y.  Pickel,  274. 

Y.  Willis,  406. 

Y.  Wilson,  273. 
Philadelphia   Tool   Co.   y.   Assurance 

Co.,  109,  362. 
Phillips  v.  Carpenter,  388,  513. 

Y.  Foxall,  596. 

Y.  Insurance  Co.,  117,  521. 
Phillipsburg  Horse  Car  Co.  y.  Fidel- 
ity Co.,  593. 
Phoenix  Ins.  Co.  Y.  Adams*  Trustee, 
111. 

Y.  Bowdre,  308. 

T.  Copeland,  336,  460. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


645 


Phcenix  Ins.  Co.  y.  Copelin,  661. 

V.  Hamilton,  115. 

Y.  Insurance  Co.,  546. 

Y.  Johnston,  373. 

Y.  Lawrence,  316,  434,  454. 

Y.  Lorenz,  447. 

Y.  Meier,  174. 

Y.  Mitchell,  110. 

Y.  Moog,  552. 

Y.  Overman,  372. 

V.  Pickel,  455. 

V.  Railroad  Co.,  87,  459. 

V.  Ryland,  156. 

Y.  Schwartz,  484. 

Y.  Spiers,  150,  321,  378. 

Y.  Stevenson,  242. 

Y.  Taylor,  470. 

Y.  Transportation    Co.,    61,    113, 
114,  116,  423,  425. 

Y.  Warttemberg,  337. 

Y.  Zlotky,  486. 
Phoenix  Life  Ins.  Co.  v.  Bailey,  56,  57. 
Phoonix  Mut  Life  Ins.  Co.  v.  Baker, 
234. 

▼.  Doster,  211,  223,  353. 

Y.  Dunham,  395. 

Y.  Opper,  388. 

Y.  Raddin,  184,  196,  252,  258,  263, 
292,  293. 
Pickel  v.  Insurance  Co.,  331. 
Pickett  v.  Casualty  Co.,  608. 

V.  Insurance  Co.,  161,  579. 
Piedmont  &  A.  Ins.  Co.  v.  Ewing,  158, 

170,  285,  288. 
Pierce  v.  Assurance  Soc,  78. 

Y.  People,  299,  334. 
Pietrl  V.  Seguenot  186,  187. 
Pingrey   v.   Insurance   Co.,   390,   391, 

393. 
Pitney  v.  Insurance  Co.,  307,  385,  460. 
Plttegrew  v.  Prlngle,  540. 
Pittinger  v.  Pittinger,  192. 
Pittsburgh,  O.,  C.  &  St  L.  B.  Co.  y. 

Montgomery,  25. 
Pittsburg,  Ft  W.  &  C.  R.  Co.  y.  Shaef- 

fer,  598. 
Place  V.  Trust  Co.,  590. 
Planche  v.  Fletcher,  550. 
Planters*  Ins.  Co.  v.  Myers,  334. 
Planters'  Mut.  Ins.  Co.   v.  Rowland, 

182. 
Planters*   &   Merchants'   Ins.    Co.   y. 

Thurston,  119. 
Platho  Y.  Insurance  Co.,  149. 


Piatt  V.  Insurance  Co.,  376. 
Plimpton  Y.  Insurance  Co.,  50. 
Plinsky   y.   Insurance   Co.,    182,    188, 

435. 
Plumb  Y.  Insurance  Co.,  359,  361. 
Plymton  y.  Dunn,  200. 
Pollock  Y.  Association,  577. 
Pomeroy  y.  Insurance  Co.,  315,  400. 
Pool  V.  Insurance  Co.,  186,  463,  464. 
Porter  v.  Insurance  Co.,  182,  327. 
Portsmouth    Ins.    Co.     Y.    Reynolds' 

Adm'x,  479. 
Post  v.  Insurance  Co.,  156. 
Potter  V.  Insurance  Co.,  158,  178. 
Pottsville  Mut  Fire  Ins.  Co.  v.  Im- 
provement Co.,  313. 
Powell  Y.  Dewey,  417. 
Power  Y.  Insurance  Co.,  434. 
Powers  v.  Ass'n,  294. 
Prader  v.  Ass'n,  527. 
Prall  V.  Society,  173. 
Pratt  V.  Burdon,  312. 

Y.  Insurance    Co.,    74,    344,    378, 
385,  390. 
Preferred  Ace.  Ins.  Co.  y.  Stone,  166. 
Premo  v.  Hewitt,  405. 
Prentice  v.  Insurance  Co.,  308. 
Presbyterian  Mut  Assur.  Fund  y.  Al- 
len, 403. 
Preston  v.  Greenwood,  535. 

V.  Insurance  Co.,  390,  396. 
Price  V.  Bank,  417. 

V.  Insurance  Co.,  77,  288,  293. 
Y.  Supreme  Lodge,  528. 
Priest  V.  Insurance  Co.,  315. 
Pritchard  v.  Society,  197,  215. 
Protection  Ins.  Co.  v.  Hall,  116. 
Proudfoot  Y.  Montefiore,  51,  264-266, 

336. 
Providence  Life  Assur.  Soc.  t.  Rent- 
linger,  292,  316. 
Provident  Fund  Soc.  y.  HoweU,  508. 
Provident    Life    Ins.    &    Inv.    Co.    y. 
Baum,  128. 
Y.  Martin,  46. 
Provident    Sav.   Life   Assnr.    Soc   y. 
Cannon,  292. 
Y.  Llewellyn,  294. 
Prudential    Assur.   Co.    y.   Insurance 

Co.,  275. 
Prudential  Ins.  Co.  y.  Hunn,  128^  131, 
133. 
Y.  Jenkins,  134. 


'J 

■1 


i! 


;1 


64G 


(i 


CASES  CITED. 
[Th«  figures  refer  to  pages.} 


Puget  Sound  Dressed  Beef  &  Pack- 
ing Co.  V.  Jeffs,  405. 

Pullis  V.  Robison,  410. 

Purdy  V.  Ass'n,  193. 

Putnam  t.  Insurance  Ck).,  113,  158, 
244. 

Putuum  V.  Insurance  Co.,  434. 

Pythian  Life  Ass'n  y.  Preston,  205. 


Quarles  t.  Clayton,  49. 

Quebec  Marine  Ins.  Co.  t.  Bank,  545, 

547. 
Queen  Ins.  Co.  v.  Leslie,  186,  188,  297, 
490,  491. 
T.  Trust  Co.,  369. 
V.  Young,   256. 
Quinlan   v.   Insurance  Co.,   328,  329, 
379,  385,  430,  432,  467,  502. 


Railway  Officials'   &  Employes*  Ace. 
Ass'n  V.  Drummond,  583. 
?.  Johnson,  568. 
Railway    Passenger   &   Freight   Con- 
ductors'   Mut.    Aid    &    Ben. 
Ass'n  V.  Robinson,  191,  192. 
▼.  Tucker,  385. 
flandall  v.  Insurance  Co.,  487. 
Rankin  v.  Potter,  559. 
Rathbone  v.  Railway  Co.,  341. 
Rathbun  v.  Snow,  314. 
Rawls  V.  Insurance  Co.,  57,  58,  127, 

137,  254,  411. 
Rayner  v.  Preston,  48,  49,  112,  424. 
Read  v.  Insurance  Co.,  509. 
Reade  v.  Insurance  Co.,  549. 
Reardon  v.  Insurance  Co.,  461. 
Redfield  v.  Insurance  Co.,  109,  112. 
Redstrake  v.  Insurance  Co.,  308. 
Reed  v.  Assurance  Co.,  136. 
▼.  Casualty  Co.,  600. 
T.  Insurance   Co.,   332,   333,   363, 

460. 
T.  Lukens,  49. 
Reg.  T.  Flanagan,  138. 
Reilly  t.  Insurance  Co.,  188,  384,  490, 

491. 
Relief  Fire  Ins.  Co.  v.  Shaw,  152,  157. 
Renier  v.  Insurance  Co.,  308,  314,  382. 
Renner  v.  Bank,  190. 
Renseuhouse  v.  Seeley,  59. 


Renshaw  v.  Insurance  Co.,  480. 
Reserve  Mut.  Ins.  Co.  v.  Kane,  130, 

134. 
Ressler  v.  Insurance  Co.,  23& 
Uex  V.  Insurance  Co.,  122. 
Reynolds  ▼.  Insurance  Co.,  182,  418, 

561. 
Kheims  y.  Insurance  Co.,  502. 
Rhind  v.  Wilkinson,  120. 
Rhode  Island  Nat  Bank  v.  Chase,  406. 
Rhode  Island  Underwriters'  Ass'n  v. 

Monarch,  450. 
Rice  V.  Butler,  243. 

V.  Tower,  454. 
Richards  v.  Ass'n,  294. 

V.  Insurance   Co.,   248,   816,  438, 
567,  583. 
Richardson  v.  Insurance  Co.,  167,  190, 
580. 
V.  White,  528. 
Richelieu  &  O.  Nav.  Co.  v.  Insurance 

Co.,  548. 
Richmond  &  P.  R.  Co.  v.  Kasey,  597. 
Rioker  v.  Insurance  Co.,  393,  394,  399, 

514,  515. 
Riddlesbarger  v.  Insurance  Co.,  508. 
Riggin  V.  Insurance  Co.,  549. 
Riggs  V.  Insurance  Co.,  100,  107,  108, 

117. 
Riley  v.  Insurance  Co.,  301. 
Rines  v.  Insurance  Co.,  499. 
Rlngle  V.  Railroad  Co.,  25. 
Ripley  v.  Assurance  Co.,  574. 

y.  Insurance   Co.,    190,  286,   289, 
291,  344,  356. 
Rison  y.  Wilkerson,  390. 
Ritter  v.  Insurance  Co.,  20,  45,  128, 
150,  184,  189,  384,  517-519,  521,  531. 
Rittler  y.  Smith,  57,  139,  143,  416. 
Robbins  v.  Insurance  Co.,  383,  539. 
Roberts  y.  Insurance  Co.,  114,  183. 
Robertson  y.  Credit  System  Co.,  691, 

603. 
Robinson  y.  Ass'n,  373. 
V.  Duvall,  394. 
V.  Insurance  Co.,  200,  558. 
y.  Society,  204,  220,  582. 
Robinson  Gold  Min.  Co.  y.  Assurance 

Co.,  554. 
Roby  y.  Insurance  Co.,  344,  378,  453. 
Rochester  Loan  &  Banking  Co.  y.  In- 
surance Co.,  500. 
Rockford  Ins.  Co.  y.  Williams,  810. 
T.  Wright,  472, 


CASES  CITED. 
[The  figures  refer  to  pages.] 


647 


Uockhold  y.  Society,  192. 
Itockingham    Mut    Fire    Ins.    Co.    y. 

Bosher,  426. 
Roddick  v.  Insurance  Co.,  537. 
Koe  V.  Insurance  Co.,  473. 
Roebuck  v.  Hammerton,  126. 
Roehuer  v.  Insurance  Co.,  218,  236. 
Rogers  v.  Insurance  Co.,  50,  292,  463, 

547. 
Roger  Williams  Ins.  Co.  y.  Carring- 

ton,  468. 
Rohl  V.  Parr,  550. 

Rohrbach  v.  Insurance  Co.,  108,  109, 
333,  335,  362,  446. 
y.  Moore's  Adm'r,   142,   143,  201, 
415,  417,  528. 
Rollins  V.  McHatton,  404. 
Rombach  v.   Insurance  Co.,  125,  129, 

131,  136,  146. 
Ronald  v.  Ass'n,  346,  378. 
Roquemore  v.  Dent,  396,  514. 
Rose  V.  Clark  Co.,  87. 
V.  Wortham,  514. 
Rosenberger    v.    Insurance    Co.,    191, 

238,  240. 
Rosenplanter  v.  Society,  225,  384. 
Roseustein  v.  Insurance  Co.,  420,  449, 

454. 
Rosenthal  v.  Walker,  224. 
liosetto  V.  Gurney,  559. 
Ross  V.  Thwaites,  538. 
Rouse  V.  Insurance  Co.,  546. 
Routh  V.  Thompson,  76,  99,  100. 
Roux  V.  Salvador,  561. 
Rowe  V.  Insurance  Co.,  391. 
Rowley  v.  Insurance  Co.,  359,  360. 
Rowswell  y.  Union,  239. 
Royal  Circle  v.  Achterrath,  525,  531. 
Royal  Ins.  Co.  v.  Mclntyre,  492. 

V.  Martin,  453,  479. 
Royal  Ins.  Co.  v.  Stinson,  111,  116,  426, 

427. 
Royal  Ins.  Co.  y.  Wight,  313. 
Royal   Neighbors  of  America  y.  Bo- 
man,  335,  339. 
V.  Wallace,  282. 
Riiggles  V.  Insurance  Co.,  168,  265. 
Rumbold  v.  Insurance  Co.,  234. 
Runkle  v.  Insurance  Co.,  318. 
Ruse  V.  Insurance  Co.,  125,  126,  185, 

218,  272. 
Russ  V.  Supreme  Council,  194,  512. 
Russel  y.  Insurance  Co.,  113, 
Russell  y.  De  Grand,  24S. 


Russell  y.  Russell,  514. 
Rustin  y.  Insurance  Co.,  669,  581. 
Ruth  y.  Katterman,  528. 
Rutter  V.  Insurance  Co.,  491. 
Ryan  y.  Adamson,  418. 

y.  Insurance    Co.,    305,   326,    363. 
364,  383. 

T.  Rothweiler,  393,  396,  405. 


Sabin  y.  Phinney,  128,  401. 

V.  Union,  192,  523. 
Sachs  y.  Insurance  Co.,  486. 
Sadler  y.  Dixon,  46. 
Sadlers'  Co.  v.  Babcock,  121,  122. 
Saint  y.  Mfg.  Co.,  596,  598. 
St  John  V.  Insurance  Co.,  416. 
St  Louis  Ins.  Co.  v.  Kyle,  376. 
St.  Louis  I.  M.  &  S.  R.  Co.  y.  Insur- 
ance Co.,  422,  425,  426. 
St  Louis  Mut  Life  Ins.  Co.  y.  Grigs- 
by,  213,  214. 

V.  Kennedy,  169,  176. 
St  Paul,  etc.,  Ins.  Co.  v.  Troop,  541. 
St.  Paul  Fire  &  Marine  Ins.  Co.  v. 
Coleman,  199,  215. 

V.  Kidd,  185. 

V.  Sharer,  310. 
Salentine  v.  Insurance  Co.,  622. 
Salisbury  v.  Insurance  Co.,  542. 
Salvin  v.  James,  1S5,  215. 
Samuels  v.  Insurance  Co.,  478. 
Sanborn   v.   Insurance  Co.,    149,    150. 

152,  157. 
Sanders  v.  Cooper,  438. 
Sands  v.  Graves,  238. 

V.  Insurance  Co.,  93,  94,  96,  204, 
220. 
Sanford   y.   Insurance  Co.,    110,    150, 

156. 
Santa  Clara  Female  Academy  y.  In- 
surance Co.,  111. 
Sargeant  v.  Insurance  Co.,  522. 
Savage  y.  Insurance  Co.,  Ill,  116,  429. 

V.  Medbury,  235. 
Sawyer  y.  Insurance  Co.,  119,  557. 

y.  May  hew,  153. 
Sayre  y.  Nichols,  317. 
Scammell  y.  Insurance  Co.,   158-160. 
Scara manga  v.  Stamp,  549. 
SchaeflCer  y.  Insurance  Co.,  110,  808. 
Scheffer  v.  Insurance  Co.,  621. 
Schillinger  ▼.  Boea,  402. 


M' 


648 


CASES  CITED. 
[The  figiires  refer  to  pages.] 


Schimp  T.  Insurance  Co.,  200,  218. 
Schlaxnp  y.  Bemer's  Adm'r,  417. 
Schmaebile  v.  Insurance  CJo.,  3L 
Schmidt  v.  Ass*n,   128,  189,  192,  392, 
393. 
V.  Insurance  Ck).,  224,  225,  434. 
Schneider  t.  Insurance  Co.,  46,  221. 
Schoenau  v.  Grand  Lodge,  404. 
Schemer  v.  Insurance  Co.,  3i0. 
School  Dist.  No.  4  v.  Insurance  Co., 

325. 
Schultz  V.  Insurance  Co.,  163,  289,  514, 

517,  520. 
Schwartz  v.  Insurance  Co.,  161. 
Schwarzbach  v.  Union,  281,  294. 
Schwarzschild  &  Sulzberger  Co.  t.  In- 
surance Co.,  494,  495. 
Scott  V.  Avery,  487. 

V.  Dickson,    132,    138. 
▼.  Insurance  Co.,  351. 
Scottish    Union    &   Nat    Ins.    Co.    v. 

Strain,  46,  446,  463. 
Screwmen's  Ben,  Ass'n  v.  Smith,  315. 

V.  Whitridge,  398. 
Scripture  v.  Insurance  Co.,  475,  477, 

480,  482. 
Scull  V.  Insurance  Co.,  514. 
Seaman  v.  Insurance  Co.,  545,  551. 
Seamans  v.  Knapp-Stout  &  Co.,  187, 
312. 
V.  Loring,  541. 
T.  Temple  Co..  87,  88. 
Seamen  v.  Insurance  Co.,  117. 
Sebring  v.  Hazard,  200. 
Security  Fire   Ins.   Co.  v.  Insurance 

Co.,  152,  157,  168. 
Security  Ins.  Co.  v.  Fay,  371. 
V.  Kuhn,  444,  445,  448. 
V.  Mette,  445,  474. 
Seeberger  t.  Wyman,  606. 
Seller  v.  Ass'n,  392,  519. 
Sellers  v.  Insurance  Co.,  312,  813. 
Semmes  ▼.  Insurance  Co.,  505,  508. 
Seton  V.  Insurance  Co.,  538. 
Settle  V.  Insurance  Co.,  549. 
Seward  v.  Rochester,  487. 
Sexton  V.  Insurance  Co.,  406. 
Seyk  V.  Insurance  Co.,  491,  492. 
Shader  ▼.  Assurance  Co.,  686. 
Shadgett  v.  Phillips,  418. 
Shafifer  v.  Spangler,  137.  139,  412. 
Shakman   y.    Credit   System  Co.,  43, 

591,  592.  GOl-nO?.. 
Shaler  t.  Trowbridge,  407. 


Shaw  V.  Insurance  Co.,  113,  115,  221, 
234. 
V.  Mining  Co.,  83. 
Shawe  v.  Felton,  542. 
Shea  V.  Ass'n,  143,  393. 
Sheamon  v.  Insurance  Co.,  587. 
Shear  v.  Insurance  Co.,  220. 
Sheerer  v.  Insurance  Co.,  230. 
Sheldon  v.   Insurance  Co.,   174,   178- 

181,  184,  205,  362. 
Shell  V.  Insurance  Co.,  502. 
Sheppard  v.  Insurance  Co.,  109,  121, 

309,  310. 
Sherman  y.  Allison,  395. 
Sherwood  v.  Insurance  Co.,  450. 
Shields  v.  Sharp,  396. 
Shipman   t.    Home   Circle,    390,   402, 

517-519,  525. 
Shoaf  V.  Insurance  Co.,  66. 
Short  V.  Insurance  Co.,  254. 
Shuggart  v.  Insurance  Co.,  453. 
Shultz  V.  Insurance  Co.,  289,  513. 
Schreiner  v.  High  Court,  393. 
Sibley  v.  Insurance  Co.,  111. 
Sides  V.  Insurance  Co.,  137. 
Sigerson  v.  Mathews,  375. 
Silloway  y.  Insurance  Co.,  559. 
Simonton  y.  Insurance  Co.,  150. 
Simpson  y.  Insurance  Co.,  215,  531. 
Sinclair  y.  Assurance  Co.,  568. 
Singer  Mfg.  Co.  y.  Brown,  87. 
Singleton  y.   Insurance  Co.,  67,   104, 

125,  134. 
Siter  V.  Morrs,  115,  439. 
Skldmore  y.  Desdoity,  550. 
Skinner  y.  Houghton,  49. 
y.  Norman,  372,  385. 
Skinner  &  Sons'  Ship  Building  &  Dry 

Dock  Co.  V.  Houghton,  424,  452. 
Sloat  y.  Insurance  Co.,  459,  486. 
Small  y.  Jose,  393,  514. 
Smith  y.  Benefit  Soc.,  402. 
y.  Carmack,  439. 
T.  Huddleston,  116. 
T.  Insurance  Co.,  75,  97,  112,  230, 
232,   243,  245,  256,   258,  289, 
290.   325,    330,   337,   420,    433, 
444,  448,   464,  606,  560,   602, 
603. 
y.  Ratcllff,  405. 
y.  Society,  208,  518. 
T.  Supreme  Lodge,  688. 
T.  Surridge,  641. 


CASES  CITED. 
[The  figures  refer  to  pages.] 


64^ 


Smith  &  Wallace  Co.  y.  Insurance  Co., 
305. 

Sneed  y.  Assurance  Co.,  455. 
Snow  V.  Carr,  116. 

V.  Insurance  Co.,  266. 
Snowden  v.  Guion,  551. 
Snyder  v.  Insurance  Co.,  641,  548. 

V.  Loan  Co.,  287,  291. 
Solebury  Mut  Protective  Soc,  In  re, 

43. 
Solomon  y.  Insurance  Co.,  498. 
Solvency  Mut.  Guarantee  Co.  y.  York, 

602. 

Solvin  y.  James,  272. 

Somers  y.  Protective  Union,  167. 

Sonneborn  y.  Insurance  Co.,  472. 

Southard  y.  Assurance  Co.,  569. 
V.  Railway  Co.,  427. 

Southern  Cold  Storage  &  Produce  Co. 
V.  Dechman,  421,  439. 

Southern   Fertilizer    Co.   T.   Beames, 
529. 

Southern    Home    Building    &    Loan 
Ass'n  y.  Insurance  Co.,  505. 

Southern  Ins.  Co.  y.  Bstes,  151. 

Southern  Life  Ins.  Co.  y.  Booker,  178, 
180,  308. 
y.  McCain,  202. 

Southern  Mut.  Life  Ins.  Co.  y.  Mon- 
tague, 185,  232. 

South  StaflCordshire  Tramways  Co.  y. 
Ass'n,  203. 

Southwick  y.  Insurance  Co.,  446. 

Spalding  y.  Insurance  Co.,  337,  360. 

Spare  v.  Insurance  Co.,  108,  509. 

Sparkes  y.  Marshall,  536. 

Sparks  y.  Indemnity  Co.,  522,  523. 

Spengler  y.  Spengler,  402,  403. 

Sperry  y.  Insurance  Co.,  464,  471. 

Spinetti  y.  Steamship  Co.,  553. 

Spoeri  v.  Insurance  Co.,  215. 

Springfield  Fire  &  Marine  Ins.  Co.  T. 
Allen,  55,  420. 
V.  Brown,  502. 
V.  McNulty,  302. 
y.  Wade,  434,  462-464,  470. 

Springfield  Steam  Laundry  Co.  v.  In- 
surance Co.,  467. 

Spruill  V.  Insurance  Co.,  479. 

Stage  y.  Insurance  Co.,  432,  457. 

Stamma  v.  Brown,  552. 

Stamps  y.  Insurance  Co.,  77,  418,  489. 

Standard  Life  &  Accident  Ins.  Co.  y. 
Jones,  586. 


Insurance  Cou» 


313. 


Standard  Life  ft  Accident  Ins.  O©.  ▼. 
Lauderdale,  284. 

y.  Martin,  183. 

y.  Schmaltz,  569l 

y.  Taylor,  585. 
Standard   Oil   Co.   t. 

313. 
Stark  Bank  y.  Pottery  Co. 
Star  of  Hope,  The,  557. 
State  v.  Ackerman,  82. 

y.  Ass'n,  59. 

y.  Hogan,  591,  595. 

y.  Insurance  Co.,  77,  204. 

y.  Insurance  Com'rs,  82. 

y.  Investment  Co.,  43. 

V.  Railroad  Co.,  1,  25. 

y.  Scougal,  77. 

y.  Stone,  83. 

y.  Tomlinson,  404,  408,  409,  628. 

y.  Towle,  44. 

y.  Whitmore,  60. 

y.  Woodmansee,  77. 
State  ex  rel.  Atty.  Gen.  y.  Society.  69. 
State  Ins.  Co.  v.  Hale,  329,  495. 

y.  Meesman,  510. 

y.  Stoflfels,  510. 

y.  Taylor,  53,  331. 

y.  Todd,  376. 
State  Mut.  Fire  Ins.  Ass'n  t.  Stave 

&  Heading  Co.,  87,  88. 
State  Mut.  Fire  Ins.  Co.  y.  Updegraff, 
49. 

State  Mut.  Ins.  Co.  y.  Latourette,  350, 
362. 

Statham  y.  Insurance  Co.,  94,  220. 
Steel  v.  Insurance  Co.,  509. 
Steele,  In  re,  406.  416. 

y.  Gatlln,  528. 

y.  Insurance  Co.,  320,  322,  502. 
Steen  v.  Insurance  Co.,  509. 
Stehlick  y.  Insurance  Co.,  308. 
Steinbach  v.  Insurance  Co.,  464,  471. 
Steinback    t.    Diepenbrock,    143,   416, 
528. 

Steinman  y.  Angier  Line  (1891),  653. 
Stensgaard  y.  Insurance  Co.,  590. 
Stephenson  v.  Ass'n,  523. 

y.  Insurance  Co.,  485,  486. 
Stepp  y.  Ass'n,  235. 
Stemaman  v.  Insurance  Co.,  305,  816^ 
335,  337,  339,  341,  362,  363,  384,  432. 
Stetson  v.  Insurance  Co.,  112,  450, 
Stettiner  v.  Insurance  Co.,  429. 
Stevens  v.  Insurance  Co.,  71,  458b 


i 

i. 


650 


Stevens  t.  Wallace,  556. 

V.  Warren,    144,   416,   529. 
Stevenson  v.  Snow,  242. 
Stewart  v.  Insurance  CJo,  87,  308,  853, 
552,  560. 

V.  Wilson,  546,  547. 
Stlckley  v.  Insurance  Co.,  308. 
Stigler's  Ex'x  v.  Stigler,  408,  410,  515. 
Stillwell  V.  Insurance  Ck).,  539. 

V.  Staples,  114. 
Stock  V.  Inglis,  120. 
Stokes  V.  Amerman,  408,  409. 

V.  Coffey,  408,  410. 

▼.  Mackay,  156. 
Stolle  V.  Insurance  Co.,  302.  468. 
Stone's  Adm'rs  v.  Casualty  Co.,  584. 
Stout  V.  Insurance  Co.,  97,  116,  508. 
Stowell  V.  Clark.  446. 
Strauss  v.  Ass'n,  193,  244. 
Streeter  y.  Society,  523. 
Strode  v.  Drug  Co.,  411. 
Strohn  v.  Insurance  Co.,  158. 
Strong  y.  Insurance  Co.,  64,  112,  113. 
Strouse  y.  Indemnity  Co.,  603 
Strum  y.  Insurance  Co.,  54. 
Suckley  v.  Dela field,  281. 
Suess  y.  Insurance  Co.,  244. 
Suffolk  Fire  Ins.  Co.  y.  Boyden,  419. 
Sugg  y.  Insurance  Co.,  458. 
Sullivan  y.  Insurance  Co.,  123. 
Sulphur  Mines  Co.  y.  Insurance  Co., 

20. 
Sulz  y.  Ass'n,  166,  514. 
Suramerfield  v.  Assurance  Co.,  435. 
Sun  Fire  Ins.  Co.  v.  Merz,  101,  124. 
Sun  Fire  Office  v.  Clark,  451. 

y.  Wich,  183. 
Sun  Ins.  Office  v.  Merz,  120. 
Sun  Life  Assur.  Co.  y.  Bailey,  303. 
Sun  Life  Ins.  Co.  v.  Phillips,  326,  370. 

V.  Taylor,  533. 
Sun  Life  Ins.  Co.  of  America  ▼,  Phil- 
lips, 337. 
Sun  Mut.  Ins.  Co.  t.  Barrel  Co.,  301, 
313. 

▼.  Crist,  500. 

▼.  Insurance  Co.,  62,  252,  253,  261. 

V.  Mattingly,  502. 

y.  Tufts,  115. 
Suppiger  v.  Ass'n.  522. 
Supreme   Commandery    K.    G.    R.    y. 
Ainsworth,  166,  192.  811,  6ia 


CASES  CITED. 
[The  figures  refer  to  pages.] 

Supreme  Conclave  Improved  Order  of 

Heptasophs  v.  Miles,  517,  518. 
Supreme  Conclave  Royal  Adelphia  ▼. 

Cappella,  404. 
Supreme  Council  v.  Garrigus,  567. 
V.  Larmour,  59. 
V.  Perry,  515. 
Supreme  Council  American  Legion  of 
Honor  v.  Gootee,  203. 
y.  Jordan,  243,  244. 
v.  Perry,  404. 
Supreme  Council  Catholic  Knights  of 

America  v.  Gambati,  200,  243. 
Supreme   Council   Royal   Arcanum   y. 
Rrashears,  287. 
y.  Kacer,  398. 
y.  Tracy,  400. 
Supreme  Court  of  Honor  v.  UpdegrafT, 
531. 

Supreme  Lodge  A.  O.  U.  W.  y.  Hutch- 
inson, 81. 
Supreme  Lodge  Knights  of  Honor  t. 
Dalberg,  224. 
y.  Jaggers,  505. 
Supreme  Lodge  K.   P.  t.  Beck,  505, 
523,  526. 
y.  Kaliuski,  353. 
V.  Knight,  193. 
y.  La  Malta,  60,  191. 
v.  Withers,  201,  311,  334,  340. 
Supreme  Lodge  Order  of  Mutual  Pro- 
tection V.  Gelbke,  522. 
Supreme  Ruling  of  the  Fraternal  Mys- 
tic Circle  v.  Crawford,  273. 
Survick  v.  Ass'n,  224,  239. 
Susquehanna  Ins.  Co.  v.  Perrine,  81. 
Susquehanna   Mut.   Fire   Ins.   Co.   ▼. 
Cusick,  436. 
▼.  Elkins,  178,  385. 
V.  Gackenbach,  240. 
Sutherland  v.  Insurance  Co.,  460, 
Swan  V.  Insurance  Co.,  87,  319 

V.  Snow,  395. 
Swedish-American  Ins.   Co.  y.  Knut- 

son,  373. 
Sweeney  y.  Insurance  Co.,  118,  288. 
Sweetser  v.  Ass'n,  190,  353. 
Swett  v.  Society,  315. 
Swick  y.  Insurance  Co.,  294. 
Swift  y.  Insurance  Co.,  448. 
Swing  y.  Lumber  Co.,  239. 
V.  Munson,   87. 


CASES  CITED. 
£The  figures  refer  to  pages.] 

iTidmarsh  v. 


651 


I  Swinnerton  y.  Insurance  Ca,  182^ 


Taber  r.  Insurance  Co.,  502,  538,  560. 
Tait  V.  Insurance  Co.,  98. 

y.  Levi,  547. 
Taliaferro  v.  Ass'n,  567. 
Talley  v.  Robinson's  Assignee,  151. 
Tanenbaum  v.  Simon,  438. 
Tarbell  v.  Insurance  Co.,  308. 
Tasker  v.  Cunningham,  540. 

y.  Insurance  Co.,  509. 
Tate  V.  Ass'n,  138,  143,  411,  417. 
Tayloe  v.  Insurance  Co.,  156,  163,  205, 

210,  499. 
Taylor  v.  Bank,  598. 

y.  Insurance  Co.,  136,  220,  287, 
808. 

T.  Liverpool,  553. 

y.  Lowell,   174,  241,   541,  545. 
Tebbets  v.  Guarantee  Co.,  43,  44,  602. 
Tebo  V.  Supreme  Council,  194. 
Teeter  v.  Ass'n,  532. 
Tefft  v.  Insurance  Co.,  454. 
Temple  v.  Assurance  Co.,  458. 

V.  Insurance  Co.,  491. 
Tepper  v.  Supreme  Council,  402. 
Texas  Banking  &  Ins.  Co.  y.  Cohen, 

453. 
Thames  &  M.  Ins.  Co.  v    Hamilton, 

543,  550,  551. 
Thayer  v.  Insurance  Co.,  572. 
Thebaud  v.  Insurance  Co.,  432. 
Thibert  v.  Supreme  Lodge,  194,  240. 
Thomas  v.  Assurance  Co.,  538. 

y.  Insurance  Co.,  399,  460,  560. 

y.  Leake,  514. 
Thompson  v.  Adams,  172. 

y.  Hopper,  546. 

y.  Insurance  Co.,  97,  115,  190,  205, 
213,  218,  219,  223,  225,  236, 
350,  393,  450,  451,  490,  491, 
509,  510. 

V.  Whitmore,  550. 
Thomson  v.  Insurance  Co.,  203. 

V.  Weems,  280,  284. 
Thomburg  v.  Insurance  Co.,  417.> 
Thorne  v.  Insurance  Co.,  88. 
Throop  y.  Insurance  Co.,  183. 
Thropp  y.  Insurance  Co.,  239. 
Thuringia  Ins.  Co.  v.  Norwaysz,  286, 

462,  470. 
Thcrston  v.  Insurance  Co.,  482,  552. 

V.  Koch,  54. 
Tibbitts  y.  Insurance  Co..  218. 


Insurance  Co.,  273. 
Tiefenthal  v.  Insurance  Co.,  315. 
Tiemann  v.  Insurance  Co.,  452. 
Tilley  v.  Insurance  Co.,  77,  113. 
Tillis  V.  Insurance  Co.,  381. 
Tisdell  V.  Insurance  Co.,  495. 
Titus  V.  Insurance  Co^  344,  373,  877- 
379,  455. 

y.  Poole,  508. 
Todd  y.  Ritchie,  552. 
Toledo  Tie  &  Lumber  Co.  T.  Thomas, 

88. 
Tolford  y.  Church,  199. 
Tompkins  v.  Insurance  Co.,  589. 

V.  Levy,  513. 
Tomsecek  v.  Insurance  Co.,  207. 
Tooley  v.  Assurance  Co.,  575. 
Towle  V.  Insurance  Co.,  385. 
Towne  v.  Ass'n,  44L 

V.  Insurance  Co.,  258. 
Townsend  v.  Phillips,  560. 

V.  Tyndale,   411. 
Trabue  v.  Insurance  Co.,  433. 
Trade  Ins.  Co.  v.  Barracliff,  117,  236. 
Traders'  Ins.  Co.  v.  Catlin,  433,  434. 

V.  Newman,  109,  117,  118. 

V.  Race,  473. 
Train  v.  Insurance  Co.,  208. 
Transatlantic   Fire   Ins.   Co.   v.    Dor- 

sey,  480. 
Trask  v.  Insurance  Co.,  498. 
Travelers'  Ins.  Co.  v.  Austin,  575,  582. 

y.  Dunlap,  576,  577. 

y.  Edwards,  504. 

y.  Harvey,  307,  330. 

y.  Healey,  528. 

y.  Hunter,  571. 

y.  Jones,  582. 

y.  McConkey,   523,   567,  576. 

y.  Melick,  53. 

v.  Moses,  607,  609. 

y.  Nitterhouse,  523. 

y.  Pulling,  220. 

y.  Randolph,  46,  582. 

V.  Seaver,  526.  527. 
Travelers'  Life  &  Accident  Ins.  Co.  v. 

Cash,  205,  210. 
Trayes  v.  Worms,  539. 
Treadwell  y.  Insurance  Co..  547. 
Tremblay  v.   Insurance   Co.,  75,   415, 

529. 
Trenton  Mut.  Life  &  Fire  Ins.  Co.  ?. 
Johnson,  57,  126. 


f       i 


4 


* 


652 


CASES  CITBD. 
[Tb*  figures  refer  to  pages.] 


CASES  CITED. 
[The  figures  refer  to  pages.] 


653 


Trenton  Pass.  R.  CJo.  y.  Guarantor's 

etc.  Co.,  605. 
Trepagnler  v.  Rose,  405. 
Trinity  College  v.  Insurance  Co.,  67, 

125,  138. 
Trippe  v.  Society,  97,  504,  594. 
Tritsctiler  v.  Association,  522. 
Trott  V.  Insurance  Co.,  117. 
Troy  V.  Sargent  406. 
True  T.  Insurance  Co.,  468. 
Trumbull  v.  Insurance  Co.,  452. 
Trust  Co.  V.  Boardman,  419. 
Trustees  of  First  Baptist  Church  t. 

Insurance  Co.,  152,  158. 
Tubbs  V.  Insurance  Co.,  309,  326,  339, 

502. 
Tucker  v.  Ass'n,  294. 

V.  Insurance  Co.,  585. 
Turcan,  In  re,  528. 
Turnbull  v.  Insurance  Co.,  434. 
Turner   v.   Fidelity   &   Casualty  Co., 
588. 
▼.  Insurance  Co.,  309,  549. 
Tyrie  v.  Fletcher,  45,  200,  241,  246. 

u 

Uhlman  v.  Insurance  Co.,  78. 
Ulmer  v.  Insurance  Co.,  123, 
Ulrich  V.  Reinoehl,  139,  416. 
Underwood  v.  Insurance  Co.,  154,  344. 
Union  Assur.  Soc  v.  Nails,  256,  272, 

446,  448. 
Union  Casualty  &  Surety  Co.  v.  Mon- 

dy,  572. 
Union  Cent.   Life  Ins.  Co.  v.  Buxer, 
230,  391. 

V.  Caldwell,  211,  223. 

▼.  Chowning,  350,  484. 

V.  Duvall,  205. 

V.  Hilliard,  90. 

▼.  Hollowell,  522,  623. 

V.  McHugh,   234. 

▼.  Pauly,   169,  170,   173,  174,  17a 

V.  Pollard,  21,  186,  187,  295. 

V.  Pottker,  190,  225,  244. 
Union   Fraternal   League  v.   Walton, 

128. 
Union   Ins.   Co.   t.   McCullough,   473, 
476. 

▼.  Smart,  87. 

V.  Smith,  546,  547. 
Union  Life  Ins.  Co.  y.  Winn,  180L 


Union  Mut  Ace.  Ass*n  v.  Frohard,  584. 
Union  Mut.  Life  Ins.  Co.  y.  McMillen, 
88. 
V.  Mowry,  104,  202,  348,  349,  852. 
v.  Payne,  522,  628. 
V.  Reif,  280. 

V.  Wilkinson,  278,  802,  323,   825, 
331,   337,  340,  345,  356,  358, 
364,  368,  369. 
Union   Nat   Bank   y.   Insurance  Co., 

364. 
United  Brethren  Mut.  Aid  Soc  y.  Mc- 
Donald, 125,  129. 
United  Firemen's  Ins.  Co.  y.  Thomag, 

312,  356. 
United  Life,  Fire  &  Marine  Ins.  Co. 

y.  Foote,  481. 
U.  S.  V.  Tobacco  Co.,  111. 
United  States  Casualty  Co.  y.  Kacer, 

397. 
United  States  Fire  &  Marine  Ins.  Co. 

V.   Kimberly,  290. 
United  States  Life  Ins.  Co.  y.  Ross, 

212,  218. 
United  States  Mut  Ace  Ass'n  y.  Bar- 
ry, 567. 
y.  Millard,  588. 
y.  Mueller,  239. 
y.  Newman,  568,  572,  578. 
United  States  Trust  Co.  v.  Insurance 

Co.,  394,  395,  514. 
Unity  Mut  Life  Assur.  Ass'n  y.  Du- 

gan,  529. 
Universal  Fire  Ins.  Co.  v.  Block,  308. 
Universal  Life  Ins.  Co.  v.  Binford,  93. 
245. 
y.  Devore,  228,  230,  232. 
y.  Whitehead,  232. 
Universal  Mut.  Fire  Ins.  Co.  y.  Weiss. 

508. 
Universe  Ins.  Co.  of  Milan  y.  Insur- 
ance Co.,  535. 
Unsell  y.  Insurance  Co.,  363. 


Vallance  y.  Dewar,  541. 

Valley   Mut   Life   Ass'n  y.  Teewalt 

130. 
Valton  V.  Assurance  Co.,  416. 
Van  Bokkelen  v.  Insurance  Co.,  575. 
Vandalia  Mut.  County  Fir«  Ins.  Co. 

T.  Peasley,  238. 


Vandervolgen  v.  Assurance  Co.,  463. 
Van  Dyck  v.  Hewitt  248. 
Vangindertallen  v.  Insurance  Co.,  354. 
Van  Loan  v.  Ass'n,  168. 
Van  Schoick  v.  Insurance  Co.,  20,  356. 
Van  Tassel  v.  Insurance  Co.,  379. 
Van   Valkenburgh   v.   Insurance   Co., 

280. 
Van  Werden  y.  Society,  244. 
Van    Wickle   y.    Insurance   Co.,    545, 

547. 
Van  Zandt  v.  Insurance  Co.,  45,  521. 
Vette  y.  Insurance  Co.,  509. 
Vetter  y.  Ass'n,  532. 
Vezina  v.  Insurance  Co.,  144. 
Vielt  y.  Insurance  Co.,  344,  351. 
Vilas  V.  Insurance  Co.,  183,  493. 
Village  of  L'Anse  v.  Ass'n,  440. 
Viney  y.  Bignold,  487. 
Virgin  v.  Marwick,  399,  514. 
Virginia  Fire   &   Marine  Ins.  Oo.  y. 
Aiken,  509. 

y.  Buck,  290. 

y.  Cannon,  355. 

y.  Mica  Co.,  369,  383,  494. 

y.  Morgan,  325. 

y.  Thomas,  450,  453. 

y.  Vaughan,  453,  457. 

y.  Wells,  509,  510. 
Vivar  y.  Knights  of  Pythias,  126,  143, 
285,  287,  292,  293,  416. 

y.  Supreme  Lodge,  269. 
Vogel  V.  Insurance  Co.,  482,  483. 
Volsin  y.  Insurance  Co.,  552. 
Vose  y.  Insurance  Co.,  253,  282. 

w 

Wachtel  y.  Society,  225. 
Wadsworth  v.  Insurance  Co.,  559. 
Wager  y.  Insurance  Co.,  425. 
Wainer   v.    Insurance   Co.,    172,   174, 

196,  445. 
Wakeman  v.  Insurance  Co.,  249. 
Walcott  V.  Insurance  Co.,  523. 

y.  Tappin,  126. 
Walden   v.   Insurance    Co.,   253,   255, 

654. 
Waldman  y.  Insurance  Co.,  321. 
Walker  v.  Insurance  Co.,  161,  203,  379. 

y.  Larkin,  137. 

y.  Maitland,  476. 
Wall  y.  Insurance  Co..  287« 

▼.  Society,  186,  188. 


Waller  v.  Assurance  Co.,  248. 
Walradt  v.  Insurance  Co.,  444,  454. 
Walsh  V.  Insurance  Co.,  324,  329,  353, 
379,  382,  394,  396. 
y.  Walsh,  513. 
Walter  v.  Hensel,  513. 
Walter  A.  Wood  Mowing  &  Reaping 

Mach.  Co.  V.  Caldwell,  87. 
Walther  v.  Insurance  Co.,  505. 
Walton  V.  Insurance  Co.,  453. 
Want  V.  Blunt  197,  215. 
Ward  V.  Casualty  Co.,  594,  608. 
V.  Insurance  Co.,  344,  508. 
y.  Wood,  552. 
Waring  v.  Insurance  Co.,  114,  115. 

V.  Loder,  117,  419. 
Warner  v.  Ass'n,  188. 
Warnock  v.  Davis,  100,  104,  125,  129, 

131,  140-143,  411,  415,  417. 
Warre  v.  Miller,  541. 
Warren   y.   Insurance   Co.,    100,   117, 

315. 
Washburn  v.  Insurance  Co.,  480. 
Washburn  &  Moen  Mfg.  Co.  y.  Insur- 
ance Co.,  558,  559. 
Washington  Cent.  Bank  y.  Hume,  186, 

187. 
Washington  Fire   Ins.   Co.   T.  Kelly, 

111,  424. 
Washington  Gaslight  Ca  y.  Lansden, 

303. 
Washington  Life  Ins.  Co.  y.  Berwald, 
226,  390,  391,  393. 
y.  Miles,  232. 
Waters  v.  Allen,  241,  242. 

V.  Assurance  Co.,  114,  115. 
v.  Insurance  Co.,  476,  480,  523. 
Watertown  Fire  Ins.  Co.  y.  Cherry, 
468. 
y.  Rust,  87. 
y.  Simmons,  597. 
Watson  V.  Delafield,  266. 

V.  Insurance  Co.,  77,  136,  66L 
Watts  V.  Insurance  Co.,  234. 
Way  V.  Insurance  Co.,  478. 
Weatherbee  v.  Insurance  Co.,  407. 
Weaver  v.  Weaver,  529. 
Webb  v.  Insurance  Co.,  219. 
Weber  v.  Supreme  Tent,  194. 
Wedderbum  v.  Bell,  545,  547. 
Weed  V.  Insurance  Co.,  75,  314,  378, 

521. 
Weeks  y.  Insurance  CJo.,  4991 
Wehle  y.  Ass'n,  589. 


i 


I 


M 


j 


654 


CASES  CITED. 
[Th«  figures  refei*  to  pages.] 


Weinberger  ▼.  Insurance  Co.,  183. 
Weisert  v.  Muehl,  201,  402. 
Weiss  V.  Insurance  Co.,  376,  467,  502. 
Welch  T.  Ass'n,  337,  343,  360,  885,  429, 
432,  502. 
▼.  Insurance  Co.,  532. 
Wells  V.  Archer,  415. 

▼.  Insurance  Co.,  349,  350. 
Welsh  V.   Assurance  Corp.,  354,  421, 
500. 
T.  Cutler,  248. 
Werthelmer-Swarts  Shoe  Co.  t.  Cas- 
ualty Co.,  480. 
West  V.  Insurance  Co.,  438. 
West  Branch  Ins,  Co.  v.  Helpenstein, 

308. 
Westchester  Fire  Ins.  Co.  t.  Dodge, 
508. 
V.  Earle,   172,  328,  382. 
V.  Foster,  45,  459. 
West  End  Hotel  &  Land  Co.  t.  Insur- 
ance Co.,  373. 
Western  Assur.  Co.  v.  McAlpin,  156, 
158,  168,  195,  208. 
T.  Transp.  Co.,  55. 
V.  Williams,  352. 
Western  Commercial  Travelers*  Ass'n 

V.  Smith,  566,  570. 
Western  Horse  &  Cattle  Ins.  Co.  v. 

O'Neill,  45,  189. 
Western    Massachusetts    Ins.    Co.    v. 

Dufifey,  151. 
Western  &  A.  Pipe  Lines  v.  Insurance 

Co.,  441. 
West  Rockingham  Mut.  Fire  Ins.  Co. 

V.  Sheets,  254,  256. 
Wheaton  T.  Insurance  Co.,  292,  330, 

380. 
.Wheeland  v.  Atwood,  416. 
Wheeler  v.  Ass'n,  248. 

V.  Insurance  Co.,  97,  172,  174,  219, 

232.  418,  419. 
V.  Trust  Co.,  590. 
Wheeling  Ins.   Co.   v.   Morrison,   110, 

112. 
WTieelton  t.  Hardlsty,  185,  252,  272. 
Whipple  V.  Insurance  Co.,  238. 
Whitaker  v.  Meley,  238. 
White  V.  Davidson,  317, 
V.  Haight,   235. 
V.  Insurance  Co.,  63,  475. 
T.  Madison,  116w 
T.  Bobbins,  50. 


White  V.  Society,  186,  284,  296. 
Whitehead  v.  Insurance  Co.,  221,  392, 

393. 
Whitehurst  v.  Insurance  Co.,  476^ 
Whiting  V.  Insurance  Co.,  176,  201. 
Whitley  v.  Insurance  Co.,  204. 
Whitmarsh  v.  Insurance  Co.,  190. 
Whitmore  v.  Supreme  Lodge,  125,  126. 
Whitney  v.  Haven,  549. 

v.  Insurance  Co.,  120,  472,  473. 
Wicks  Bros.  v.  Insurance  Co.,  495. 
Wiebeler  v.  Insurance  Co.,  150. 
Wierengo  v.  Insurance  Co.,  443,  448, 
Wiggin  v.  Amory,  552. 

v.  Insurance  Co.,  54. 
Wilber  v.  Insurance  Co.,  202. 
Wilburn  v.  Wilburn,  513. 
Wilcocks  V.  Insurance  Co.,  552. 
Wilcox  V.  Insurance  Co.,  443,  448. 

V.  Society,  228,  232. 
Wildberger  v.  Insurance  Co.,  74. 
Wildey  Casualty  Co.  v.  Sheppard,  584. 
Wilkius  v.  Insurance  Co.,  382. 
Wilkinson  v.  Hyde,  538. 

V.  Insurance  Co.,  509. 
Willcutts  V.  Insurance  Co.,  214. 
Williams  v.  Box  of  Bullion,  549. 
V.  Cheney,  87. 
T.  Insiinince    Co.,    117,   463,    464, 

470,  506. 
▼.  Lilley,  49. 
Williamsburg   City   Fire   Ins.   Co.   ▼. 
Cary,  373. 
V.  Gwlnn,  54. 
Williamson  v.  Insurance  Co.,  491. 
Wilson  V.  Insurance  Co.,  332,  363,  453, 
552. 
V.  Jones,  117. 
Wineland  v.  Insurance  Co.,  445. 
Wingert  v.  Zeigler,  151. 
Winnesheik  Ins.  Co.  v.  Holzgrafe,  161. 
Winsor  v.  Ass'n,  514. 
Winspear  v.  Insurance  Co.,  671. 
Winter  v.  Haldimand,  538. 
Wirgman  v.  Miller,  390,  395. 
Wist  V.  Grand  Lodge,  194. 
Witherell  v.  Insurance  Co.,  476. 
Woehrle  v.  Insurance  Co.,  294. 
Wolcott  V.  Insurance  Co.,  538. 
Wolf  V.  Insurance  Co.,  451,  452,  456b 
Wolfe  V.  Insurance  Co.,  451. 
Wolff  V.  Horncastle,  113. 
I  Wood  T.  Dwarris,  185,  272,  63a 


CASES  CITED. 
[The  figurM  refer  to  pages.] 


655 


I 


Wood  V.  Insurance  Co.,  86,  110,  178, 
179,  329,  363,  366,  383,  885, 
432,  453,  454,  555,  561. 
•     V.  Moriarty,  63. 
Woodbury  Sav.  Bank  &  Bldg.  Aas'n 

V.  Insurance  Co.,  332,  359,  364. 
Wooddy   V.   Insurance   Co.,   149,   156, 

208,  308,  444,  499. 
Woodfln  y.  Insurance  Co.,  212. 
Woodmen  Ace.  Ass'n  t.  Byers,  97. 

V.  Pratt,  503. 
Woolf  V.  Claggett,  547. 
Wooster  t.  Page,  405. 
Worcester  &  S.  St.  R.  Co.  r.  Insurance 

Co.,  593. 
Worthington  y.  Bearse,  122,  434. 

▼.  Insurance  Co.,  93,  97,  196,  197, 
219. 
Wright  V.  Ass'n,  182,  416,  532. 
V.  Insurance  Co.,  49. 
T.  Marwood,  556. 
Wright  &  Pole,  Matter  of,  63,  120. 
Wyman  y.  Gay,  408. 

▼.  Insurance  Co.,  308. 
V.  Prosser,   50. 


Wytheville  Ins.  Co.  v.  Stuliz,  254. 
Wytheville  Insurance  &  Banking  Co. 
T.  Teiger,  178,  208. 


Xenos  T.  Fox,  562. 

▼.  Wickham,  168,  169,  172,  175. 


Yates  T.  Whyte,  561. 

Yeaton  v.  Fry,  164. 

Yoch  V.  Insurance  Co.,  470. 

Yonge  V.  Society,  173. 

Young  V.  Insurance  Co.,  Ill,  808,  687, 
588. 

Young  Men's  Mut  Life  Ass'n  ▼.  Pol- 
lard, 513. 


Zell  V.  Insurance  Co.,  300. 
Zenos  V.  Fox,  563. 
V.  Wickham,  313. 


Wynkoop  t.  Insurance  Co.,  488,  489.  !  Zinc  v.  Insurance  Co.,  468. 


I 

» ■ ' 

I 


I. 


I 

f 


INDEX 


[fHX  FIOUBES  BEFEB  TO  PAOBI.] 


I 


ABANDONMENT, 

no  right  of  In  fire  Insurance,  487. 
in  marine  insurance,  560. 

ACCIDENT  INSURANCE, 
origin  of,  13,  564. 
development  of,  in  England,  13. 

in  United  States,  17. 
closely  resembles  life  insurance,  564. 
accident  policies  and  their  construction,  665,  571-589. 
accidental  injuries,  what  are,  566. 

"external,  violent,  and  accidental  causes,"  569. 
disease  caused  by  accident— proximate  cause,  570. 
external  and  visible  signs  of  injury,  571. 
injuries  received  while  traveling,  573. 

incidental  risks,  574. 
excepted  risks,  575-586. 

poison,  or  contact  with  poisonous  substances,  57a 
usually  applied  only  to  intentional  acts,  577. 
death  by  inhaling  gas,  578-580. 
not  death  by  poison,  578. 

exception  of  applies  only  to  Intentional  act,  578. 
bodily  infirmities  or  disease,  exception  of  injuries  due  to,  58a 

trifling  affections  not  included,  580. 
Injuries  due  to  voluntary  and  unnecessary  exposure,  581. 

construction  of  exception  as  to,  581. 
exception  of  injuries  intentionally  Inflicted  by  another,  582. 
occupation  and  employment  specified,  as  limiting  risk,  583-585. 
injuries  due  to  incidental  acts,  583. 
employments  classified  as  to  hazard,  584. 
classification  made  by  agent  of  insurer  binding,  588. 
exception  of  injuries  received  while  intoxicated,  585. 
liability  of  insurer,  in  general,  586-588. 
for  loss  of  a  member  by  insured,  587. 
for  total  disability  of  insured,  587. 
Insurer's  right  to  autopsy,  588. 

ACTIONS  ON  POLICIES, 

beneficiary  of  life  policy  may  bring  in  his  own  name,  898. 
limitation  In  policy  upon  time  for  bringing  Is  valid,  507. 
rendered  inoperative  by  war,  508. 

Vanok  Ins.— 42  (657) 


I 


658  INDEX. 

[The  figures  r«f«r  to  pagw.] 

ACTIONS  ON  POLICIES— Continued, 
when  period  begins  to  run,  6091 
may  b«  waived,  610. 

ADJUSTERS, 

as  agents  of  the  insurer,  818. 

AQB, 

representations  as  to  are  material,  516. 

AGENTS  AND  AGENCY, 

general  principles  of  agency  applicable  to  insurance,  81,  298. 

delivery  to  agent  as  delivery  of  policy,  173. 

payment  of  premium  by  personal  arrangement  between  agent  and  liumivd, 

206. 
regulation  of  insurance  agencies  by  statute,  289. 
for  insurer  or  insured,  305,  312,  330. 

statutory  regulations,  21,  300. 

waiver,  384. 
burdensome  incidents  of  agency,  302. 

when  fraud  of  agent  is  imputed  to  principal,  303. 

when  agent's  knowledge  is  imputed  to  principal,  304. 

these  incidents  not  created  nor  terminable  by  contract,  80^ 
general  rule  as  to  agent's  powers,  301. 

apparent  powers,  301. 

agent  cannot  insure  his  own  property,  74. 
classes  of  agents  and  their  powers,  306-310. 

general  agents,  307. 

special  agents,  309. 

subordinate  lodges,  310. 

brokers,  311. 

executive  officers  of  company,  SIS. 

other  agents,  316. 
tubagents,  agent's  authority  to  appoint,  817. 

authority  implied  from  necessity,  318. 

authority  implied  from  custom,  819. 
extent  of  subagent's  powers,  320. 
limitations  upon  the  powers  of  agents,  in  general,  822  et  seq. 

when  contained  in  the  policy,  324,  493. 

when  contained  in  the  application,  325. 

secret  limitations  upon  agent's  powers,  302. 
Improper  or  void  limitations  upon  agent's  powers,  827. 

restrictions  extending  to  all  agents,  327,  493. 

stipulation  that  agent  of  insurer  is  agent  of  insured,  330-336. 

stipulation  that  the  agent's  knowledge  shall  not  be  imputed  to  the 
principal,  336. 
unless  communicated  by  writing,  338. 

■tipulation  that  principal  shall  not  be  charged  with  fraud  of  agent, 
841. 

ALIENS, 

as  parties  Insured,  see  Tartles.* 

AI/TBRATIONS  AND  REPAIRS, 
as  ground  of  forfeiture,  464. 

AMENDMENTS, 

of  by-laws,  where  binding,  193. 


INDEX. 
[The  figures  refer  to  pages.] 
APPLICATION, 

where  a  part  of  the  contract,  183. 

required  by  statute  to  be  attached  to  policy,  184,  note  194.  BT. 
how  far  insured  is  bound  by  its  contents,  m 
APPRAISAL  AND  ARBITRATION, 

under  provisions  of  standard  fire  policy,  486,  49]. 
ASSESSMENT  INSURANCE, 

advantages  and  disadvantages,  38. 

see  "Mutual  Benefit  Insurance" ;  "Mutual  Companies.* 
ASSESSMENTS  AND  DUES, 
defined,  237. 
liability  of  Insured  for,  198,  200,  238. 

must  be  legally  levied  and  reasonable,  23a 
when  assessments  are  reasonable,  240. 
ASSIGNEES, 

rights  of,  in  general,  412-417. 
of  fire  policies,  413. 

assignee  of  life  policy  need  have  no  Insurable  Interest  140  14a.  144. 

assignees  of  life  policies  classified,  412.  "^^rest,  140,  148.  144. 

voluntary  assignee  as  beneficiary,  414. 

bad  faith  defeats  rights  of,  415 
under  conditional  assignments  as  collateral  security.  4iaL 
under  absolute  assignments,  416.  ^^ 

ASSIGNMENTS, 

fire  policies  not  ordinarily  assignable,  50. 

of  fire  policy  not  void  without  consent,  50  468. 
otherwise  after  loss,  51,  468. 

if  consented  to,  waives  known  defenses,  41S.  note  87 
provision  of  standard  policy,  468.  *      *^  «•• 

«#  M*      ^?®®  °°*  ^PP^y  *^  ^^^^^  o^  PoWcy,  468. 

valid  by  parol,  528. 

^Si^^T^^lf  *''*^''^^*  ^  assignee  necessary,  140.  143.  62a 
efl-ect  of  when  prohibited  by  policy,  629  »    «»»  «^ 

benefit  certificate  not  ordinarily  assignable,  414. 
conditional  and  absolute  assignments,  415-417 
of  marine  policy,  valid  without  insurer's  consent  CSfiL 
see  "Assignees."  *«c"h  voa, 

AUTOPSY, 

accident  insurer's  right  to  demand,  58a 
AVOIDANCE  OF  POLICY. 

by  breach  of  condition  as  to  title  or  interest  442. 

for  breach  of  warranty,  see  "Warranty  " 

for  misrepresentationg,  see  "Representitiona.*' 

BARRATRY,  " 

defined,  551. 

BENEFICIARIES, 

in  general,  387  et  seq. 

in  property  not  in  existence,  119. 


659 


660  INDEX. 

[The  figures  refer  to  paees.] 

BBNEFICIARIES— Continued, 
defined  and  classified,  387,  389. 
designation  of,  387,  512. 
"estate."  887. 

"legal  representatirei,''  888;  Bli. 
"heirs,"  388,  513. 
"children,"  614. 
•*wife,"  616. 
"family,"  515. 
the  assured  as  beneficiary,  388,  410. 
third  persons  as  beneficiaries,  389. 
vested  rights  of,  in  general,  390. 
confirmed  by  statute,  391. 
not  dependent  on  consideration,  391. 
how  afifected  by  murder  of  insured,  392. 
not  afllected  by  divorce,  392. 
guicide  of  insured,  392. 
theories  as  to  the  legal  basis  of  such  rights,  393. 
right  to  assign,  395. 

when  the  beneficiary  dies  before  the  insured,  89B. 
rights  conditionally  vested,  396. 
contingent  interests  of,  398. 
mere  expectancy  of  benefit,  399. 
In  mutual  benefit  certificates,  in  general,  400-434. 
no  vested  interest,  401. 

unless  appointment  is  by  contract,  402. 
or  clearly  given  by  certificate,  403. 
change  of  beneficiary  must  be  in  prescribed  mode,  408. 
but  only  association  can  object  to  irregularity,  404. 
creditors  as  beneficiaries  (see  "Creditors'  Rights"),  410-412. 
assignees  of  the  beneficiary  (see  "Assignees"),  412-417.    . 
BENEVOLENT  AND  FRATERNAL  ASSOCIATIONS, 
see  "Mutual  Benefit  Insurance." 

BINDING  SLIP, 

see  "Contracts  of  Insurance." 

BODILY  INFIRMITIES  OR  DISEASE, 

as  an  excepted  risk  in  accident  insurance,  680. 
see  "Health." 

BOILER  INSURANCE, 

see  "Casualty  Insurance.* 

BROKERS, 

see  "Agents  and  Agency." 

BURGLARY  INSURANCE, 
see  "Casualty  Insurance.* 

BY-LAWS, 

part  of  contract  only  by  reference,  188. 
bind  members  of  mutual  company,  191. 

conflict  between  by-laws  and  certificate,  192. 

amended  by-laws,  193. 

amerdments  must  be  reasonable,  194^  240. 


INDEX. 
£Tlie  figures  refer  to  p&gM*] 


Ml 


CANCELLATION  OF  POLICY,  494. 
when  insurance  terminates,  494. 
return  of  premium  not  condition  precedent,  495, 

CAPTURE,  ARREST  AND  DETENTION, 
as  a  marine  risk,  553. 

CASUALTY  INSURANCE, 

forms  of  in  general,  24,  26,  590. 

against  hail,  tornadoes,  burglary,  strikes,  etc.,  24,  590. 

boiler  insurance,  27,  590. 

plate  glass  insurance,  27,  690. 

live  stock  insurance,  590. 

subject  to  the  same  rules  of  construction  as  other  insurance  contracts,  691. 

doubts  resolved  in  favor  of  insured,  592. 

notice  and  proofs  of  loss,  594. 

CHANGE  OF  INTEREST,  TITLE,  OR  POSSESSION, 
conditions  against,  449^54. 

purpose  of,  449. 

forms  of,  449. 

in  standard  policy,  450. 

incumbrances  do  not  violate,  451. 

nor  executory  contracts  of  sale,  452. 

transfers  between  partners.  453. 
by  legal  process  or  judgment,  454. 

CHARTER, 

charter  provisions,  when  part  of  contract,  186, 

CIVIL  AUTHORITY, 


1 1 


destruction  by,  as  an  excepted  risk,  479. 

COMMENCEMENT  AND  DURATION  OF  RISK, 
computed  by  standard  or  solar  time,  435. 
in  fire  insurance,  435. 
in  guaranty  insurance,  600. 
in  marine  insurance,  540. 

COMMON  LAW, 

as  part  of  contract,  189. 

CONCEALMENT, 

general  principles,  250. 
what  must  be  disclosed,  251-267. 
the  English  rule,  251. 
the  American  rule,  253. 
marine  insurance,  253. 
fire  and  life  insurance,  254. 

when  no  questions  are  asked,  266. 
what  facts  are  material,  257. 

facts  made  material  by  inquiry,  258. 
when  duty  to  disclose  terminates,  259. 

special  circumstances  rendering  disclosure  unnecessaiy,  281» 
matters  which  insurer  ought  to  know,  262. 
matters  relating  to  excepted  risks,  263. 


C63  INDEX. 

[Th«  flcwM  refer  to  paces.] 

CONCSkALMBNT— Contkraed. 

failure  to  disclose  facts  known  to  agent  of  Insured,  263. 
failu««  of  agent  to  disclose  facts  known  to  insured,  26d. 

CONDITION  AND  USB  OF  PROPERTY. 

breach  of  condition  at  ground  of  forfeiture,  437. 
CONDITIONS  OF  POLICY, 

limiting  jurisdiction  of  federal  courts  invalid,  84. 

operating  before  loss — nonperformance  not  excused  by  impossibility, 
218. 

operating  after  loss — ^nonperformance  excused  by  impossibility,  QQ,  97* 
breach  as  rendering  policy  void  or  voidable,  378, 
waivers  of,  before  and  after  loss,  375. 
temporary  breach  only  suspends  insurance,  433, 
against  alienation,  449. 

CONDITIONS  PRECEDENT, 

warranties,  287. 

as  to  appraisal  and  arbitration,  480, 

as  to  notice  and  proof  of  loss,  497. 

CONDITIONS  SUBSEQUENT, 

relating  to  notice  and  proof  of  loss,  97,  497. 
conditions  imposing  forfeiture,  218, 
promissory  warranties,  289. 
waiver  of,  355. 

CONFLICT  OF  LAWS, 

what  law  governs  Insurance  contract,  187,  and  note  148,  226,  29(L 

CONSENT  OF  THE  INSURED, 

necessary  to  validity  of  a  life  policy,  145,  248i 

CONSENT  OF  THE  PARTIES, 
in  general,  250  et  seq. 

CONSTRUCTION  OF  INSURANCE  CONTRACTS, 
subject  to  same  rules  as  other  contracts,  1,  429. 
always  in  favor  of  insured,  430. 
of  warranties  and  representations,  292. 
of  standard  policy,  see  "Standard  Fire  Policy.* 

CONTRACT  OF  INSURANCE, 

purx)ose  of,  its  nature,  in  general,  42-55b 

requisites  for  validity,  72. 

construed  as  other  contracts,  1,  429. 

as  entire  or  divisible,  45,  69-72,  241,  438. 

is  based  on  distribution  of  risk,  2,  43, 

is  aleatory,  but  not  a  wager,  46. 

executory  and  conditional,  47. 

is  personal  and  uberrimee  fidel,  48. 

is  essentially  a  contract  of  indemnity,  52. 

contract  of  life  insurance,  100. 
fire  Insurance  contract  not  ordinarily  assignable,  SQL 

does  not  run  with  the  land,  48. 
strangers  acquire  no  rights  under,  77. 
made  by  insurer  not  complying  with  statutory  regulations, 
who  may  be  insured,  88. 
the  maidng  of  the  contract,  in  general,  147  et  seq. 


INDEX.  663 

[The  figures  refer  to  pafes.] 

CONTRACT  OF  INSURANCE— Continued, 
offer  and  acceptance,  147. 
oral  contracts  valid,  148-157. 

as  affected  by  statute  and  charter  provisions,  150,  151. 
as  affected  by  stamp  laws,  150. 
preliminary  oral  contracts  of  present  insurance,  154. 

subject  to  all  terms  of  contemplated  policy,  154,  155, 
preliminary  executory  oral  contracts,  155,  156, 
when  oral  contract  is  complete,  157  et  seq. 
informal  written  contracts,  160. 
the  binding  slip,  160,  16L 
acceptance  of  application,  161. 
formal  written  contracts,  see  "Policies.* 
execution  of  policy,  165. 
when  policy  becomes  binding,  167. 
what  papers  form  written  contract,  181-189. 
written  and  printed  terms,  182  and  note, 
writing  on  back  of  policy,  182. 
application  and  survey,  183,  492. 

what  reference  necessary,  183, 184,  and  notes. 
premium  notes,  184. 
circulars  and  prospectuses,  185. 
charter  and  by-laws,  186. 
public  statutes,  186. 

prevail  over  repugnant  terms  of  the  policy,  187,  484,  480L 
'  rules  of  common  law  as  part  of  contract,  189. 
usage  as  part  of  contract,  190. 

of  benevolent  associations  (see  "Mutual  Benefit  Insurance*'X  190, 
when  contract  terminates,  435. 

CONTRIBUTION, 

between  co-insurers,  see  "Liability  of  Insurer." 

CREDIT  INSURANCE, 

see  "Guaranty  Insurance.* 

CREDITORS'  RIGHTS, 

insurable  interest  in  life  of  debtor,  138. 

amount  for  which  creditor  may  insure,  138-140. 
in  fire  policies  on  debtor's  property,  404. 

after  loss,  404. 

when  insured  property  was  exempt,  405, 
in  life  policy  payable  to  debtor,  395,  405. 

when  subject  to  execution,  406. 

when  passes  to  assignee  in  bankruptcy,  406. 
in  life  policy  payable  to  third  person,  407. 

when  premiums  have  been  paid  with  embezzled  funds,  407. 

when  transferred  in  fraud  of  creditors,  408. 

when  premiums  were  paid  by  insolvent  debtor,  408-410. 
in  policy  procured  by  creditor,  410. 

rights  in  proceeds  after  debt  is  paid,  410.  • 

in  policy  assigned  to  creditor  (see  "Assignees"),  412-417. 

rights  of  mortgagee  creditor  (see  "Mortgagor  and  Mortgagee")^  417- 
420. 

CUSTOMS  AND  USAGES, 
as  part  of  contract,  1901 


664 


INDEX. 
£Tlie  figures  refer  to  pages.] 


DAMAGED  GOODS, 

insurer's  option  to  purchase  at  appraised  value,  486. 
when  a  total  loss,  558. 

DEATH  AT  THE  HANDS  OF  LAW, 
defeats  insurance  of  criminal,  524. 

DEATH  IN  VIOLATION  OF  LAW, 
as  excepted  risk,  524. 

condition  in  life  policy  refers  to  criminal  violation  of  law,  524. 
unlawful  act  must  be  proximate  cause  of  death,  526. 
suicide  not  a  "violation  of  law,"  525. 

DELIVERY  OF  POLICY, 
when  complete,  169  et  seq. 
procured  by  fraud,  170. 
subject  to  parol  conditions,  170. 
evidence  of  intention  to  deliver,  172. 

physical  possession  only  prima  facie  evidence  of  delivtiy,  172. 
delivery  to  agent  of  insurer,  173. 
policy  held  for  insured,  175. 

delivery  of  policy  containing  receipt  for  first  premium,  ITflL 

DESCRIPTION  OF  INSURED  PROPERTY, 
In  general,  436. 

when  usage  may  be  shown  to  aid  description,  437. 
words  of  description  not  ordinarily  warranties,  286,  note  57,  437. 
of  real  property,  437. 

goods  "held  in  trust,"  etc.,  115,  note  74,  438,  482. 
of  location,  439. 
In  marine  policy,  537. 

DEVIATION, 

warranty  against  in  marine  insurance,  548. 
what  is,  548. 
when  excused,  549. 

DIVIDENDS, 

when  member  of  mutual  company  is  entitled  to,  41. 
when  to  be  applied  to  premiums  due,  211. 

DOUBLE  INSURANCE, 

contribution  between  co-insurers,  54,  485, 
provision  of  standard  policy,  485. 

DUTY  TO  DISCLOSE, 
see  "Concealment,"  251. 


EMPLOYERS*  LIABILITY  INSURANCE, 
in  general,  26,  590. 
origin,  604. 
scope,  604. 

not  contrary  to  public  policy,  605i. 
as  contract  of  insurance,  43. 
construction  of  contract,  591,  592. 
risk  and  cause  of  loss,  606. 


INDEX.  665 

[The  figures  refer  to  pages.] 

EMPLOYERS'  LIABILITY  INSURANCE— Continued, 
when  liability  of  the  insurer  accrues,  605. 

on  "liability"  contracts,  606. 

on  "indemnity"  contracts,  606. 
when  insurer  liable  for  expenses  of  defense,  607. 

notice  of  claim  to  be  given  to  insurer,  607. 
notice  and  proof  of  loss,  594. 
insurance  fund  not  subject  to  trust  in  favor  of  injured  person,  607. 

ENTIRE  AND  SEVERABLE  CONTRACTS, 
see  "Contracts  of  Insurance." 

EVIDENCE, 

when  parol  evidence  of  a  promissory  representation  is  admissible,  27& 
of  experts  as  to  materiality  of  statement  not  admissible,  285. 
burden  of  proof  as  to  breach  of  warranty,  285,  288. 

as  to  misrepresentation,  285. 
when  waivers  may  be  shown  by  parol  evidence,  346. 

not  when  waiver  precedes  delivery  of  policy,  348. 

otherwise  when  waiver  is  subsequent  351. 
presumption  as  to  suicide,  523. 

EXCEPTED  RISKS, 

matters  relating  to  need  not  be  disclosed,  263. 
see  "Risk  and  Cause  of  Loss." 

EXECUTION  FOR  CRIME, 
as  excepted  risk,  524. 

EXPIRATION  OF  INSURANCE, 

see  "Commencement  and  Duration  of  Risk." 

EXPLOSION, 

as  an  excepted  risk,  480. 

EXPLOSIVES,  ETC., 

see  "Standard  Fire  Policy.* 

EXTENDED  INSURANCE, 

see  "Paid-Up  Policies  and  Extended  Insurance.* 


FALLING  OF  BUILDING, 

as  excepted  risk,  474. 

FIDELITY  INSURANCE, 
see  "Guaranty  Insurance.* 

FIFTY  PER  CENT.  RULE, 
in  marine  insurance,  559. 

see  "Liability  of  Insurer." 

FIRE  INSURANCE, 

establishment  and  development  of  in  England,  11. 

in  the  United  States,  14. 
essentially  a  contract  of  indemnity,  102. 
standard  fire  policy,  see  separate  title. 

P^ORFEITURE  OF  POLICY, 
statutory  regulations,  20. 

provisions  for  forfeiture  are  valid,  but  not  favored,  213, 
of  paid-up  insurance  held  void  as  a  penalty,  213. 


'1 


I'f 


666  INDEX. 

[The  figures  refer  to  pagM.] 

FORFEITURE  OF  POLICY— Continued, 
for  nonpayment  of  premium,  213. 
for  nonpayment  of  interest,  214,  233. 
"days  of  grace,"  215. 

when  annual  premium  Is  made  payable  within  less  than  a  year,  21flL 
for  nonpayment  of  premium  note,  234. 
for  breach  of  condition  as  to  other  insurance,  457. 

as  to  operation  of  factories,  460. 

as  to  increase  of  risk,  462. 
by  removal  of  goods,  439. 
by  change  of  interest,  title  or  possession,  449. 
by  making  repairs,  464. 
by  unauthorized  assignment  of  policy,  468. 
by  falling  of  building,  474. 
by  building  becoming  vacant,  471. 
provisions  for  forfeiture  ordinarily  self-executing,  218. 
effect  of  breach  of  condition  to  render  policy  void  or  voidable,  433. 
effect  of  temporary  breach  of  condition  to  suspend  policy,  433. 
by  act  of  mortgagor,  effect  on  rights  of  mortgagee,  420. 
recovery  of  premiums  for  wrongful  forfeiture,  243. 

FRATERNAL  INSURANCE, 

see  "Mutual  Benefit  Insurance.** 

FRAUD, 

of  insured  defeats  claim  of  waiver,  337,  357,  369. 
against  creditors  in  transfer  of  policies,  408. 
of  assignee  defeats  rights,  415. 
as  affected  by  Incontestable  clause,  532. 

FRAUD  AND  FALSE  SWEARING, 

condition  against  in  standard  policy,  454. 
overvaluation,  when  fraudulent,  455. 
false  statements  in  regard  to  loss,  456. 

FREIGHT, 

In  marine  Insurance,  53S. 

FRIENDLY*  FIRES, 
loss  by,  477. 

a 

GENERAL  AVERAGE, 

in  marine  insurance,  556. 

GOVERNMENT  INSURANCH, 
In  Germany,  25. 
in  Portugal,  27. 
in  Switzerland,  27. 

GUARANTY  INSURANCE, 

in  general,  26,  590. 

construction  of  contract,  591. 

construction  in  favor  of  insured,  592. 

rent  insurance,  590. 

title  insurance,  590,  note  1. 

fidelity  insurance  defined,  595. 

not  contrary  to  public  policy,  595. 

subject  to  rules  of  suretyship,  595. 


INDEX. 
[The  figures  refer  tQ  pagee.] 
OUARANTY  INSURANCE— Continued. 

duty  of  diligence  on  part  of  insured,  696. 
known  acts  of  dishonesty  must  be  communicated,  596. 
when  knowledge  of  co-employ6  imputed  to  employer,  697. 
risk  and  cause  of  loss,  599. 
extent  of  guaranty  insurer's  liability,  599. 
period  of  risk,  600. 
subrogation,  600. 
credit  insurance  defined,  601. 

designation  of  debts  Insured,  602. 

rating  in  mercantile  agencies,  602. 
risk  and  cause  of  loss,  603. 

what  deemed  insolvency  within  terms  of  policy,  603. 

u 

HABITS, 

representations  as  to,  280,  284. 

HAIL  INSURANCE, 

see  "Casualty  Insurance." 

HAZARDOUS  OCCUPATION, 
as  excepted  risk,  584. 

HEALTH, 

representations  concerning,  279,  281. 
warranties  as  to,  294, 

I 

ILLEGALITY, 

avoids  insurance,  72,  98. 

wager  policies,  98,  125. 

contracts  between  alien  enemies,  92. 

noncompliance  with  statutory  requirements,  85. 

insurance  without  consent  of  insured,  145. 

right  of  Insured  to  recover  premiums,  241  et  seq. 
In  marine  insurance,  549, 

INCENDIARY  FIRES, 
Increase  of,  12. 

INCONTESTABLE  CLAUSES, 
In  life  policies,  530-533. 

do  not  apply  to  conditions  operating  after  loss,  531. 
what  defenses  may  be  set  up  under,  531. 
lack  of  Insurable  interest,  531. 
suicide,  531. 
ftaud  in  procuring  the  contract,  532. 

INCUMBRANCES, 

do  not  render  ownership  conditional,  446. 

chattel  mortgages  required  by  standard  poUqy  to  be  disclosed.  44T. 
as  change  of  interest,  451.  ^      ^ 

effect  of  foreclosure  proceedings,  466. 

INDEMNITY, 

the  basis  of  all  insurance,  62. 


667 


» 


668  INDEX. 

[The  figures  refer  ta  paffM.] 

INDEMNITY  INSURANCE, 

see  "Employers*  Liability  Insurance.** 

INDORSEMENTS, 
when  binding,  182. 

INDUSTRIAL  INSURANCE, 
workingmen's  insurance,  26. 

INFANTS, 

validity  of  insurance  on  life  of,  145. 
as  parties  to  contract,  see  "Parties." 

INHALING  GAS, 

as  excepted  risk  in  accident  insurance,  578. 
is  not  "poison,"  57a 

INSANITY, 

as  excuse  for  breach  of  condition,  96. 

as  affecting  suicide,  see  "Suicide." 

insane  persons  as  parties  insured,  see  "Parties." 

INSOLVENT  DEBTORS, 

rights  of  creditors  in  premiums  paid  by,  408-410. 

INSURABLE  INTEREST, 

the  general  theory  of  insurable  interest,  necessary  to  support  «T«fy 

tract  of  insurance,  52,  57,  89,  98,  125,  536. 
cannot  be  waived,  384. 
in  property,  what  constitutes,  106-120. 

defined,  106-108. 

must  exist  at  time  of  loss,  101,  124. 

surety  in  property  of  principal,  100. 

stockholder  in  property  of  corporation,  100,  117. 

of  creditor  in  property  of  debtor,  108. 

of  remaindermen,  109. 

of  tenants  in  dower  and  curtesy,  109. 

in  chattels  real.  109. 

lessor  and  lessee,  109. 

in  defective  titles,  110. 

of  trustee  and  vendor,  110. 

of  mortgagor  and  mortgagee,  110,  112,  117. 

assignee  for  benefit  of  creditors.  111. 

executor.  111. 

in  equitable  rights,  112,  113. 

of  bailees,  113-115. 

lienor,  115. 

in  mere  right  of  possession,  116. 

where  interest  is  less  than  property  right,  116-118. 

arising  out  of  contract  rights,  118. 

in  property  not  in  existence,  119. 

in  profits,  120,  539. 

when  insurable  interest  must  exist,  121-124. 
In  lives,  12&-144. 

interest  at  Inception  of  policy  Is  sufl3cient,  126,  127. 

need  not  exist  at  time  of  loss,  101. 

when  policy  is  procured  by  insured,  beneficiary  need  have  no  interest 
127. 

necessary  when  insurance  is  procured  on  life  of  another,  1291 


INDEX.  669 

[Tbe  figures  refer  to  pages.] 

INSURABLE  INTEREST— Continued. 

not  waived  by  incontestable  clause,  631. 

defined,  129. 

mere  relationship  not  alone  sufllclent,  100,  130-136. 

pecuniary  interest  as  essential  element,  103,  105. 

brother  and  sister,  100. 

parent  and  child,  101,  132-134. 

husband  and  wife,  101,  117,  136. 

commercial  relations,  136-138. 

creditor's  interest  in  life  of  debtor,  138. 

amount  for  which  creditor  may  insure,  138-140. 
assignee  of  valid  policy  need  have  no  insurable  interest,  140,  143,  144 
contrary  view,  142,  143. 
evasion  of  law,  414. 
in  marine  insurance,  536. 

"lost  or  not  lost"  policies,  536. 

INSURANCE, 
defined,  1. 

among  the  ancients,  3. 
earliest  traces  of,  3. 
ancient  treatises  on,  5,  6. 
historical  origin  of,  2-11. 
part  of  the  law  merchant,  4. 
in  mediaeval  Italian  cities,  4. 
Introduction  into  England,  6. 
development  of  in  England,  9. 
volume  of  business  in  the  United  States,  16. 
extension  of  in  modern  times,  24. 
proper  subject  of  police  power,  76. 

INSURANCE  COMPANIES, 
statutory  restrictions,  76. 
Lloyds  associations,  79. 
stock  companies  defined,  79. 
mutual  companies  defined,  79. 
mutual  benefit  associations,  80. 
mixed  companies,  80. 
foreign  companies,  rights  of,  81. 

not  citizens,  83. 

license  to  do  business,  84. 

failure  to  comply  with  statutory  regulations,  85. 

INSURED, 

see  "Parties." 

INSURER, 

see  "Parties."  , 

INTENTIONAL  INJURIES, 

as  excepted  risk,  in  accident  Insurance,  582, 

INTEREST  OF  THE  INSURED. 

when  interest  is  insurable,  see  "Insurable  Interest." 
statement  of,  in  policy,  when  sufllcient,  442,  443. 
■ole  and  unconditional  ownership,  what  is,  444. 

incumbrances  not  conditions,  446. 

but  ownership  of  co-tenant  is  not  sole,  447. 


r 


^70  INDEX. 

rni«  figures  refer  to  pages.] 

INTEREST  OF  THE  INSURED— Continued. 

chattel  mortgages,  when  required  to  be  disclosed,  447. 

building  on  leased  ground,  448. 

change  of  interest,  see  "Change  of  Interest,  Title  or  PosseMion.* 
INTOXICATION, 

as  excepted  rlak,  in  accident  insurance,  585. 


JETTISON, 
defined,  55& 


LEASED  GROUND, 

Insured  building  on,  448. 

LIABILITY  OF  INSURER, 

in  fire  Insurance,  based  on  indemnity,  102,  483. 
cannot  exceed  actual  loss,  483. 
actual  cash  value,  483. 

rule  as  to  valued  policies,  30,  53. 
rule  under  valued  policy  laws,  48»-492. 
total  loss,  491. 

not  subject  to  arbitration  under  valued  policy  laws,  491. 
occasioned  by  municipal  regulations,  484. 
under  concurrent  policies,  485. 
contributions  between  co-insurers,  54. 
In  marine  insurance,  557. 
actual  total  loss,  557. 

of  goods,  558. 
constructive  total  loss,  659. 

fifty  per  cent  rule,  559. 
general  average  contribution,  556. 

stranding,  556. 
particular  average,  556. 
under  sue  and  labor  clause,  562. 
abandonment,  560. 

necessity  of  notice,  660. 
co-insurance  in  marine  policy,  65. 
in  accident  insurance,  586-588. 
extent  of  disability,  586. 
total  disability,  587. 
double  indemnity  for  travel  risk,  675. 
In  guaranty  insurance,  599. 
in  employers*  liability  insurance,  607. 

LIFE  INSURANCE, 

,  origin  and  rise  in  England,  12. 
in  the  United  States,  15. 
volume  of  business,  16. 
not  a  contract  of  indemnity,  56. 
to  a  large  extent  a  contract  of  investment,  66,  102. 
forms  of  policies,  31. 

no  standard  policy,  511, 


671 


INDEX. 
[The  figures  refer  to  pages.] 
LIFE  INSURANCE— Continued, 
calculation  of  premium,  35. 
beneficiaries,  see  "Beneficiary." 

see  "Assessment  Insurance" ;  -Mutual  Benefit  Insurancit* 
LIFE  TENANT, 

rights  of,  in  Insurance  fund,  421. 

LIGHTNING, 
not  fire,  482. 

clause  of  standard  policy,  478.  note  60. 
as  an  excepted  risk,  482. 
lightning  insurance,  590. 

LIMITATION  UPON  ACTIONS, 
by  term  of  policy,  607. 

LIVE-STOCK  INSURANCE, 

°°  'z^z^'f::^:^'''''  ""^^  ^^^^ »'  '^'"'  ^«»'  -««•  «»• 

LLOYDS  ASSOCIATIONS, 
origin,  10. 

organization  and  methods  of  business,  82. 
form  of  policy,  29,  164,  535. 
as  parties  to  contract,  79. 

LOCATION  OF  INSURED  PROPERTY 
in  general,  43^-442.  ' 

when  insurance  protects  property  taken  elsewhere.  44a 
loss  during  and  after  removal,  441. 

LOSS  OR  DAMAGE  BY  FIRE, 
see  "Risk  and  Cause  of  Loss." 

"LOST  OR  NOT  LOST"  POLICIES. 
validity,  536. 

M 

MAGISTRATE'S  CERTIFICATE, 

as  to  loss,  condition  requiring  is  valid,  505. 
when  magistrate  is  disinterested, '5O6.' 
statements  in  certificate  do  not  conclude  insured  507 
MARINE  INSURANCE, 

development  in  England,  10. 
in  the  United  States,  14. 
Insured  deemed  co-insurer,  55. 
general  treatment  of,  533-663. 
marine  policies,  634. 

Lloyd's  standard  form,  29,  164,  535. 
American  form  (see  Appendix),  535. 
rules  of  construction,  535. 
assignments  of,  535. 
insurable  interest,  98,  536. 

"lost  or  not  lost"  policies,  536. 
property  covered  by  insurance,  537. 
"hull  and  tackle,"  537. 
"goods  and  merchandise,"  538, 
goods  on  deck,  538. 


6*^2  INDEX- 

[The  figures  refer  to  pages.] 

MARINE  INSURANCE— Continued. 

freight  money,  538. 

passage  money,  539. 

profits,  120,  539. 
commencement  and  duration  of  rlak,  540. 

"at  and  from,"  540. 

when  voyage  insured  terminates,  541. 
risks  assumed  by  insurer,  542. 

proximate  cause  of  loss,  543. 
Implied  warranties  (see  "Seaworthiness";  "Deriation" ;  and  "Illeeal- 

ity"),  544. 
perils  of  the  sea,  550. 
barratry,  551. 
thefts,  553. » 

captures,  arrests,  etc.,  553. 
jettison,  555. 

particular  average  losses,  555. 
general  average  losses,  556. 

stranding,  556. 
abandonment,  560. 
sue  and  labor  clause,  562. 

MATERIALITY, 

of  facts  concealed,  257. 

of  representation,  268,  284,  285. 

of  warranties,  and  representations,  293. 

statement  of  age,  516. 

MEASURE  OF  DAMAGES, 

see  "Liability  of  the  Insurer." 

MEDICAL  EXAMINERS, 

as  agents  of  the  insurer,  316. 

MILITARY  POWER, 
as  excepted  risk,  479. 

MISIiEPRESENTATIONS, 
see  "Representations." 

MORTGAGOR  AND  MORTGAGEE, 

insurable  interest  of,  see  "Insurable  Interest" 
mortgagee  as  party  to  contract,  75. 
rights  of,  in  insurance  fund,  in  general,  417-420. 
insurance  by  mortgagor  for  his  own  benefit,  418. 

for  benefit  of  mortgagee,  419. 
insurance  by  mortgagee  for  his  sole  benefit,  418. 

in  behalf  of  mortgagor,  419. 
rights  of  mortgagee  as  affected  by  default  of  mortgagor,  420. 

MORTUARY  TABLES, 

use  of,  in  calculating  premiums,  35. 

MUNICIPAL  ORDINANCES, 

may  transform  partial  into  total  loss,  484. 

MUTUAL  BENEFIT  INSURANCE, 

origin  of,  27. 

mutual  benefit  associations  as  insurance  companies,  80l 
^  railway  relief  association,  25. 


' 


I 


INDEX. 
[The  figures  refer  to  pages.] 

MUTUAL  BENEFIT  INSURANCE— Continued. 

subject  to  same  rules  as  other  life  insurance,  5a-«0. 

relation  of  members  to,  80. 

infants  as  members,  90. 

the  contract,  what  constitutes,  190-194. 

admission  to  membership,  191. 

the  certificate  of  membership,  191. 
as  contract  of  insurance,  43. 

conflict  between  certificate  and  by-laws,  192. 

amended  by-laws,  193. 
liability  for  dues  and  assessments,  38,  237. 
subordinate  lodge  as  agent  for  superior  body,  310. 
rights  of  beneficiaries,  400-104. 
certificate  not  assignable,  414. 

MUTUAL  COMPANIES, 

relation  of  members  to,  80. 
liability  for  assessments,  237. 
regulations  of,  waiver,  385. 


N 


673 


NEGLIGENCE  OF  INSURED, 

no  defense  to  insurer,  45.  .  . 

as  an  excepted  risk,  480. 

NOTICE  AND  PROOFS  OF  LOSS, 

in  fire  insurance,  conditions  requiring,  496-505. 
purpose  of  such  conditions,  497. 
liberally  construed  in  favor  of  insured,  497. 
notice  of  loss  distinguished  from  proofs  of  loss,  497. 
when  notice  of  loss  is  "immediate."  "forthwith]"  etc.,  498,  594. 
when  notice  excused,  499. 
oral  insurances,  499. 
proofs  of  loss  must  be  satisfactory  to  insurer,  500. 
but  only  a  reasonable  compliance  with  requirements  of  policy  is  nec- 
essary, 500. 

objections  to  proofs  furnished  deemed  waived  unless  stated,  50a 
time  within  which  proofs  of  loss  must  be  given,  501. 
effect  of  failure  to  give  proofs  of  loss  within  time  specified,  501. 
under  standard  policy  merely  suspends  right  of  action,  502. 
when  noncompliance  with  these  conditions  is  excused  97  503 
waiver,  830,  375,  376,  380. 

by  adjuster,  316. 
fraud  and  false  swearing  in  proofs  of  loss,  454,  456. 
magistrate's  certificate,  505. 
to  whom  to  be  given,  504. 
by  whom  given,  504. 

insured  not  estopped  by  proofs  of  loss,  605. 
In  life  insurance,  97,  504,  512. 
in  employers'  liability  insurance.  594,  607. 
NOTICE  OF  PREMIUMS  DUE, 

not  required  in  absence  of  contract,  228. 

when  required  by  contract,  223,  224. 

usage,  how  far  binding,  224.  ! 

Yamok  Imb. — 13 


\ 

i 


674  INDEX. 

[Th«  figures  refer  to  pages.] 

NOTICE  OF  PREMIUMS  DUE— Continued, 
required  by  statute,  225. 

not  extraterritorial  in  operation,  220. 
to  whom  given,  226b 


OCCUPATION, 

as  element  in  risk,  583. 
hazardous,  584. 
classification,  585. 

OPTION  TO  REBUILD, 

must  be  exercised  fairly,  488. 

election  to  rebuild  constitutes  new  contract,  489. 

ORAL  CONTRACTS, 

not  forbidden  by  standard  policy  law,  432. 
see  "Contract  of  Insurance." 

OTHER  INSURANCE, 

contribution  between  co-insurers,  54. 
recovery  of  premiums  on  over  insurance,  247. 
conditions  against,  457,  459. 
when  double  insurance  exists,  458. 

OVERVALUATION, 

when  fraudulent,  274,  note  19,  455. 
efCect  of,  455. 


PAID-UP  AND  EXTENDED  INSURANCE, 
defined,  227. 

sources  of  the  right,  228. 
construction  of  provisions  for,  229. 
conditions  precedent  to  right,  230. 

time  within  which  demand  for  paid-up  insurance  must  be  made,  2S0, 

Kentucky  rule,  231. 
when  required  premium  is  paid  by  note,  233. 

PARTICULAR  AVERAGE, 
in  marine  insurance,  555. 

PARTIES, 

in  general,  74  et  seq. 
assignee  as  a  party,  75. 
mortgagee  as  party,  75. 
the  insurer,  78-88. 

statutory  qualifications,  76,  78. 

statutes  prohibiting  insurance  by  natural  persons,  7fi. 
corporate  insurers,  79-81. 
stock  companies,  79. 
mutual  companies,  79. 
mixed  companies,  80. 
mutual  benefit  associations,  80. 
Lloyd's  associations,  79. 

whether  requiring  license  in  foreign  state,  82. 


INDEX. 
IThe  figures  refer  to  pages.] 
PARTIES — Continued. 

rights  of  foreign  insurers,  81-85. 
when  natural  persons,  82. 
when  incorporated, 
^  not  citizens  under  Constitution  of  United  States,  83. 

license  may  be  required,  84. 
license  may  be  arbitrarily  revoked,  84. 
agreement  not  to  remove  causes  is  invalid,  84. 
when  not  complying  with  statutory  requirements,  85-88. 
•insured"  distinguished  from  "assured,"  75. 

"for  the  benefit  of  whom  it  concerns,"  75,  116. 

rights  of.  In  contracts  with  unlicensed  insurers,  85-88. , 

infants,  as  parties  insured,  89-92. 

as  members  of  mutual  benefit  associations,  90L 
right  to  recover  premiums  paid,  91. 
aliens  as  parties  insured,  92-95. 
when  war  intervenes,  93-96. 
Insane  persons  as  parties  insured,  96,  97. 

intervening  insanity  excusing  breach  of  conditioii,  QQb 
assured,  see  "Beneficiary." 

PASSAGE  MONET, 

see  "Subjects  of  Insurance.** 

PAYMENT  OF  PREMIUMS, 
see  "Premiums." , 

PERILS  OF  THE  SEA, 

defined,  550. ,  ' 

PLATE  GLASS  INSURANCE, 
see  "Casualty  Insurance." 

POISON, 

as  excepted  risk  in  accident  Insurance,  676L 

POLICIES, 

defined,  159. 

development  of,  163. 

kinds  of  policies,  28-33.  ^ 

Lloyd's  standard  policy,  29,  164,  63S. 

standard  fire  policy,  29,  430. 

wager  policies,  30,  125. 

valued  policies,  30,  53. 
'  open  policies,  31. 

time  policies,  31. 

voyage  policies,  31. 

blanket,  fioating,  and  running  policies,  SI 

tontine  policies,  32. 

endowment  policies,  32. 
reserve  value  of,  39. 
"equitable  value"  of,  95. 
surrender  value  of,  40. 
mode  of  executing  policy,  165. 
when  the  policy  becomes  binding,  167  et  seq. 

upon  delivery  (see  "Delivery  of  Policy"),  169. 

upon  payment  of  first  premium  (see  "Premiums")^  176. 


675 


f  I 


41 


676  INDEX. 

[The  figures  refer  to  pages.] 

POLICIES— CJontinued.  ' 

conclusively  presumed  to  contain  entire  contract  of  the  parties,  164,  324, 

forfeiture  of,  213-218. 

nonforfeitable  policies,  227  et  seq. 

paid-up  policies,  227. 

payable  to  insured  or  his  estate,  387. 

how  far  property,  see  Chapter  11,  pp.  386-428. 

a  life  policy  not  in  all  respects  a  chose  in  action,  405. 

PRECAUTIONS  AGAINST  LOSS, 
conditions  relating  to,  290. 

PREMIUMS, 

how  calculated,  34,  35. 
natural  and  level  premiums,  36. 

when  payment  of  first  premium  a  condition  precedent  to  Inception  of  pol- 
icy, 175. 
what  constitutes  payment,  177,  204. 
when  prepayment  is  waived,  178. 

effect  of  receipt  for  premium  contained  in  the  policy  delivered,  179  et 
seq. 
liability  of  insured  for  premiums. 
In  general,  195. 
for  life  insurance,  196,  200. 
when  premium  Is  a  debt,  199. 
payment,  in  general,  201-211. 
by  whom  paid,  201. 
where  paid,  and  to  whom,  201. 
time  of  payment,  202. 

Sundays  and  holidays,  203. 
when  sent  by  mail  or  express,  203. 
"days  of  grace,"  215. 
mode  of  payment, 

in  Confederate  notes,  204,  note  37. 

by  personal  arrangement  between  insured  and  insurer's  agent, 

206-209. 
by  check,  note,  etc.,  209?  233. 
by  application  of  dividends,  211. 
consequences  of  nonpayment,  211. 
excuses  for  nonpayment,  218  et  seq. 
act  of  God  not  an  excuse,  218. 
war,  219. 

insolvency  of  the  insurer,  220. 
refusal  of  tender,  220. 
wrongful  act  of  insurer,  221. 
want  of  notice,  222. 

when  notice  must  be  given,  223-226. 
recovery  of  premiums  paid,  241-249. 

when  insurance  terminated  by  act  of  insurer,  243. 

on  cancellation,  495. 
when  required  by  statute,  245. 
when  risk  has  never  attached,  240. 

because  of  breach  of  warranty,  246. 
when  insurance  is  illegal,  247. 

because  of  over  insurance,  247. 


INDEX. 
[The  figures  refer  to  pages.] 
PREMIUMS— Continued. 

because  of  lack  of  insured's  consent,  248. 
right  of  infant  to  recover  premium  paid,  91. 
PREMIUM  NOTES, 

may  contain  part  of  contract,  184,  236. 
installment  notes,  199. 
effect  of  nonpayment  of,  234-237. 
PROFITS, 

when  insurable,  120,  539. 

measure  of  recovery  for  loss  of,  120. 

PROHIBITED  ARTICLES, 
effect  of  use  of,  437. 
increase  of  risk,  462. 
generation  of  gas,  469. 

use  of  explosive  and  inflammable  subsiances,  400. 
PROOFS  OF  LOSS, 

see  "Notice  and  Proofs  of  Loss.* 
PROXIMATE  CAUSE  OF  LOSS, 
see  "Risk  and  Cause  of  Loss." 
PUBLIC  STATUTES, 

regulating  insurance  business,  17-23,  76,  78. 
when  deemed  part  of  contract,  186. 

not  when  contract  made  outside  of  enacting  state,  226  296. 
annul  repugnant  terms  of  the  policy,  187  491 
cannot  ordinarily  be  waived,  188,  490. 


RAILWAY  RELIEF  ASSOCIATIONS, 
see  "Mutual  Benefit  Insurance." 

RECOVERY  OF  PREMIUMS  PAID, 
see  "Premiums." 

REINSURANCE, 

defined,  33,  61. 

does  not  mean  other  or  double  insurance,  62. 

not  within  statute  of  frauds,  63. 

rights  of  insurer  and  reinsurer,  0:3-65. 

rights  of  original  insured,  65-68. 

when  reinsurer  Is  liable  to  the  original  insured,  67. 
REMAINDERMEN, 

rights  of,  in  insurance  fund,  421. 
REMOVAL  OF  CAUSES, 

agreement  not  to  remove  to  federal  courts  invalid,  84. 
REMOVAL  OF  GOODS  INSURED, 

when  defeats  insurance,  439. 

loss  during  and  after,  441. 

REPRESENTATIONS, 
defined,  267. 

distinguished  from  warranties,  291  et  seg. 

from  terms  of  policy,  275. 
may  be  oral  or  written,  267,  271. 


•77 


i 


li 


678  INDEX. 

[The  figures  refer  to  pages.J 

REPRESENTATIONS— Continued, 
construction,  292. 
If  false  and  material,  insurance  avoided,  though  innocent,  269. 

legal  basis  of  this  rule,  270. 
as  to  opinion  and  belief,  272,  281. 
promissory  representations,  275. 

when  oral,  cannot  be  shown  to  vary  terms  of  policy,  275. 
required  to  be  only  substantially  true,  278,  281. 

as  to  injuries  and  disease,  279,  281. 

as  to  habits,  intemperance,  etc.,  280,  283. 

statements  of  opinion,  281. 
time  to  which  representations  refer,  284. 
test  of  materiality,  284. 

as  affected  by  statute,  284,  296. 

validity  of  statutory  provisions,  296. 

not  to  be  shown  by  expert  testimony,  285. 

question  for  the  jury,  285. 

RESERVE  FUND, 

meaning  and  function  of,  89. 

RIDERS, 

as  part  of  the  contract,  181,  185. 
attached  to  standard  policy,  432. 

RIGHT  TO  PROCEEDS, 

see  "Assignees";   "Beneficiaries";   "Creditors'  Rights";   "Mortgagor  and 

Mortgagee.** 

RISK  AND  CAUSE  OF  LOSS, 

Are  insurance,  what  is  loss  by  fire,  475,  491. 
hostile  and  friendly  fires,  477. 
fire  caused  by  lightning,  482. 
limitations  as  to  place  of  loss,  439,  441. 
excepted  risks,  478. 

loss  caused  by  insured,  45,  189. 

falling  of  building,  474. 

military  or  usurped  power,  479. 

destruction  by  civil  authorities,  479. 

explosion,  480. 

theft,  480. 

neglect  of  insured,  45,  480. 

Ughtning,  482. 

excepted  subjects,  482. 
proximate  cause  of  loss,  47S. 

explosion,  481. 
t  fsk  marine  insurance,  542. 
perils  of  the  sea,  550. 
barratry,  551. 
theft,  553. 
capture,  553. 
jettison,  555. 
stranding,  556. 
proximate  cause  of  loss,  542. 
In  life  insurance,  suicide,  when  not  excepted,  516. 
excepted  risks,  death  caused  by  beneficiary,  392. 

suicide,  when  excepted  in  the  policy,  520. 


INDEX.  jg79 

[Tbe  figures  refer  to  pages.] 
RISKAND  CAUSE  OF  LOSS— Continued. 

death  at  the  hands  of  the  law,  524, 
death  in  violation  of  law,  524. 
proximate  cause  of  death,  526. 
In  accident  insurance,  external,  violent  and  acddentarcauses,  6601 
disease  induced  by  accident,  570. 
external  and  visible  signs  of  injury,  571. 
risks  of  travel,  573. 
risks  of  occupation,  583. 
excepted  risks  In  general,  575. 
poison,  576. 

applies  only  to  Intentional  acts,  577. 
does  not  include  inhaling  gas,  578. 
Inhaling  gas,  578. 

applies  only  to  intentional  act,  579. 
bodily  infirmities  or  disease,  580. 
voluntary  and  unnecessary  exposure  to  injury,  681. 
Intentional  injuries,  582. 
hazardous  occupations,  584. 

classification  of  occupation,  585. 
Injuries  received  while  Intoxicated,  585w 
proximate  cause  of  injury  or  death,  57a 
right  to  demand  autopsy,  588. 
in  live  stock  insurance,  189,  note  157. 
in  guaranty  insurance,  599. 
in  credit  insurance,  603. 
in  employers'  liability  insurance,  606. 


SEAWORTHINESS, 

what  constitutes,  547. 
warranty  of,  in  voyage  policies,  545. 
in  time  policies,  546. 

SOLE  AND  UNCONDITIONAL  OWNERSHIP, 
see  "Interest  of  Insured." 

STANDARD  POLICY, 

history  of  adoption,  29,  165. 

purpose  of  standard  policy  laws,  430,  note  4. 

general  rules  of  construction,  430. 

how  far  its  terms  may  be  varied,  432. 

oral  preliminary  contract  valid,  150,  155. 

when  terms  may  be  waived,  385,  432. 

construction  of  its  terms,  430-510. 

effect  of  temporary  breach  of  condition,  433. 

contract  is  Indivisible,  433. 

the  term  of  insurance,  435. 

words  describing  property  insured  (see  "Description  of  Insured  ProD- 
erty"),  436-439. 

words  describing  location  of  property  (see  "Location  of  Insured  Pron- 
erty"),  439.  *^ 

statement  of  insured's  interest  (see  "Interest  of  Insured"),  442-44& 

chattel  mortgages,  447. 

change  of  Interest,  etc.  (see  separate  title),  449-454 


680  INDEX. 

[The  figures  refer  to  pages.] 

STANDARD  POLICY— Continued. 

fraud  and  false  swearing,  454r^57. 
other  insurance  (see  separate  title),  457-460. 
operation  of  factories,  460. 
increase  of  risk,  462. 

what  constitutes,  462. 
making  repairs,  464. 
foreclosure  proceedings,  466. 
assignments,  468. 
generation  of  gas,  469. 
explosive  and  inflammable  substances,  469. 

as  affected  by  custom  and  usage,  470. 
vacant  or  unoccupied  buildings  (see  separate  title),  471, 
collapse  of  building,  474. 
direct  loss  or  damage  by  fire,  what  is  (see  "Loss  or  Damage  by  Flre**X 

475-i78. 
excepted  causes  of  loss,  478. 

military  or  usurped  power,  479. 

destruction  by  civil  authority,  479. 

theft,  480. 

neglect  of  insured,  480. 

explosion,  480. 

lightning,  481. 
excepted  subjects  of  loss,  482. 
measure  of  insurer's  liability  (see  "Liability  of  Insurer"),  483-48a 

appraisal  and  arbitration,  486. 

option  to  rebuild,  487. 
documents  made  part  of  contract,  492, 
agent's  authority  to  waive,  493. 
right  to  cancel,  494. 

notice  and  proofs  of  loss  (see  separate  title),  496. 
magistrate's  certificate  of  loss,  505. 
limitation  upon  actions,  507. 

STATUTORY  REGULATION  OF  INSURANCE,  17-23. 
necessity  and  purpose  in  general,  17. 
relating  to  forfeiture,  20. 
not  applicable  to  mutual  benefit  Insurance,  60. 
of  foreign  insurance  companies,  81. 
effect  of  Insurer's  failure  to  comply  with,  85. 
cannot  be  waived,  285,  383,  490. 

no  extraterritorial  operation  save  by  consent,  226,  296. 
as  to  effect  of  warranties  and  representations,  284,  294. 

validity,  296. 
of  Insurance  agencies,  299. 
relating  to  beneficiaries,  391. 

penalizing  unsuccessful  contests  by  Insurers,  483,  note  72, 
valued  policy  laws,  see  separate  title. 

STRANDING, 

as  affecting  extent  of  liability,  556. 

STRIKE  INSURANCE, 

see  "Casualty  InsurancOb* 

SUBAGENTS, 

•Agents,"  317-322. 


INDEX. 
[The  figures  refer  to  pages.] 
SUBJECTS  OP  INSURANCE, 
property  not  In  existence,  119. 

lost  or  not  lost,  536. 
profits,  120,  539. 
freight,  538. 
passage  money,  539. 

SUBROGATION, 

right  In  general,  55. 

general  right  of  insurer  to  claim,  422. 

extent  of  the  right,  423. 

effect  of  Insured's  release  of  tort  feasor,  425. 

when  tort  feasor  has  contracted  for  benefit  of  Insurance,  4261 

no  subrogation  till  indemnity  is  complete,  427. 

has  no  application  to  life  and  accident  Insurance,  428. 

in  guaranty  Insurance,  600. 

SUE  AND  LABOR  CLAUSE, 
In  marine  Insurance,  562. 

requisites  for  insurer's  liability  under,  563. 
SUICIDE, 

as  a  defense,  statutory  regulations,  21. 
effect  of,  on  insurance,  516-523. 

when  not  excepted  in  the  policy,  5ia 
when  Insured  is  sane,  516. 

rule  when  Insurance  payable  to  third  person,  619. 
when  insured  Is  Insane,  520. 
when  excepted  in  the  policy,  520. 

does  not  apply  to  insane  suicide,  520. 
unless  expressly  so  specified,  522. 
what  constitutes  insanity,  621. 
English  rule,  521. 
American  rule,  521. 
suicide  never  presumed,  523. 
as  affected  by  incontestable  clause,  581. 
SURPLUS, 

not  a  trust  fund,  41. 

SURRENDER  VALUE, 

none  without  agreement,  40,  405. 


681 


THEFT, 

as  an  excepted  risk,  480. 
as  used  in  marine  policy,  553. 

TITLE  INSURANCE, 

see  "Guaranty  Insurance." 

TORNADO  INSURANCE, 
see  "Casualty  Insurance." 

TOTAL  DISABILITY, 

in  accident  insurance,  see  **Liabilil7  of  Insurer."* 
TOTAL  LOSS, 

ae%  "Liability  of  Insurer.* 


682 


INDEX. 
CThe  flffures  refer  to  paies.] 


VACANT  AND  UNOCCUPIED  BUILDINGS, 
conditions  against,  471. 

what  constitutes  "occupation,"  472. 

distinction  between  "vacant"  and  "unoccupied,"  471b 

VALUED  POLICY  LAWS, 
expediency  of,  21. 
as  affecting  standard  policy,  489. 
prevail  over  three-fourths  value  clause,  188. 

arbitration  clause,  491. 

rebuilding  clause,  491. 

co-insurance  clause,  486. 
cannot  be  waived  by  insured,  490. 

VOLUNTARY  AND  UNNECESSARY  EXPOSURE^ 
excepted  risk  in  accident  insurance,  681. 


w 


WAGER  POLICIES, 

see  "Insurable  Interest" 


WAIVER  AND  ESTOPPEL, 

defined  and  distinguished,  343,  345. 

waiver  requires  no  new  consideration,  844. 

whether  based  on  estoppel,  344,  note  3,  374^ 
powers  of  agent,  308. 

agency  for  insurer  or  Insured,  333. 
powers  of  adjuster,  316. 
powers  of  subagent,  321. 
limitation  on  agent's  authority,  324, 
conditions  of  standard  policy,  432. 
parol  waivers,  in  general,  346. 

If  prior  to  issue  of  policy,  cannot  be  shown,  348. 
If  subsequent  to  issue  of  policy,  may  be  shown,  351. 
waivers  at  time  of  delivery  of  policy,  355  et  seq. 
of  executory  conditions  cannot  be  shown,  355. 
Of  conditions  affecting  inception  of  policy  may  be  shown,  356w 
contrary  view,  360. 
view  of  Supreme  Court,  364  et  seq. 
insured  can  claim  a  waiver  only  when  acting  in  good  faith,  357,  369,  370.. 
what  constitutes  a  waiver,  371. 

right  waived  must  be  known,  371. 
Insurer's  acts  must  be  misleading,  372. 
when  silence  of  Insurer  is  sufficient,  373. 
Insured  must  have  been  prejudiced,  374. 
the  opposing  view,  374. 
the  New  York  decisions,  377. 
estoppel  by  requiring  performance  of  contract,  379. 
provision  of  standard  policy,  380,  493. 
what  may  be  waived,  381-385. 

conditions  against  waiver,  327,  329,  381. 
as  to  acts  after  loss,  330. 


INDEX.  683 

[The  figures  refer  to  page*.] 

WAIVER  AND  ESTOPPEL— Continued. 

statutory  rights  cannot  be,  285,  383,  490. 

80  of  certain  common-law  rights,  384. 

regulations  of  mutual  companies,  385. 

conditions  of  standard  policy,  385. 
by  consent  of  Insurer  to  assignment  known  defenses  waived,  41S,  note  87. 
by  mistake  and  negligence  of  agent,  337. 

knowledge  of  agent  imputable  to  insurer,  330. 
by  knowledge  of  medical  examiner,  316. 
'  waiver  of  prepayment  of  first  premium,  178. 

nonpayment  of  premium,  222,  345,  350,  352,  353. 

of  condition  subsequent,  355. 

WAR, 

effect  of  war  upon  insurance  contracts,  93-96,  219,  608. 
when  excepted  In  marine  policies,  543,  553. 

WARRANTIES,. 

In  general,  285  et  seq. 

defined,  285. 

distinguished  from  representations,  286,  291,  et  seq. 

as  part  of  contract,  286,  291. 

papers  made  part  of  the  contract  In  standard  policy,  482. 
in  the  nature  of  conditions  precedent,  287. 

but  burden  of  showing  breach  of  warranty  Is  on  the  defendant, 
when  descriptive  words  construed  as  warranties,  286,  note  67,  437. 
affirmative  and  promissory  warranties,  289. 

how  distinguished,  290. 
construction,  292. 

materiality  conclusively  presumed,  293. 
required  to  be  literally  true,  293. 

warranties  of  health,  294. 
as  affected  by  statutes,  20,  294-297. 

such  statutes  have  no  extraterritorial  effect,  298. 

validity  of  statutes,  296. 
recovery  of  premium  on  breach  of  warranty,  248. 
implied  warranties  as  to  marine  risks.  544. 

seaworthiness,  645. 

deviation,  548. 

legality  of  voyage,  549. 


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